Tuesday, October 27, 2009



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

- FX: 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 gains against all majors

- Main events today: GBP: CBI Realized Sales, USD:CB Consumer Confidence, CAD: BoC Gov Carney Speaks, USD earnings: Baidu (BIDU), Bayer (BAYRY.pk), BE Aerospace (BEAV), Boston Properties (BXP), BP plc (BP), Canon (CAJ), Celanese (CE), Daimler AG (DAI), Honda (HMC), Valero Energy (VLO), Wynn Resorts (WYNN)

- Big Theme: Risk Appetite Becomes Nausea? High risk asset prices relative to growth prospects, a series of US bank downgrades oversold USD, uncertainty ahead of US GDP Friday In addition to earnings, Friday's US Advanced GDP, next Friday's NFP are the big events, though US Treasury bond auctions could create volatility if demand isn't good. So far, it's been fine.


US: Stocks fell under the combined weight of doubts about their valuations, disappointing earnings announcements from big names like VZ and BP, legislative threats to end house purchases, uncertainty ahead of Friday's US GDP report. Without any countervailing reason to go long, traders started taking profits, which scared others into also taking profits, etc. S&P is now showing lower highs, lower lows.

Asia: Asian stocks retreated Tuesday, following losses on Wall Street amid rising concerns the markets have gotten ahead of economic realities.

Europe: FTSE 100 share index ended 1% lower on Monday, with mining and energy stocks suffering as the U.S. dollar rose and commodity prices fell, while a sharp decline in ING put pressure on financials.

ASIA UP N225I +0.77% HS +1.71 % SSEC +0.06% FTSTI +0.05% AORD +0.85 %

EUROPE DOWN FTSE -0.97% DAX -1.71% CAC -1.68 %

US- DOWN S&P -1.17% DJIA -1.05% NASDAQ -0.59%

THIS MORNING N225I -1.45% HS -1.46 % SSEC -2.08% FTSTI -0.57% AORD -1.16 %

FTSE +0.20% DAX +0.13% CAC +0.14%

COMMODITIES: Down Monday with stocks as risk appetite retreated and the dollar gained. See weekly analysis for more on all of these.

Oil: Crude oil plummeted -2.3% to settle at 78.68 Monday as strong rebound in USD in NY session reduced appeals of commodity investments. Correction in US stock market with particularly weak financial sector diminished investors' risk appetite as strength in financial market is crucial for economic growth in the US.

Gold: Comex gold plunged to as low as 1038.1 before recovering to 1042.8. The benchmark contract slid -1.3% Monday. Although global economic environment has improved, the yellow metal needs new catalyst to excel further, net speculation long positions remained close to all-time high level. Gold may need to correct further to around 1026 support level in the near term.

CURRENCIES: Bias to safety currencies with falling stocks

USD: . Heavy short positioning on the USD made traders hesitant to continue selling it, and more inclined to unwind existing USD shorts, in the face of falling stocks and risk appetite, which heighten the USD's safe-haven appeal. Most USD crosses lost ground against it.

EUR- In late New York trading, the euro traded 0.9 percent lower at $1.4863 , on track for its worst day since Aug. 7. The single euro zone currency earlier hit a 14-month high at $1.5064 on electronic trading platform EBS. USD is at 1 week high vs. EUR

JPY - Against the yen, the dollar rose 0.1 percent to 92.18 , near a high of 92.29 yen hit earlier on EBS, the highest for the pair in about a month. The yen rose against 14 of the 16 most-active currencies on speculation Japanese companies are bringing back earnings on overseas assets before the end of the month, and retreating risk assets which prompted demand for the safe-haven JPY.

GBP – Stabilizing after Friday's plunge, and was one of the very few currencies to gain against the USD yesterday. Per Goldman Sachs the GBP is the most undervalued since 1999 based on purchasing power parity theory. However, dovish comments from BoE officials, that the economy still needs help and that inflation is not a concern, are undermining a GBP rally.

AUD: Down 0.7% against the USD as it the AUD drops with stocks and other risk assets.

NZD: New Zealand’s dollar, known as the kiwi, fell to the lowest level in almost one week against the U.S. dollar after Prime Minister Key said the very high exchange rate is “helping offset any imported inflation concerns.”

CAD: (fx360.com)Continues to lose ground to the USD after more dovish comments from BoC head Carney, lower oil and stock prices. According to Carney, the Canadian Dollar is resulting in a “significant drag on growth” and will continue to keep prices depressed. Perhaps even more importantly, Carney said that the current level of the Canadian dollar more than fully offsets the favorable developments since July. As a result, the BoC will most likely keep interest rates unchanged throughout the first half of 2010.

CHF: Moving with risk appetite, bias up as risk assets pull in, though SNB intervention remains a threat

CONCLUSIONS: New Trading Ideas: If stocks steady or falling, then continue to watch for USD rallies against the EUR and commodity currencies, GBP/USD for more pullbacks on a sustained break below 1.6300, and crude oil has begun to pull back, no strong support level until about $74 (see daily chart below) , look to trade at either extreme long or short depending on stocks. NB If continued pullback in stocks, expect other risk assets and currencies to follow, with biggest move from the most oversold (USD) and overbought (crude, gold, commodity currencies, stocks, in that order). SEE FULL VERSION FOR DETAILS, LATEST CRUDE OIL CHART.

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 may be beginning pullback Always use sell stop orders.

Crude Oil

Made its first major move down Friday as it followed stocks lower, after it breached new annual highs around $82. Given the fast recent rise, no real price support before around the $74 level, though at $75.59 there is a convergence of a 38.2% Fibonacci retracement and a 1 standard deviation Bollinger Band. See chart.

Daily Chart Crude Oil Oct 27- No strong support until around $74, where we get a convergence of an established support/resistance price level, Bollinger Band, and 50% Fibonacci retracement. Until then, nothing but air. However, oil is likely to continue following stocks, so if stocks can hold steady, oil may well do likewise, though it does tend to be more volatile and exaggerate equity market moves, so oil could make some further declines on its own.

01 oct 21



India Begins Exit From Monetary Stimulus With Order to Buy Government Debt

•BP's Earnings Decline 34% on Lower Oil Prices Amid Weak Refining Margins

•Asian Stocks Fall on Commodity Price Decline, Hong Kong's Property Curbs

•Honda Triples Full-Year Profit Forecast on China, Japan Stimulus Measures

•Dollar Falls as China Output Report Sparks Demand for High-Yielding Assets


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Why Is the Market Going Up When Jobs Are Going Down?

Here's Why Asia Must Eventually Ditch the Dollar

Are Big Banks Better?

Sugar ETN Continues Its Wild Ride


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Earnings reports to give picture of job market- AP


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