Friday, October 23, 2009

GLOBAL OUTLOOK Cheat Sheet 10/23: Stocks Up Despite Valuations, Crude in New Range?


- Stocks: Thursday: Asia, Europe, down, US up, Friday morning Asia up, Europe futures point higher

- FX: Higher 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 drops along with stocks against most fx on data, BoE remarks

- Main events today: EUR: German Ifo Business Climate, GBP: Prelim GDP q/q, USD Fed Chairman Bernanke speaks, Existing Home Sales, Earnings: EXC (utilities), HON (tech), IR (industrial), WHR (consumer durables)

- Big Theme: Rising risk appetite despite P/E's highest since 1999 prices? So far, buying on dips overcomes "sell on news. Is Oil in New Range, which in turn pushes EUR/USD higher?


US: ( Stocks stumbled in the early going, but strength among blue chips and financials helped the broader market to fight its way back to log an impressive gain for the session.

Asia: Asian stock markets rose Friday, spurred by another batch of optimistic quarterly reports from major companies in the U.S. and Asia even as worries remained that this year's rally has overshot reality.

Europe: LONDON, Oct 23 (Reuters) - Stock index futures pointed to sharp gains for European shares in early trade on Friday, after a rise in financial stocks helped the Dow close back above 10,000.

ASIA- DOWN N225I -0.64% HS -0.48% SSEC -0.62 FTSTI -0.39% AORD -0.57 %

EUROPE DOWN FTSE -0.96% DAX -1.21% CAC -1.35 %

US- UP S&P +1.06% DJIA +1.33% NASDAQ +0.68%

THIS MORNING N225I +0.15% HS +1.27 % SSEC +1.74 FTSTI +1.03% AORD +0.85 %

FTSE +1.20% DAX +1.17% CAC +1.04%

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.

Oil: SINGAPORE (AP) -- Oil prices rose to near $82 a barrel Friday in Asia, just below a one-year high, as signs the global economic recovery is gathering pace fueled investor optimism. "We think the market is transitioning to a higher range But we don't think an explosive move will be sustained," Barclays Capital analyst Yingxi Yu said. "We have broken the $65-$75 range seen in most of the third quarter and we now see prices consolidating." Oil's Break Over $75 – Another Nail in the USD's Coffin? (see ) for full details. *

Gold: TOKYO, Oct 22 (Reuters) - Spot gold was steady near $1,060 an ounce on Thursday as it continued to draw investors seeking a hedge to a weak dollar and to inflation concerns stemming from a rally in oil prices.

CURRENCIES: Bias to risk currencies with rising stocks, but USD falling on BoE minutes which restate the obvious that GBP rates will rise at some pt – no deadline, of course. Pure short seller reaction, unlikely to sustain – suggests go short GBPUSD for short term traders. Nb move appears to be happening as we speak

USD: The AUD, NZD, and CAD vs. USD finished a bit weaker than their previous day's closes against the USD, EUR gaining.

EUR- EURUSD finished Thursday up at 1.5036, many traders believe there is strong support around $1.50

JPY - The yen weakening for the 4th day in a row in Friday morning GMT trade. The yen could come under a bit of pressure on expectations Japanese investors will step up overseas bond purchases. Traders are eyeing support at 91.75 and then at around 92.30 per dollar.

GBP – dropping against USD Friday. Weak data overnight and an unexpected dovish shift by MPC member Paul Tucker. Having previously voted against an expansion in QE, Tucker said overnight that it would be possible to increase quantitative easing if necessary. In addition to Governing King, David Miles and Adam Posen who have either voted for or are in favour of a QE extension, a fourth vote would mean Governor King, who remains intrinsically bearish on the UK economy, would need one final vote to secure a GBP25bn expansion.

AUD: The Australian dollar inched up to $0.9284, recovering from lows after stock markets bounced <.SPX> on strong U.S. corporate results, with the undertone bullish on expectations of steep Australian rate rises in coming months.

NZD: Continuing to rise against the USD to around 0.7560

CAD: The U.S. dollar held on to gains at C$1.0467 . It had risen to C$1.0545 on Thursday but eased back after the Bank of Canada's quarterly monetary policy report suggested officials think the economy can cope with a stronger currency.

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

CONCLUSIONS: New Trading Ideas: Watch USD/CAD, GBP/USD for pullbacks from recent news driven moves, crude oil still in strong rising channel on daily charts, look to trade at either extreme long or short depending on stocks. EURUSD but on dips to 1.500

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.

Crude Oil

Breaches new highs at $82, 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).



•China's Economy Expands 8.9%, Increasing Pressure for an End to Stimulus

•Credit Suisse Posts Third Straight Quarterly Profit on Gains From Trading

•Stocks Decline Around World on China's Growth, Ericsson as Dollar Rallies


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