Friday, September 4, 2009



- Stocks: Thursday Asia, Europe down, US up
- Most currencies, commodities in quiet tight ranges no clear bias to safety currencies [JPY,USD, CHF in order of safety appeal] vs. higher risk currencies [AUD,NZD, CAD, EUR, GBP in order of risk appetite appeal],
- Main events today: US & Canadian jobs data, US non farms payrolls the biggest SEE SPECIAL REPORT ON Also Canadian PMI



Stocks up on a late jump after they had spent most of the session in a rather narrow range that was largely underscored by thin trading. Though there were several trading catalysts to drive action this session, the overall mood among participants was subdued ahead of the August nonfarm jobs report.
Despite a nearly 5% spike by China's stock market that helped stir an initial positive bias ahead of the U.S. open, another dismal dose of jobless claims disrupted the strong tone.
Initial claims for the week ending Aug. 29 totaled 570,000, down just 4,000 from the previous week, but slightly more than the 564,000 that were expected. The week-over-week increase took the 4-week moving average up to 571,300, leaving economists with the impression that the weekly trend isn't headed lower any time soon. Key news of the day included:
Continuing claims jumped to 6.23 million from 6.14 million, suggesting that the labor market is still weak. Economists, on average, expected continuing claims to remain steady since many unemployed workers are losing their benefits.
Still, stocks were able to start the session in higher ground, but they quickly came under pressure ahead of the August ISM Services Index, which topped the consensus estimate of 48.0 by coming in at 48.4, a high for the year.
Shortly after the ISM's release the major indices dipped into the red, but managed to rebound after holding above the previous session's lows. Financials were a primary source of support as they led gains for the entire session -- financials finished 2.3% higher amid strong buying in diversified banks (+2.7%) and multiline insurers (+3.5%).
Retailers like Gap (GPS 21.18, +1.49), Limited (LTD 15.53, +0.81), and Target (TGT 47.07, +0.80) posted this morning negative same-store sales results for August. However, their results weren't as bad as feared, so investors responded by sending the group 2.0% higher.
Materials stocks (+1.6%) fared well as gold and silver extended their recent run amid technical buying and short covering. Gold prices made their way to fresh six month highs and just $0.50 short of the $1,000 per ounce mark before pulling back a bit. Still, gold prices settled at $997.70 per ounce, up nearly 2%. That comes on the back of a 2.3% breakout in the previous session. Silver fared even better. Contract prices for the precious metal registered fresh 52-week highs of $16.31 per ounce and held steady into the close. Silver finished at $16.29 per ounce, up 6%.
Friday's attention will be focused on the August nonfarm payrolls report, which is due ahead of tomorrow's opening bell, since many economists believe that it is a telling sign of the economy's health


Asia stocks down again Thursday in cautions trade ahead of US non farms payroll data. Friday- Asia stock markets were mixed towards the close, but fears that rising job losses in the U.S. could derail the economic recovery are keeping investors on edge.





Crude steady at $68, gold continues climb, breaches key $1000 resistance before settling around $990. May well stay near there until US non farms payrolls data comes out 8:30 EST.


Oil prices hovered near $68 a barrel Friday in Asia as investors looked to a U.S. unemployment report later in the day for signs of economic recovery. Crude has stayed aroung $68 for the past 3 days, reflecting trader caution ahead of US non farms payroll news.
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 shifts role as inflation hedge to safe haven on concerns of stock pullback. Over the past months, Gold has closely followed the direction of stocks, as improving growth prospects fed inflation fears. Over the past days, however, rising anxiety over stocks has created new demand for gold as a safe store of value in place of stocks and cash.

CURRENCIES (see below for more on trading the NFP data)

General: Little movement as traders await Friday’s US non-farm payroll report. There is strong chance for market moving news from this report, so it’s important to have a clear plan how to play it. On Thursday, no clear bias to risk currencies [AUD,NZD, CAD, EUR, GBP in order of risk appetite appeal], or safe havens [JPY,USD, CHF in order of safety appeal], as some risk pairs rise, others fall. Unclear how a surprise either way in non farm payrolls could affect the major pairs. A negative surprise could mean gains for the safety havens, yet good NFP data has been one on the only bits of good US economic news on which the USD rises based on US economic fundamentals.
USD – The U.S. dollar was modestly firmer in early Friday Asia on the yen and euro early Friday as investors squared positions ahead of the U.S. payrolls report later in the day. The dollar was idling at 92.70 yen restrained by offers between 92.80 and 93.05 after bouncing from a low of 91.92 on Thursday. NB: Any surprise in either direction in the non farms payroll might benefit the USD. If disappointing, that should spark fear, which has usually supported the safe-haven USD. However, the USD has also risen when the NFP news was good

EUR- The euro dropped against the USD, because after European Central Bank President Claude Trichet sounded less hawkish than some expected. The ECB held interest rates at a record low 1.0 percent and warned that now was not the time to withdraw state support as economies emerge slowly from recession. Retail sales in the Euro zone fell in July 0.2%, sending annualized growth down 1.8%. The weakness came from soft demand in the weaker parts of the EZ, and this lesser demand outweighed the better results in France and Germany.
JPY - The rally in U.S. equities helped to drive the dollar higher against the Japanese Yen. The newly elected party reaffirmed their support for a strong yen and their belief that the recent rise in the currency is a reflection of dollar weakness. The party officials also claimed that the BOJ should look for opportunities to exit from its policy of buying government and corporate bonds. The credit squeeze that remained prominent during the downturn moderated considerably, making the newly elected party question further expansion of the alternative strategies. However, the DPJ is opposed to intervention to devalue the yen in all but extreme casesThere were no meaningful economic data released from Japan last night. Capital spending for Q2 was -21.7%, better than the -22.9% expected and the
prior -25.3%.

GBP – The British pound gained strength against the U.S. dollar and euro following the better than expected manufacturing PMI report. This is actually a very positive report for the U.K. economy because it represents expansion but at the same time, it does not validate the Bank of England’s dovishness. The reading in August was the strongest since February 2008 and marked the fourth straight month of expansion. The employment component increased a few points which will be positive for the labor market while business expectations rose to the highest since August 2007. Over the past few months, the BoE has been pessimistic about the U.K. economy and therefore we continue to expect the pound to underperform its peers.
AUDThe Aussie jumped 0.6 percent on Thursday against the USD, aided by the bounce in stocks.

NZD – No real changes, likely to move with overall risk appetite today, dominated by US non farms payroll results

CAD USD/CAD is on a verge of a break-out after consolidating for the past month and a half. There is news Friday to spark a move. Employment data is due out for the release from both nations, starting with Canadian Employment at 11:00GMT or 7:00AM EST followed by the U.S. Non-Farm Payrolls report at 12:30GMT or 8:30AM EST and Canadian IVEY PMI at 14:00GMT or 10:00AM EST.
For the technical analysis fans, the pair is trading in the Buy Zone, which we establish between the 1 and 2 standard deviation Bollinger Bands. Currently the pair formed an ascending triangle which is generally a bullish signal that points to a breakout to the upside. Resistance hovers at the top of the formation at 1.1100 which also coincides with 50-day SMA and 2nd Standard Deviation.
The pair will negate the Buy Zone upon the breach of support which is structured at the base of the formation and the low of the day at 1.0965.


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? Here comes the likely answer. As stated repeatedly over the past week, Friday’s US non farms payrolls is the most likely factor to set the near term market direction, because it can provide strong evidence for or against the recovery, or simply confirm the current bottoming. 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.
Suggested Strategy for Trading the Non Farms Payroll report
There are two popular ways to trade non-farm payrolls.
· The first is to position before the release based upon your view of non-farm payrolls, and if right, be ready to exit on the first sign of reversal. If wrong, get out quickly using a tight sell stop and watch to get back in if the direction changes after the first hour or so.
· The second is to wait for the knee jerk reaction to settle and then get play the bounce that often occurs after the first hour. This move is often the larger of the two.
The key levels to watch for the non-farm payrolls report are around the -200k and -400k range. A drop near -200k or less, is likely to be very positive for risk appetite which means a strong rally in the dollar against the Yen but may mean weakness against higher yielding currencies such as the euro and Australian dollar. If the payrolls decline is around 400k or more, traders could expect a wave of risk aversion that could drive the dollar lower against the Japanese Yen but higher against the riskier currencies. Anything in between should elicit only a modest reaction in the direction of the surprise.
Note however, that the USD has a real chance of rising in either case. If news disappoints, it could rise in its usual role as a safe haven. When NFP has been good, however, the USD has ALSO gone up in one of the rare cases of its trading on US economic fundamentals.
Given the importance of this event, we’ve prepared a brief special report on how to play it: How to Trade the US Non Farms Payrolls Report. See it for full details on these strategies and what we suspect will happen.

No comments:

Post a Comment