Monday, November 2, 2009


Stocks: Friday: Asia up, Europe, US down Monday morning Asia down, Europe opened down, mixed on no-news reaction bounce

- 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 except for JPY, GBP, small reversal early Monday

- Main events today: GBP: Mfg PMI, USD: ISM Mfg PMI, Pending Home Sales, NZD: Labor Cost Index q/q

- Big Theme: Falling risk appetite indicating tired rally? In addition to earnings, Friday's retreat after Thursday's rally on US GDP data shows markets not convinced the GDP growth is sustainable but rather a product of temporary US Government stimulus, see Conclusions below for trading opportunities as many assets approach or breaching key levels.


US: The S&P 500 fell about 4% this week, a fairly representative figure for the major indexes. Thursday's better than expected US GDP brought a temporary knee jerk reaction bounce. However, the markets concluded that the GDP result was mostly from unsustainable government stimulus programs rather than genuine private sector growth. Friday's 2.8% drop wiped out that gain and then some, marking the steepest one-day selloff since July 2. It also meant that the index fell 2 per cent in October, marking the first monthly decline since the stock market began to rebound in early March. Personal spending, durable goods, and Chicago PMI employment component all disappointed last week. This week is packed w/ major news events that should set near term direction. See Full Version & Weekly 4 more

Asia: Asian stock markets fell Monday after grim news about American consumers sowed more doubts about the U.S. economic recovery and sent Wall Street tumbling last week.

Europe: European shares hit a four-week low on Monday, extending the previous session's sharp declines on fears that the stocks had rallied ahead of the recovery, with banks featuring among top losers. In early morning trade stocks are attempting to rally with many making small gains on no news, thus this feels more like a reaction bounce at the time of this writing.

ASIA- UP N225I +1.4% HS +2.29 % SSEC +1.20 FTSTI -0.10% AORD +1.57 %

EUROPE DOWN FTSE -1.81% DAX -3.09% CAC -2.86 %

US- DOWN S&P -2.81% DJIA --2.51% NASDAQ -2.50%

THIS MORNING N225I -2.31% HS +1.71 % SSEC -0.61 FTSTI -0.45% AORD -2.16 %

FTSE +0.16% DAX -0.41% CAC +0.24%

COMMODITIES: Down Friday with stocks as the dollar gained.

Oil: (AP) -3.61% Friday on the swing back to negative sentiment. Prices rose above $77 a barrel Monday in Asia, recovering some ground after a big fall, as investors eyed upcoming figures on the U.S. economy and a volatile dollar. The Labor Department's October employment report will likely be the most closely watched report, but data on manufacturing, services and home sales could also move markets. The Federal Reserve will also comment after a two-day meeting on interest rate policy.

Gold: Down 0.64% in Friday US trade

CURRENCIES: Bias to safety currencies with falling stocks. See Weekly Outlook Full Version for details on all for the coming week.

USD: Volatile Week Ahead: Rose last week against virtually all majors except the JPY,GBP. Losing ground in early Monday trade in a minor retracement. Its fate this week will depend on the packed calendar of potentially market moving events. The main ones are Monday's ISM manufacturing (expected to progress further into the 50+ expansionary levels), Wednesday's FOMC statement, ISM Non-Manufacturing index (its employment component is significant for Friday's reports), the ADP Non Farms Payrolls report, and Friday's climactic US Non Farms Labor and employment rate reports.

EUR: - RETAIL SALES AND UNEMPLOYMENT ADD TO EURO’S PLIGHT-The EUR/USD fell Friday, negating most of Thursday's gains. The world-wide stock market selloff, including the sharpest decline in European stocks in four months, has led to renewed interest in the safety of the dollar at the expense of the euro. Disappointing German retail sales for the second straight month and rising unemployment data, declining CPI and hints of ECB intervention this past week also weighed on the EUR. Holding just above strong support level of $4.4720 (50 day MA + 23.6% Fiboncci retracement from its June rally, also lower BB band around 1.4657)

JPY - USD/JPY: BOJ BEGINS GRADUAL PULLOUT FROM CREDIT MARKETS The Bank of Japan initiated a gradual retreat from unconventional measures, triggering a massive rally in the Yen against all other major counterparts. The central bank plans to let its temporary program to acquire corporate bonds and commercial paper to expire at the end of December as initially planned. The overnight interest rates remained intact at 10 basis points. Economic signs have started to point toward stabilization as the economy emerges from its deepest recession in more than half a century.

GBP – GBP/USD: GOOD DATA NO DEFENSE FOR POUND’S Like most other currencies, excluding the dollar and yen, the pound dropped with risk appetite. The notion that economic growth has been overstated in recent months has sent Britain’s stock markets spiraling, facing their worst week in six months. Friday's set of economic releases pointed toward a slightly more optimistic outlook for the troubled economy, but these were overwhelmed by negative market sentiment, a common phenomenon.

AUD: Lost ground against the safe haven currencies last week like all the commodity and high yielding risk currencies. Attempting to come back as it rises off of 0.9000 support Sunday and early Monday.

NZD: Lost ground against the safe haven currencies last week like all the commodity and high yielding risk currencies. Attempting to come back as it rises off of $0.7170 support Sunday and early Monday.

CAD: Lost ground against the safe haven currencies last week like all the commodity and high yielding risk currencies. Attempting to regain some lost ground but struggling against falling oil prices, which are the primary CAD price driver.

CHF: Lost ground against the USD last week, attempting a minor rebound early Monday, gained against EUR despite SNB intervention, which may not help if risk aversion over the past week develops into a full blown multi-week pullback.

CONCLUSIONS: Seeking risk aversion plays. JPY and USD vs riskier currencies when these breach resistance or support., short oil gold when breach support. See below for specific opportunities with the EURUSD, CRUDE SEE DAILY, WEEKLY FOR MORE.Trading Opportunities: Near term favors SAFE HAVEN currencies, shorting risk assets.. 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.

Crude Oil: Broke support at the first Fibonacci retracement level at $77.83 last week, holding on near its 20 day MA. When/if risk appetite returns, next resistance is at last week's high and round price level of $80/bbl. If risk assets like stocks continue to drop, next support level is at the significant 38.2%/61.8% Fibonacci retracement level at $75.51, which is near the multi-month price support of around $74/bbl.

WTI Crude Oil Daily Chart

03 Nov 02

EURUSD: Holding just above strong support level of $4.4720 (50 day MA + 23.6% Fiboncci retracement from its June rally, also lower BB band around 1.4657). Look to play a break above this if there is bullish news to at least 1.4845, the high of the past few days, or if more bad news or drops in global equities, a break below to at least the lower Bollinger Band at around 1.4653, next support at around 1.4600, a convergence of past price support AND just above the 38.2% Fibonacci retracement from the June rally at 1.4565 .


01 Nov 02


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•Asian Stocks Fall on Declines in Commodity Prices, U.S. Consumer Spending

•Aussie Dollar Channeling Yuan Shows Increased Trading in China Asset Proxy

•CapitaMalls, Longfor to Test Demand for Asian Property With Initial Offers

•Pandit's `Near Death' Cash Hoard Signals Lower Profits Ahead at U.S. Banks

•U.K. Bonus Rules Come Into Effect, Mean Less Cash, More Shares for Bankers

•Manufacturing in U.S. Probably Grew by Most Since 2006, Driving Expansion

Chinese Manufacturing Expands at Fastest Pace in 18 Months, Surveys Show

•Australia Says Economy to Grow Faster Than Expected, Keeps Deficit Outlook


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