Wednesday, June 24, 2009

WorldMarketsGuideDiary: Fear Eases, Stocks Stabilize, Commodities, Currencies Rebound Against USD


(as of approximately 12:00 GMT, 8:00am EST Wednesday)


Despite the lack of any really positive news to balance the World Bank's negative announcement about the world's economic prospects, on Tuesday traders appeared to calm down.

1. International stock markets stabilized with bargain hunting buyers balancing the sellers, and Asian markets opened Wednesday with respectable moves up.

2. Forex traders favored higher yielding, riskier currencies at the expense of the safer USD and JPY, showing a return of risk appetite

3. Commodities rose back to recent support levels, apparently due to a combination of a weakening dollar and less fear.

Given the continuing lack of news that suggests employment, earnings, GDP, or any other significant economic measure is likely to improve within the coming year as much as stock prices have already have increased, it remains to be seen world markets can continue to stabilize and improve.

The USD and JPY were generally down against the other majors, and the commodity-driven CAD and AUD benefited from both the USD drop and rise in commodities.

World Stock Indexes

American and European markets held steady Tuesday, slightly up, down, or, like the S&P, unchanged. Thus the S&P daily candlestick chart flashed another Doji Star (cross shaped candlestick) that indicates indecision as prices move around and end unchanged. Dojis near the top or bottom of a trend often suggest a coming change in direction, which is worrisome given world stocks' advance since March in the absence of supporting fundamental data.
Indeed, since the start of June, each doji on the S&P daily candlestick chart has been followed by a decline within 2 trading days.

Looming Bank Q2 Results
As we've been noting repeatedly, with plenty of potentially bad news coming about the health of the financial sector, including second quarter earnings reports within a month (and rumors sooner still) traders and investors need to be on guard. News from the financial sector sparked both the current multi-year economic crisis and the current multi-month rally. It matters. A lot. Already the blogosphere is full of speculation and articles like:

Three TARP Banks Already Classified as Deadbeats? Uh-Oh
Big Banks in Trouble: Huge Mortgage Write-Downs Inevitable

Declines in both pessimism and the USD helped Crude and Gold get back over recent support levels of around $68 and $923 respectively. Further short term moves will depend on news

Breaking News to Know

The OECD Raises Economic Outlook, Contradicting the World Bank: The Organization for Economic Cooperation and Development raised its forecast for the economy of its 30 member nations for the first time in two years as the U.S. slump shows signs of easing.

The improved outlook conflicts with that of the World Bank, which this week said the global recession will be deeper than it predicted three months ago, and may have been a primary reason for Monday's sell-off in stocks, commodities, and commodity based currencies worldwide. Could this announcement be the needed news to support for a further bounce up?

In anticipating a weak recovery staggered across different economies, the OECD signaled that the Federal Reserve and Bank of Japan should not raise interest rates before 2011 and recommended the European Central Bank cut its benchmark further.

The U.S. economy was largely responsible for the OECD’s prediction that the global recession will reach its bottom in the second half of this year. It believed that the U.S. economy will shrink 2.8 percent this year, and then grow 0.9 percent next year. The organization had previously forecast that U.S. growth would decline 4 percent in 2009 and see zero growth in 2010.

The OECD also raised its forecasted growth for China to 7.7% from the 6.3% predicted in March. (Bloomberg)

Coming News

The U.S. Federal Reserve began a two-day meeting on Tuesday at which it is expected to dampen expectations for interest rate hikes this year, while holding steady on its plans for asset purchases.


the author may have positions in the above instruments

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