SUMMARY
- Stocks: Thursday Asia and US up, Europe down as Western markets continue to focus on positive, Friday Asia midday mixed
- FX: Generally following stocks. Safety currencies [JPY, USD, CHF in order of safety appeal] generally lower vs. risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk appetite appeal], USD hitting or approaching annual lows as stocks, commodities rise
- Main events today: JPY: Core Machinery orders, AUD: Employment Change, Unemployment Rate, EUR: French Industrial Production, GBP: Halifax HPI, Asset Purchase Facility, MPC Rate St., Official Bank Rate, CAD: Trade Bal., BoC Rate St., Overnight Rate, USD: Trade Bal, Unemployment Claims, Crude Inventories
- The Big Theme: Short Term Continue short USD, long commodities, risk currencies, and related stocks as long as S&P holds steady-when S&P starts downtrend, do the opposite.
STOCKS
US
Continued interest among buyers helped stocks overcome a sluggish start, but it took results from the latest Treasury auction and comments from Treasury Secretary Geithner to lift stocks to fresh highs for 2009. The bullish bias remained intact into the close and helped stocks settle at session highs.--
News that the latest batch of initial jobless claims and continuing claims fell more than expected to 550,000 and 6.09 million, respectively, and that the trade deficit deepened more than expected to $32.0 billion in July was followed by a slight improvement in the mood of participants
Gains in the broader market were relatively limited until the results from a $12 billion auction of 30-year Treasuries showed a high yield of 4.24% and an above average bid-to-cover ratio of 2.54. The results showed that investors remain interested in the government's long-term debt and helped drive the 30-year Bond up more than two points and the benchmark 10-year Note up roughly one point.
Stocks were also helped along by Treasury Secretary Geithner's indication in his testimony before Congress that policymakers are in a position to evolve their strategy with the goal of repairing and rebuilding the economy's foundation for future growth. Geithner also said that it is unlikely more bank bailout money will be needed, so its contingency provision can be removed from the budget.
Energy stocks made some of the best gains this session. They settled with a 1.5% gain as natural gas prices and crude oil prices advanced. Even though natural gas saw a smaller-than-expected draw in inventories, the commodity rallied to close pit trade with a 15% gain at $3.25 per contract. Oil prices oscillated despite a larger-than-expected inventory draw, but still finished 0.8% higher at $71.91 per barrel. Oil prices received help from news that OPEC left its production targets unchanged, as expected, and the IEA expects global demand to strengthen.
Asia
Strong yen worry caps gains, but sentiment still strong. China data shows Aug output and investment accelerated
Europe
Britain's top share index drifted lower on Thursday, weighed down by energy and bank stocks, consolidating below the psychologically important 5,000 level.
THURS. GLOBAL
MARKETS RESULTS
ASIA- UP NIKKEI +1.95% HS +1.05% SSEC -0.73% FTSTI +1.19% AORD +1.02%
EUROPE - DOWN FTSE -0.33% DAX +0.37% CAC -0.05%
US- UP DJIA +0.84% S&P +1.04% NASDAQ +1.15
ASIA FRI MID DAY
NIKKEI -0.74 % HS +0.80 % SSEC +2.29 % FTSTI -0.03 % AORD +0.69 %
EUROPE FRIDAY
FTSE % DAX % CAC %
COMMODITIES
The 19-commodity Reuters-Jefferies CRB index <.CRB>, a barometer of the commodity sector for economists, rose 0.8 percent on Thursday, as continued weakness in the dollar aided many commodities.
Oil
U.S. crude futures hovered just below $72 a barrel on Friday, taking a breather after rising the previous four days, with prices getting a boost on Thursday after a government report showed a large drop in U.S. crude stocks.
Gold
Gold hovered below $1,000 in Friday Asian trade after ending slightly down the previous session but off its lows as strong oil prices gave the precious metal a lift as a potential inflation hedge. See our special report: Why Gold's Sudden Move?" at: http://worldmarketsguide.blogspot.com . See also the Other Headlines section for articles blaming Barrick for Gold’s recent move.
CURRENCIES
General: Bias to risk currencies against safer ones, continuing into Thursday Asian and early European FX trade. Exceptions exist: EURCHF down/flat, USDCAD flat (bad CAD building permits news), EURAUD rising (negative AUD news Wed, Thurs)
USD – The dollar traded near a nine-month low against the euro in Tokyo trade at $1.4613 as reports showed China’s factory output and new lending gained last month by more than economists estimated, reducing demand for the U.S. currency as a refuge, as investors continue to favor other riskier and growth-linked currencies like the AUD, NZD, and CAD, as well as the anti-dollar EUR. As noted yesterday:
Like the overall FX market, the USD is taking direction from equities, and thus could see further near term downside. Equities may well continue higher because:
--the flow of macro data doesn't seem likely to worsen soon
--markets remain firmly focused on the positive news even when there is plenty of negative to balance it
--policy stimulus remains in place
--production should continue to recover from last year's depressed levels
--final demand in the global economy may start to rise again
In addition, many experts are expecting certain central banks like Australia and Norway to raise interest rates this year. The combination of risk seeking US investors diversifying their portfolios and equities rallying further may well keep the USD weak near term. As a result we lower our one and three month foreign exchange forecasts for the greenback and expect the EUR to trade in a higher 1.40-1.50 range for now, before a broader correction in risk assets later this year causes the EUR to fall back into a lower 1.30-1.40 range again. The latter would provide better levels for longer term USD bears looking to sell the greenback
EUR- Despite cautious ECB commentary, the euro will likely remain supported against the USD, JPY, and CHF until risk assets lose momentum. Bias to further upside against USD
JPY - The yen strengthened for a second day against the euro on speculation Japanese exporters are repatriating earnings toward the end of the third quarter-- The yen advanced against all 16 major counterparts amid speculation Japanese companies are bringing back money earned abroad to take advantage of a tax break that went into effect this fiscal year.
“Japan’s exporters are bringing home their earnings, a typical move in September toward the end of the third quarter,” said Takashi Kudo, director of foreign-exchange sales at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “As a result, the yen is rising across the board.”
The Japanese government announced earlier this year that it would waive taxes on repatriated profits from April 1 to help support the economy. Under previous laws, companies had to pay a combined 40 percent tax on overseas earnings.
GBP – The pound rose to a one-month high against the dollar, and gained against 14 of its 16 counterparts, after the Bank of England yesterday kept its bond-buying program unchanged, a sign policy makers gauge the economy is recovering.
AUD –Firm near 1 year highs against the USD. The Australian dollar slightly lagged other higher-yielding currencies to rise after weaker-than-expected data on employment and retail sales this week cooled expectations for an interest rate hike as early as next month.
NZD – Firm near 1 year highs against the USD. Improving economic data and company earnings added to growing investor confidence and kept the New Zealand dollar near its highest since late August last year
CAD – Like the 2 other central banks with monetary policy announcements over the last 24 hours, the Bank of Canada left interest rates unchanged at 0.25%, and said that rates should remain unchanged until Q2 of 2010 as long as inflation doesn’t threaten
CHF – Up vs. the USD, EUR, unemployment beat expectations, continues to be range bound against most majors, especially the EUR, but has gained against the USD this week
Conclusions
The theme Thursday was continued USD weakness, commodity and equity strength on positive news from China and US, UK, and Canadian central banks, with currencies generally following equities in expected fashion, with exceptions. Even popular financial TV noting big action is not in stocks but currencies and commodities.
Trading Opportunities: 1. Be prepared to play a pullback in risk assets and get ready to sell 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, though gold and crude may be approaching new breakouts. Always use sell stop orders.
Near term favors higher yielding and commodity currencies, but that could change fast if equities pull back.
OTHER HEADLINES
(BLOOMBERG)
China's Recovery Strengthens as Industrial Production, New Lending Advance
Japan's Economy Grew 2.3% Last Quarter, Less Than Initially Estimated 3.7%
(SEEKINGALPHA.COM)
Is Barrick Responsible for $1,000 Gold?
Barrick Gold: Elimination of Fixed Price Hedges Worth the Risk
Barrick’s Secondary Offering to Buy Them Out of Bad Hedging
Did Barrick Just Jinx Gold Again?
What's Powering the Asian Hedge Fund Roller Coaster?
Riding the Fed's Trading Train
Five Questions About Government's Role in the Mortgage Business
Market Believes in Economic Positives, We Remain Skeptical
DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS POSITIONS IN ABOVE INSTRUMENTS.
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