Global Market Outlook Cheat Sheet 10/15: Markets Up, USD Down

GLOBAL OUTLOOK OCT 15: Good US Earnings News Lifts Global Markets


SUMMARY

- Stocks: Wednesday: Asia, Europe, US up, Thursday morning Asia, Europe up on Good Earnings news fr. JPM, INTL

- FX: Higher equities, bias against safety currencies [JPY, USD, CHF in order of safety appeal] in favor of risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk appetite appeal], USD down against all

- Main events today: Thursday: AUD: RBA Gov. Speaks, USD: Core CPI m/m, Unemployment Claims, Earnings: C,GS, IBM, GOOG AMD, HOG, MERCK.BO, NOK. Positive news should lift risk assets, hurt the USD.

- Big Theme: Rising risk appetite, USD weakening w/ no reason to stop except for extreme oversold position. Bank Call Options Suggest Optimism on Bank Earnings, but GS downgrade could be significant if it again foretells bank earnings results

STOCKS

US: Strong earnings from a couple of industry bellwethers (JPM, INTL, CSX,ABT), upside surprise from retail sales data, the DJIA hitting 10K, upbeat FOMC comments and a weaker U.S. dollar brought about a concerted buying effort that sent all three major indices to new 2009 highs. Stocks lost a bit of their upward momentum as they headed into the close, but the Dow was still able to settle above 10,000 for the first time in one year.

Asia: Up on positive stock news from the US and Europe Wednesday

Europe: European shares extended gains on Thursday to hit a one-year high for a second straight session, with impressive earnings results from companies such as JPMorgan and a surge in U.S. stocks boosting market sentiment.


YESTERDAY
ASIA- UP N225I -0.16 HS +1.95 % SSEC +1.17% FTSTI -0.45% AORD +0.93 %

EUROPE - UP FTSE +1.98 % DAX +2.45% CAC +2.14 %

US- UP S&P +1.75% DJIA +1.47% NASDAQ +1.51%

THIS MORNING
ASIA
N225I +2.11% HS +1.04 % SSEC +0.31 FTSTI +0.39% AORD +0.59%

EUROPE
FTSE +0.11% DAX +1.86 CAC +1.76%

Oil: Oil prices reached a fresh one-year high near $76 a barrel Thursday in Asia on a weaker U.S. dollar and growing investor optimism about an economic recovery. While weakness in USD was certainly a major driving force, better-than-expected inventory report from the industry-sponsored API further boosted speculations on improvement in energy demand.

Gold: Down slightly Wednesday as it consolidated. Steady at around $1060/ ounce early Thursday Price expected to be steady or higher until stock pullback as sheer momentum, inflation fears, dollar weakness and overall risk appetite feed the up trend.

CURRENCIES: Rising stocks, risk appetite keeps bias strongly to risk currencies, USD, GBP weakness persists.



USD: The U.S. dollar struck a 14-month low against the euro on Thursday, and fell against all others as well, as after

strong stock news and dovish FOMC minutes boosted investor appetite for riskier assets and foretell continued USD pressure.



EUR- EURUSD rose Tuesday despite disappointing ZEW sentiment data, as the USD weakened against most currencies. The pair is likely to stay driven by investor risk appetite globally, and any perceived shifts in the relative timing of policy tightening between the ECB and the Fed. We continue to expect that both central banks will be among the last to begin the process of policy rate normalization.



JPY - No changes indicated from yesterday's BoJ statement. MoF Fujii blames JPY strength on USD weakness, says current rise in yen doesn't warrant intervention, but did not say what level would provoke intervention. Overall a yen bullish statement. We continue to forecast USDJPY at 85 in 1m.



GBP – The UK unemployment rate was steady at 7.9% (cons. 8.0%). The UK's claimant count rate was steady at 5.0%, better than expectations of a jump to 5.1%. The claimant count increased by 20.8k, much better than 24.5k expected and also a drop from last month. We continue to see a ?25bln expansion in the asset purchase program. While this may pressure sterling, we would avoid chasing EURGBP aggressively at current levels due to excessive valuations.



AUD: The dollar fell to a 14-month low against the Australian dollar on Thursday as comments from the head of the Reserve Bank of Australia encouraged investors to buy the higher-yielding currency, which helped other growth-linked currencies gain. Australia's central bank chief said local interest rates would need to move towards a more normal setting as economic recovery took hold, reinforcing the view that the country is heading for a second straight rate hike in November.



NZD: The New Zealand dollar jumped to a 15-month high versus the U.S. dollar after stronger-than-expected inflation numbers raised

expectations of a near-term interest rate hike. Moving with risk appetite, which will move with stock market reaction to big name announcements starting today with JPM. REINZ house prices for September will be released. Our economists expect the RBNZ to drop its easing bias at its Oct 28 monetary policy meeting.



CAD: Like all commodity currencies, rising with stocks, also aided by recent great jobs data.



With USD/CAD trading below the 1.05 level, there is no major support until parity. Looking ahead, the most important economic releases from the commodity currencies next week include retail sales and consumer prices from New Zealand and consumer prices from Canada.



CHF: Following risk sentiment.

CONCLUSION: Bias to risk assets as long as stocks don't pull back. Crude oil at new high to play bounce or move up.