Thursday, September 3, 2009



- Stocks: Asia, Europe and US down on concerns that stocks are overbought, US financial sector health following AIG's downgrade, and China credit tightening. Thursday morning Asia down, Europe expected to open down, stay down/flat

- Most risk markets diverge from stocks: oil also flat Wed, up Thurs, but gold up, safety currencies [JPY,USD, CHF in order of safety appeal] generally down against higher risk currencies [AUD,NZD, CAD, EUR, GBP in order of risk appetite appeal], slight reaction bounce Wednesday morning, which is continuing Thursday

- S&P breaks below important 1000 level & up trend line, so does crude oil. Other risk assets near to doing the same

- Main events today:, AUD trade balance, GBP services PMI, EUR retail sales m/m, ECB int. rates and press conference USD Leading indicators f/ non-farms payroll: unemployment claims, ISM Non-mfg PMI (especially the jobs part of this)



Drop on low volume, consolidation session: Despite plenty of trading catalysts, mostly negative, participants kept stocks confined to a relatively narrow trading range as they allowed the previous session's sell-off to consolidate in low-volume trade. Main news: ADP non farms payroll change shows 298K jobs lost vs. 250K expected (bad sign for Friday NFP). FOMC minutes also voice jobs worries. US factory orders up 1.3% vs. 2.2% expected. Low volume tight range trading in stocks is common in the days before the NFP data on Friday.
No major company announcements in the US Wednesday, so economic data dominated headlines. The ADP Employment Change Report for August topped the calendar, but its suggestion that 298,000 private jobs were lost last month proved disappointing since economists were expecting 250,000 job losses. Given the magnitude of the miss, many are wondering whether the current consensus forecast for 225,000 job losses in the government's official nonfarm payrolls report is too conservative. The official jobs report for August will be released Friday.
Concerns about job losses and the weakness of labor markets were expressed in the minutes from the FOMC's latest meeting, which concluded on Aug. 15.
The FOMC minutes also indicated that some of the committee members disagreed about whether slack in the economy will keep inflation low. At least for now, though, inflationary pressures remain in check. That was made evident by news that unit labor costs for the second quarter were down a sharp 5.9%, which was slightly steeper than what had been expected, while second quarter productivity spiked 6.6% in its sharpest percentage increase since 2003. The increase in productivity was slightly better than the 6.4% increase that was widely expected.

Factory orders made for July made their sharpest increase since June 2008 by climbing 1.3%, but that was still short of the 2.2% increase that had been generally expected. Despite the less-than-stellar batch of economic data, stocks spent nearly the entire session trading just a few points to either side of the neutral line before sliding a bit into the close.
Aside a rather weak close, the overall temperament of participants contrasted that of the previous session, when stocks were sent sharply lower following a bevy of generally upbeat reports. Trading volume wasn't what it was in the previous session, either. Some 1.6 billion shares traded hands in the NYSE on Wednesday, but 1.3 billion shares were exchanged this time around.
Action was largely listless this session, though materials stocks managed to sport solid gains for most of the session. Aside from a 0.2% advance by the consumer staples sector, materials stocks made up the only major sector in the S&P 500 to log a gain. They advanced 0.6% as metals and mining stocks followed a surge in gold prices.


Asia stocks down again Wednesday following Wall Street, concerns about US banks after AIG downgrade, China credit tightening. Shanghai up after better than expected Chinese lending data, though many see continued weakness near term. Thursday- Asia stock markets were mostly higher Thursday but fears that rising job losses in the U.S. could derail the economic recovery kept investors on edge.



Weakness among stocks again pressured commodities


Follows stocks, essentially flat despite negative inventory news that showed a smaller-than-expected draw of 372K barrels essentially flat in NYC near $68. Weaker USD also supports oil prices Traders were also eyeing news that big oil producers are increasing output.

Russian oil output hit a record high in August, nearing 10 million barrels per day as the country launched a new giant field. OPEC is likely to keep output targets steady when it meets Sept. 9, a Kuwaiti OPEC delegate said. As noted in past days, a number of OPEC members have been producing above their quotas, further undermining crude prices.


Gold surprises, moves sharply higher despite lower stocks, disappointing jobs news. Easily the biggest surprise of the trading day, gold did NOT follow stocks down, instead it shot up 2.3% higher at $978.50 per ounce, near its best level since June, when the disappointing ADP unemployment data came out. Very odd, since gold, like other risk assets, typically moves down on negative economic news because gold is bought mostly as an inflation hedge, or on other fears of currencies losing purchasing power, which is a fear when prospects for growth decline.

No fundamental explanation found, or any explanation for its rise coming with the ADP jobs data. Plausible technical explanation [ ]


General: Little movement, not surprising as traders await Friday non-farm payroll change.

USD – investors cut dollar holdings after a worse-than-expected U.S. private-sector jobs report renewed concerns that the recovery in the world's largest economy will be gradual at best.

EUR- Steady against the USD and JPY

JPY - as the #1 safe haven appeal currency, The yen was holding firm against other major currencies in thin trade as investors refrained from building large positions ahead of U.S. non-farm payrolls figures on Friday. Is at 7 week high against the USD

GBP – Besides overall risk sentiment, major influence Thursday likely to be UK services PMI

AUD – The Aussie jumped nearly 1 percent on Wednesday after robust second-quarter gross domestic product numbers boosted expectations for a near-term rate hike. Thursday, it was little changed at $0.8338 after news that Australia's trade deficit for July widened to a seasonally adjusted A$1.556 billion compared with a Reuters' poll forecast of an A$850 million deficit.

NZD – Down Wednesday with other risk assets, no clear direction Thursday despite a sharp jump in dairy product ( NZs main export)prices

CAD – no news Thursday, will likely move with overall risk sentiment and US unemployment claims and non-manufacturing PMI.


With Tuesday's big move down, Wednesday's flat trading on Wednesday was not surprising, because stocks often take a rest after a big move. Was Tuesday's drop a one day move or are stocks and other risk assets finally starting the pullback anticipated by so many analysts for so long? Evidence has long suggested the March rally was overdone, but that hasn't stopped the triumph of optimism. Given that September has usually produced losing months for stocks, especially when August was good, we believe the odds are still to the downside, though multi-month support levels may well hold.

Trading Opportunities: 1. Be prepared to play a pullback in risk assets by selling stock indexes, commodities, and risk currencies, buying USD, JPY. 2. Trade the near term horizontal trading ranges that should hold until major news causes a change in risk appetite. 3. Those continuing to take long positions in risk assets should consider tight sell stops. Always use sell stop orders.

Today’s Major Calendar Events (GMT) * = Main Event


Asian Mining Stocks Advance on Gold, Alcoa Forecast; Honda Declines on Yen

Fed Tries to Prepare Investors for End to Purchases of Mortgage Securities

Trichet May Keep Rates at Record Low to Nurture Return to Growth in Europe

Fed Weighed Extending End-Date for Mortgage-Bond Purchases at Last Meeting

Geithner Says Too Early to Start Withdrawing Economic Stimulus Measures


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