Monday, October 19, 2009

GLOBAL OUTLOOK 10/19 CHEAT SHEET: Risk Appetite Becoming Indigestion?


- Stocks: Friday: Asia, Europe, US down, Monday morning Asia down, Europe opening higher

- FX: Friday lower equities, bias to 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 makes some gains

- Main events today: USD: Bernanke speaks, major earnings Monday: Monday: AAPL (tech), HAS (toys), TXN (tech)

- Big Theme: Rising risk appetite becoming indigestion? Will depend on how mkt responds to earnings & if leaders can show increasing revenues and upbeat Q4 guidance. Quiet news day means big earnings announcements the likely drivers if surprising.


US: Earnings, commodities, and the USD, in that order, drove global equities this week, as economic data took its usual backseat role when major earnings announcements begin, and could have only minor impact on markets for the next week or so until the overall theme of US earnings clarifies, barring any major surprises.

Friday’s sharp decline across the spectrum of risk correlated assets on the back of disappointing earnings from Bank of America (BofA) and lower than expected revenues from General Electric (GE) could prove to be a significant turning point. SEE FULL DAILY ANALYSIS FOR MORE

Asia: Chinese markets up on hopes for US earnings, China data, rest of Asia mostly down on profit taking following US drop Friday

Europe: Opening higher on follow through from US gains

ASIA- DOWN N225I +0.19% HS -0.31% SSEC -0.11 FTSTI -0.30% AORD -0.41 %

EUROPE - DOWN FTSE -0.63 % DAX -1.50% CAC -1.45 %

US- DOWN S&P -0.81% DJIA -0.67% NASDAQ -0.76%

TUESDAY MORNING N225I -0.21% HS +0.39 % SSEC +1.83 FTSTI -0.25% AORD -0.84 %

FTSE +0.93 % DAX +0.84% CAC +0.80%

COMMODITIES: The dollar tumbled in Friday US trade to a fresh 52-week low at 75.21, giving a lift to commodities (+5.2%), lifting oil and gold. Both crude and gold steady/flat in Monday morning trade.

Oil: In Friday US trade, oil surged to the highest levels in 2009 at $78.75 per barrel. Crude prices also benefited by a smaller-than-expected increase in inventory levels. Oil prices jumped above $79 a barrel to a 2009 high Monday in Asia as investors looked to the corporate earnings of big U.S. retailers this week for signs the consumer may be regaining confidence. Up nearly 10% on the week due to an upward revision in demand by OPEC & larger than expected inventory drawdowns in the US, though inventories remain high.

Gold: As a result, gold hit an all-time nominal high of $1070.20 per ounce. Gold was little changed around $1,050 per ounce on Monday, pressured by a firmer dollar, as the precious metal took a breather and consolidated gains from last week's fast paced climb to historic levels. Rising crude oil prices are causing a rotation of speculative funds into crude. Consolidating around $1052 in Monday morning trade.

CURRENCIES: Stocks ended lower Friday on disappointing results from Bank of America and bellweather GE. Because currencies have been tracking risk appetite, risk currencies predictably retreated while the USD and other safe haven currencies regained some of the past week’s losses. SEE WEEKLY ANALYSIS, FULL LENGTH VERSION FOR MORE DETAILS ON EACH PAIR

USD: Up on Stock Pullback: After hitting fresh lows Friday, rallied dramatically as stocks pulled back, ending Friday higher against nearly all major currencies including the EUR and AUD. Given the extended nature of the risk asset rally, many wonder if we have the beginning of a major reversal in risk appetite from unwinding USD shorts

EUR- Recovery Pace Slowing? Ended lower against the USD as stocks retreated on disappointing earnings Friday, particularly from bellweather GE’s lower revenues. The EUR has risen against the USD more as a result of rising risk appetite more than of its own fundamentals. China's gradual but steady diversification away from the USD via decreased US T bond purchases in favor of other currencies like the EUR is also giving support to the currency. Likely to continue to follow stocks, move opposite the USD.

JPY - Last week. a rally in USD/JPY. The pair has been tracking U.S. bond yields for the past year and the recent uptick in 10 year bond yields coincided perfectly with the breakout in USD/JPY. JPY problems include: uncertainty from conflicting policy statements, rising risk appetite, growing interest rate differences with other currencies, other Asian exporter currencies Watch BoJ st. for policy hints

GBP – After Thursday’s impressive short-squeeze rally, a busy week that includes the BoE’s Minutes for Wednesday, Retail Sales for Thursday, and GDP for Friday. The key in the minutes is any hints that the BoE will continue to ease, which would pressure the GBP.

AUD: While in solid uptrend until stocks drop, retreated against the USD as stocks and risk appetite in the US pulled back. Fundamentals are perhaps the best in the developed world, rate increases expected, but considered very overbought and vulnerable to pullback.

NZD: Like the AUD, considered very overbought and vulnerable to pullback, despite positive news & likelihood of rate increases sooner.

CAD:. If the BoC rate st. Tuesday emphasizes the damaging impact of their currency over the improvements in economy, we could see a near term peak in the Canadian dollar. Alternatively, if they downplay problems from a strong currency, the CAD could reach USD parity.

CHF: Despite poor fundamentals [continuing deflation, rising unemployment, stagnant exports, constant SNB intervention threats, the CHF has gained on the USD on sheer USD weakness from risk appetite and poor US employment figures which make US interest rate rises less likely.

CONCLUSIONS: Friday’s pullback on disappointing earnings and especially GE’s soft revenues highlight the popular concern that stocks and other risk assets may be overpriced relative to growth prospects, even if these are improving. SEE FULL VERSION OF DAILY AND WEEKLY ANALYSES FOR FULL DETAILS ON ABOVE INSTRUMENTS.

Trading Opportunities: Near term favors higher yielding and commodity currencies, but that could change fast if equities pull back, no trend continues forever. Thus: 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. Crude oil breaches key $74 resistance, implying more upside unless stocks pull back on earnings disappointments. Always use sell stop orders.

for Wednesday.

USD/JPY: Currency in Play for Next 24 Hours

USD/JPY will be the currency pair in play for Monday. In Japan, we will see the release of the BoJ’s Meeting Minutes and the Tertiary Industry Index at 7:50 pm ET or 23:50 GMT on Sunday. We will also have Nationwide and Tokyo Department Store Sales on Monday at 1:30 am ET or 5:30 GMT. Momentum in USD/JPY appears to be waning but the currency pair is still hovering near the Buy Zone, which we determine using Bollinger Bands. If the rally should find new legs, resistance stands at 91.73 which was the low from July 13th. On the way down, support should stand at 90.00, which is not only a psychological level but also corresponds with the 20-day simple moving average. If optimism is confirmed through the BoJ minutes or a further slide in equities, we could see USD/JPY approach the critical 90.00 level.

Crude Oil

Breaches new highs at $78, up from $74 at the start of the week. OPEC officials have said before they are comfortable with up to $80/barrel, suggesting that playing the pullback is the higher probability play ONCE IT BEGINS (NOT BEFORE).



Housing, Leading Index Probably Gained in Signs U.S. Expansion Has Begun

Japan Tertiary Industry Index Rose 0.3% in August, Third Monthly Advance


Jim Rogers on the Next 10 Years

The Greatest Depression Is Coming

How to Play the Next Great Bull - Matt McCall

Readers Pick the Top 20 5-Year Horizon Stocks

Is Crude Oil Breaking Out?


No comments:

Post a Comment