Monday, October 26, 2009



- Stocks: Friday: Asia up, Europe, US down Monday morning Asia up, Europe futures pointing 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: AUD:PPI m/m, EUR: Gfk Consumer Climate, USD earnings: Monday 10/26: Corning (GLW), Electrolux AB (ELUXY.PK), Lorillard (LO), Plum Creek Timber (PCL), RIOCAN REIT, (SOHU), Sunoco Logistics Partners LP (SXL), Verizon (VZ), Winn-Dixie Stores (WINN)

- Big Theme: Falling risk appetite indicate tired rally? In addition to earnings, Friday's US Advanced GDP, next Friday's NFP are the next big events, though US Treasury bond auctions could create volatility if demand isn't good. So far, it's been fine. See weekly


US: Following a volatile week of trade, U.S. equity markets closed with modest declines. It appears as if we're seeing a tired market. That was never more evident than on Wednesday afternoon when the market plunged in the final 45 minutes of trade, with the move attributed to a late-session downgrade of Wells Fargo (WFC). The ease with which the market broke, however, suggested to us that investors knew they was operating on borrowed time, trying to climb a wall of worry while staring at $81 a barrel oil, digesting word of government mandated pay cuts for select companies receiving bailout funds and realizing that the 1,100 mark for the S&P 500 proved to be another tough nut to crack earlier that day. The S&P 500 lost a more modest 0.7%.

Asia: Asian markets mostly rose Monday, shrugging off a fall on Wall Street as South Korea's fastest growth in seven years underscored the region's strengthening economic recovery

Europe:  Higher opening following Asia

ASIA- UP N225I +0.15% HS +1.71 % SSEC +1.85% FTSTI +1.24% AORD +0.85 %

EUROPE – DOWN FTSE +0.68% DAX -0.39% CAC -0.33 %

US- DOWN S&P -1.22% DJIA -1.08% NASDAQ -0.50%

THIS MORNING N225I +0.77% HS +1.71 % SSEC +1.85 FTSTI +0.04% AORD -0.56 %

 FTSE +0.29%  DAX+0.73 %   CAC 0.40% %

COMMODITIES: Down Friday with stocks as the dollar gained. See weekly analysis for more on all of these.

Oil: Down 1.91% in Friday US trade, but up on the week. Oil fell for the third day, to below $80 a barrel on Monday, extending the previous session's decline, as investors took profit amid renewed concerns about the strength of the global economic recovery, weak US stocks, rising jobless claims, comments from OPEC that it might raise production

Gold: Down 0.38% in Friday US trade, Gold inched up towards $1,060 on Monday as the dollar fell to a 14-month low against the euro, but weak physical demand capped the upside for bullion. NB: Nuriel Roubini was quoted this weekend that he believes gold prices are at "bubble levels" since it is only in demand when markets collapse or there is extreme inflation.

CURRENCIES: Bias to safety currencies given falling stocks, oil. See Full Version of Daily, Weekly analysis for more.

USD: Risk aversion, coupled with speculation that U.S. interest rates could be headed higher sooner than expected, saw the U.S. dollar stretch some of its modest gains made late last week.That view got a boost from a Financial Times article highlighting discomfort among some Fed officials with language that U.S. interest rates would remain low for an extended period.

EUR- Edging lower in Monday morning trade, after recovering Friday's small pullback after a Chinese report saying China should raise holdings of EUR and JPY in its foreign currency reserves prompted dollar selling, currently hovering around $1.5030. The report noted, however, that the USD should remain the principal currency in Chinas fx reserves.

JPY - The U.S. dollar rose to 92.14 yen from 92.08 yen late on Friday in New York, with traders expecting the Japanese currency to stay on the defensive as U.S. Treasuries yields rose.

GBP – The pound extended losses on Monday after data showed the UK economy was still struggling, disappointing investors who had been paring short positions betting for an early return to growth. Traders say investors are set to aggressively sell the pound on expectations that a sluggish road to recovery would prompt the Bank of England to keep rates near zero for a long period of time.

The pound broke past support at $1.6300 to fall to $1.6272 from $1.6313 late on Friday when it lost nearly 1.9 percent.

AUD: The Australian dollar edged lower to $0.9211 amid growing speculation on whether rates will move up by 25 or 50 basis points next month. Third-quarter producer price index (PPI) numbers were lower than expected, reducing the threat of inflation and pressure to raise rates. These figures come ahead of consumer price numbers on Wednesday.

NZD: Continuing to pull back against the USD in early Monday GMT trade, bank holiday leaves NZD to move with broad market sentiment. Given the very light news day, US earnings are likely to provide the main events to move markets Monday

CAD: Continues to lose ground to the USD after dovish BoC comments, lower oil and stock prices.

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. As of early Monday GMT the CHF is recovering most of its losses against the USD from Friday.

CONCLUSIONS: New Trading Ideas: If stocks steady or falling, then continue to watch USD/CAD for more rally, GBP/USD for more pullbacks HAS BROKEN $1.6300 SUPPORT, crude oil has begun to pull back, no strong support level until about $74, 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 DAILY FOR MORE ON CRUDE, CHART, HEADLINES

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

01 oct 26



Geithner Making Bills-to-Bonds Yield Gap Unprecedented by Increasing Sales


Carlos Valdecantos We're Living Through the Best of Times

John Mauldin Too Big to Fail: Now It Gets Interesting

Nouriel Roubini, One on One: More Doom and Gloom


Barrage of earnings, economic data to drive market- AP

Beating the Street is an easy feat for companies- AP

Earnings reports to give picture of job market- AP


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