Friday, September 25, 2009

GLOBAL OUTLOOK FRIDAY SEPT 25: Weak Home Sales, Rising Dollar Spurs Global Market Pullback

GLOBAL OUTLOOK FRIDAY SEPT 25: Weak Home Sales, Rising Dollar Spurs Global Market Pullback

NB: When analysis is missing here find it at


- Stocks: Thursday: Asia, Europe, US down, Friday morning Asia, Europe futures point to lower opening

- FX: Falling equities, safety currencies [JPY, USD, CHF in order of safety appeal] generally Up Wednesday and Thursday morning vs. risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk appetite appeal], with exceptions, RISING USD HITS STOCKS?

- Main events today: USD: Core Durable Goods orders, New Home Sales, ALL: G20 Meeting

- Big Theme: Most markets drop for reasons cited below, at lower end of still tight, flat trading range, but volatile Crude Oil breaking below 2 month support. Long term USD weakness remains, but so does very overbought stock market that could pullback anytime and, given extreme level of USD shorts, cause a wild USD bounce.



Down on: disappointing existing home sales, only mild employment improvement, G20 regulation concerns, Chinese & US central banker comments about need to end stimulus, raise rates.

A better-than-expected batch of jobless claims data positioned stocks for a rebound from the previous session's late sell-off, but a disappointing existing home sales report and a sharp rebound in the dollar combined to renew selling pressure and hand stocks their second straight loss.

Stocks dropped 1% in the previous session, but managed to open with a modest gain amid news that the latest initial jobless claims tally fell to its lowest level in two months by totaling 530,000 in the week ending Sept. 19. Economists, on average, had expected initial claims to total 550,000. Continuing claims were also below expectations. They were predicted to total 6.18 million, but came in at 6.14 million, instead.

Though initial claims and continuing claims remain at uncomfortable levels, their direction encouraged market participants. That is, until the midmorning release of August existing home sales data, which showed that home sales pulled back to an annualized clip of 5.1 million units. The unexpected 2.7% decline marked the first retreat since March.

The disappointing home sales data encouraged sellers to step back into the fold. Weakness among stocks was magnified as the U.S. dollar staged a strong advance, which helped the Dollar Index achieve a gain of little more than 1%. The greenback remains near 2009 lows, but renewed strength cuts into the profits of multinationals that bring their earnings back home.

Overall weakness among commodities and stiff selling in the broader equity market weighed heavily on materials stocks. The sector dropped 2.0%, more than any other major sector.

Financials also fared poorly. They dropped 1.8%, as a group. REITs reversed a recent hot streak as investors took profits following a couple of poor IPO turnouts.

Despite this session's broad-based selling effort, blue chips were able to contain losses. That helped the Dow hold up better than the other headline indices.

Defensive-oriented stocks also held up relatively well. As such, utilities and telecom finished just 0.1% lower. Health care fell 0.3%.

Treasuries had a strong showing. The benchmark 10-year Note closed roughly 12 ticks higher, which lowered its yield to 3.37%. Treasuries were supported by weakness among stocks and solid results from 7-year Treasury Note auction, which produced a bid-to-cover ratio of 2.8 and a high yield of 3.05%.


Down on concerns about G20 financial regulation, Nomura $5.6 bln share offering, concerns over Chinese and US central bank comments on need to reduce stimulus, move to exit strategies. All combine to encourage profit taking


Opening down following Asia as traders take profits ahead of G20, Chinese and US central bank comments on need to reduce stimulus and move to exit strategies



ASIA- DOWN NIKKEI +1.67% HS -2.52% SSEC+0.38 % FTSTI -0.69% AORD -0.70%

EUROPE - DOWN FTSE -1.17 % DAX -1.70% CAC-1.66 %

US- DOWN S&P -0.95 DOW -0.42% NASDAQ -1.12%




NIKKEI -2.89 HS -1.24 % SSEC -1.29% FTSTI -0.55% AORD -0.42 %



FTSE -0.82 % DAX -1.24% CAC-1.04 %


In NYC, the dollar's gain this session also weighed heavily on commodities, which left the CRB Commodity Index down just over 2% this session and down more than 3% week-to-date. Natural Gas continued higher after inventory levels met expectations.


In NYC trade oil was a primary drag on the CRB as crude contracts closed with prices down 4.4% at $65.93 per barrel, well below multi month $68 support levels

Near Term Prospects for Oil: All agree prices will move—but which way?

Oil Going Down

Oil Options Hit Highs as Verleger Predicts 44% Plunge: If ever there was going to be a retreat below $60 a barrel, it is now,” Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania, said in a telephone interview. “It was a very weak summer. We came out with more gasoline than we started.”

Right to Sell

Options granting the right to sell, or put, oil in December below current prices have a so-called implied volatility of 54.3 percent, compared with 43.3 percent for the equivalent options to buy, or call, data from the New York Mercantile Exchange show.

The premium for December and other put options shows “the market is worried,” said Harry Tchilinguirian, a senior oil analyst at BNP Paribas SA in London. “If puts are pricing higher than calls, we are looking at a situation where the market is more averse to the downside and is looking for more compensation” for the option, he said.

Demand for puts may be caused by speculators betting on lower prices or by producers hedging against a decline in the value of their oil, Tchilinguirian said. “There’s all this heating oil with no place to go,” Philip Verleger, a professor at the University of Calgary and head of consultant PKVerleger LLC, said in a phone interview. “I’m fairly certain we’ll see prices in the $30s this year.”

Oil Going Up

Al-Naimi’s View

Saudi Arabia’s oil minister said stockpiles have become irrelevant to crude prices because of the rebound, and said demand for crude was rising.

“Economic growth is the name of the game,” Ali al-Naimi told reporters in Vienna on Sept. 9 before a meeting of the Organization of Petroleum Exporting Countries. “Oil today is a commodity. As long as economic growth is there, the price is going to go up.”

Traders are betting with al-Naimi. Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures 38 percent in the week ended Sept. 15 to 45,557 contracts, according to U.S. Commodity Futures Trading Commission data.

OPEC, whose members supply about a 40 percent of the world’s oil, agreed at the meeting in Vienna to maintain current production quotas and eliminate surplus production.


Gold prices weighed heavily on the CRB; in NYC they closed 1.6% lower at $998.30 per ounce after closing above $1000 in each of the previous six sessions


General: Following falling stocks. Strong bias to safety currencies Thursday, thus the safest, JPY, up against USD, the second safest, USD, up against the third safest CHF and also the EUR, AUD, CAD, and NZD. GBP down hard on BoE comments.

USD : Rallying against everything except the JPY Thursday and Friday morning. NB: AS NOTED THURSDAY, SHORT USD POSITIONS AT RECORD 12 MO HIGH>>USD OVERSOLD DUE F/ BOUNCE IN THE SHORT TERM. The G20 meeting could provide the catalyst with its move to regulate capital markets which could well hurt risk appetite and boost the USD.

EUR- Down against safe-havens, including the USD, up against commodity and higher yielding fx, also up against GBP.

EUR and the G20: Euro-zone policy makers are expected to be at the forefront of the fight for significant financial regulation at this week’s G-20 meeting. The region has already drawn up plans for the EU as a whole, which includes some rather substantial shifts in regulatory practices. According to these plans, a total of three regulatory divisions will be established with broad based powers over financial institutions. Among the new delegated power includes the ability to reverse national regulatory decisions, perform widespread investigations along with the ability to perform stress tests if needed. Their plan is a small peek into the agenda that will be discussed later this week which is why many expect the meeting to result in some of the broadest initiatives since the Great Depression.

Nevertheless, there is still the question of whether international policy makers will be able to coordinate their approaches. Along the same lines, the OECD announced a push for more European banking stress tests. According to the organization, the tests that were performed originally were not transparent enough and should be repeated. On a good note, Germany’s Bundesbank issued a statement that concludes that German businesses stand to benefit from rising exports. The bank claims that this should offset the now disbanded cash for clunkers program and reflects their lack of concern about the recent strength of the euro. The Eurozone Economic calendar will be light until Wednesday’s PMI reports.

JPY - Sept. 24 – Following stocks inversely as usual - up against all major fx in flight to safety as stocks, commodities drop on profit taking ahead of G20 and bad US housing data.

GBP – Sterling continued to be an open target after Bank of England's Mervyn King said on Thursday that a weak currency was helping the domestic economy. After dropping 1.8 percent on Thursday, the pound fell a further 0.8 percent to $1.5943.

AUD – Following stocks down as usual against most majors along with other commodity and high yield currencies as traders take profits on concerns of G20 financial market regulation, weak US economic news, US and Chinese central banker comments on reducing stimulus, raising interest rates.

NZD – Following stocks down [see comments on AUD, same applies here]

CAD – Tracking oil first, stocks and risk appetite second. Following oil, stocks down [see comments on AUD, same applies here]

CHF – Following stocks inversely as usual - up against all major fx except JPY and USD in flight to safety as stocks, commodities drop on profit taking ahead of G20 and bad US housing data.


Virtually all markets still in tight horizontal trading ranges reflecting the light news week and lack of direction. More of the same expected unless some major surprise from the Fed (none so far) or G20 (none expected). Late week profit taking in stocks & commodities for reasons cited above bringing markets to lower end of multi-month trading ranges (volatile crude already breaking below it

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.



Age of Austerity Awaits G-20 as $9 Trillion Debt Haunts Rogoff, Greenspan

•European Stocks, U.S. Futures Drop; BHP Billiton, Hennes & Mauritz Decline

•King Says Two British Banks Got Within Hours of Collapse on Oct. 6, 2008

•Fed Signals Return of U.S. Growth Insufficient to Withdraw Record Stimulus

( Just one but really worth the read:


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