Weaker than epxected consumer confidence on Tuesday helped trigger an intial sell off in the Dow to the 10200 region. However, Bernankes statement of keeping rates low "for an extended period" combined with outperformance of US GDP at 5.9% (vs forecast 5.7%), and the general market dynamic, helped the market bounce back.
Quotes (End of week)
Dow 10338
FTSE 5372
EUR/USD 13633
GBP/USD 15238
USD Index 80.36
Crude 7963
Gold 1118
I still feel the underlying conditions are weak. The catalyst for intiating a broader sell off will be a growth in the prevalence of news relating to Government debt issues. The plans surrounding the Greece issue, and also further bearish news relating to Dubai, and other countries in the P.I.G.'s nations are liekly to grab more attention as we pull away from the close of earnings season.
Coming Week:
Major news events in the coming week are Eurozone unemployment rate, CAD GDP, CAD rates decision, CHF GDP, GBP rates decision as well as the all important Non Farm Pay Rolls on Friday.
I think it is likely that Eurozone figures will be as expected or worse, CAD GDP likely to outperform at 4.2% (vs forecast 4%), and rates likely to remain unchanged across the board.
UK GDP calculated up at 0.3% (vs 0.1%), and although this is good news, its weak compared to other G7 nations, and I think its likely that BOE will not close out the possibility of further QE.
Non farm payrolls forecast at 9.7% and -40K losses, I think is likely to be as expected or worse, given that I cannot see any reason for there to be an increase in hiring.
The US dollar index having fallen back to 80.36, and Bernanke maintaing his position of keeping rates low "for an extended period", which I think is likely to be longer than current market forecast of June. However I am still bullish on the dollar (as stimulus induced news such as GDP continues to outperform, and with continuing risk aversion), and would be looking to add to my position on any sell off (in particular on Friday with Non Farms).
I think the DOW has a positive bias dynamic at the moment, and with some strong support at the 10,000 level I would be looking for it to remain within its range of 10400-10200(due to an absence of any major news releases to be on hte upside in my opinion),prior to Thursdays initial jobless claims.
Stratgies:
1)Buy USD Index at 8036, Target 8100, Stop 7990 (prior to Non Farm Payrolls)
However as a LONG Term strategy I would be looking to buy now at 80.36, and adding to my position if possible, in the 79 and 78 region.
2)Sell GBP/USD at 15350/15400
I think the possibility of further QE is likely, and with no real intermediate support for GBPUSD til the 1.38 region I would be looking to sell. However given the dynamic of the market I think a Monday bounce back to the 1.53/1.54 zone is possible, and would be looking to sell the rallies.
3) EUR/USD wait for unemployment rate on Monday
If EUROZONE unemployment rate is significantly worse than expected I would be looking to sell, targeting the 1.34 region. However, what would be the easier play in my opinion, would be if surprsingly it outperformed, and we could see a big shoot up to 1.37/1.38 followed by a quick sell off.
However what would be a more interesting trade would be utilising the correlation of EUR/USD with Oil, and Gold, and given that I think some of the UK miners, particularly Xstrata are due for a bounce on Monday open, I would be looking to go for a combined strategy. However will have to wait for the dynamic of the market on Monday open.
Sunday, 28 February 2010
Monday, 22 February 2010
P.I.G.S. fly away Bulls come out- Buy Dollar
With the Dow currently trading at 10430, and crude back at $80 the market has pushed forward the past week with the recovery in corporate earnings overcoming fears of sovereign debt defaults. Friday was a mixed day with options expiry causing unexpected market movements, defying usual correlations, and news of Bernanke raising the Fed discount rate for Banks, saw the market sell off and quickly recover (over the prospect that the move indicates a belief in the recovering economy).
Quotes:
FTSE 5378
Dow 10423
Crude 8025
EUR/USD 13681
GBP/USD 15570
Gold 1121
USD Index 8029
Weaker than expected news, with the UK failing to post a trade surplus for January, and continuing fears over the fiscal situation leading to weakness in the Pound.
Bearing this in mind. I think the underlying conditions are still weak in the global economy, however particularly in the US, with previously mentioned aspects such as availability of credit, consumer lending, and unemployment levels. Stocks can continue to rise as companies are able to produce better than forecast earnings, however how long can this continue? How will, what now seems to be, a closer exit strategy by the Fed, and higher interest rates affect small businesses?
Meredith Whitney stated earlier this week that she estimates bank earnings to be 30% below forecast, with higher capital requirements, and regulatory form, likely to reduce profit margins. The problem for banks is that loan default rates are still likely to be high, from "bad borrowers", and "good borrowers" aren't borrowing.
In the absence of new news relating to Government Defaults, with problems in Dubai, Greece, Italy, Portugal, and Spain, the market is likely to continue towards 10700, aiming to take out previous resistance.
However, given the number of bearish news event possibilities, I continue to be sceptical over the rally.
Gold has remained above its breakout wedge, and with 84% positive correlation to the S&P over a 1month time frame, I would be looking to go long gold at some stage, having opened up Sunday night at 1127.
However, I just don't feel like buying, right now.
Strategy:
Buy USD Index 8029, Stop 7968 Target 8130
The Dollar Index currently at 8029 is also good value in my opinion, with support at 7968 and near term resistance/target of 8139.
Quotes:
FTSE 5378
Dow 10423
Crude 8025
EUR/USD 13681
GBP/USD 15570
Gold 1121
USD Index 8029
Weaker than expected news, with the UK failing to post a trade surplus for January, and continuing fears over the fiscal situation leading to weakness in the Pound.
Bearing this in mind. I think the underlying conditions are still weak in the global economy, however particularly in the US, with previously mentioned aspects such as availability of credit, consumer lending, and unemployment levels. Stocks can continue to rise as companies are able to produce better than forecast earnings, however how long can this continue? How will, what now seems to be, a closer exit strategy by the Fed, and higher interest rates affect small businesses?
Meredith Whitney stated earlier this week that she estimates bank earnings to be 30% below forecast, with higher capital requirements, and regulatory form, likely to reduce profit margins. The problem for banks is that loan default rates are still likely to be high, from "bad borrowers", and "good borrowers" aren't borrowing.
In the absence of new news relating to Government Defaults, with problems in Dubai, Greece, Italy, Portugal, and Spain, the market is likely to continue towards 10700, aiming to take out previous resistance.
However, given the number of bearish news event possibilities, I continue to be sceptical over the rally.
Gold has remained above its breakout wedge, and with 84% positive correlation to the S&P over a 1month time frame, I would be looking to go long gold at some stage, having opened up Sunday night at 1127.
However, I just don't feel like buying, right now.
Strategy:
Buy USD Index 8029, Stop 7968 Target 8130
The Dollar Index currently at 8029 is also good value in my opinion, with support at 7968 and near term resistance/target of 8139.
Sunday, 14 February 2010
Dow 10700?-When P.I.G.S. start flying-Buy GBPUSD, long FTSE with short Dow
Another mediocre week in the market, with the dow ranging between 9800-10100. The market bounced on Tuesday with news that Germany would step in to "bail out" Greece, however the plans lacked detail and were quickly withdrawn, with Germany's economy having performed unexpectedly poorly in the final quarter (flat GDP results).
Quotes (end of week)
FTSE 5172
Dow 10145
US Index 8050
EUR/USD 13634
Gold 1093.7
GBP/USD 15700
China raising reserve requirements by 0.5 bps also flattened out the Tuesday rebound in commodities, with most mining stocks ending the week pretty much flat.
Week ahead:
Significant releases to come from the UK, with CPI (-0.6% foreceast), UK unemployment (7.8% forecast, -10K job losses), and the Bank of England Minutes. I think UK unemployment is likely to have bottomed,and CPI to continue its inflationary trend from last month. I think GBPUSD could target the 1.6 region.
With fears over Greece likely to continue unless a clear plan of action is issued, relating to the IMF or some other bail out plan, there is likely to be only a short term, bounce in the Euro, and Dow.
I think the possiblity of further negative news relating to Italy, Spain, Portugal as well as Dubai (for which clear plans have not been revealed) the market is likely to remain ranged at best, but with all these uncertainties, I must remain bearish.
Greece and the property market:
I have been thinking whether, ironically, the situation with Greece and a resumption in risk aversion could be benefical to the American economy. With continuing fears we have seen yields on treasuries fall, this month, the 30YR has gone from 4.71 to 4.65%. With the possibility further risk aversion, I am interested in the possibility of a lower yield 30 YR treasuries being helpful in stimulating more buyer demand in the American property market, in the below sort of chain:
Eurozone problems=>Lower Yields on 30Yr=>Greater affordability of mortgages=>Increased demand in property market=>reduced foreclosures =>reduced "toxicity" of the MBS=>Greater excess reserves in banks=>Banks lend more freely=>Increased demand in property, hiring and so on..
However, that is more just a peculiarity I wanted to mention.
Week ahead my strategy would be to go long GBPUSD, and slightly short Eurusd (to beta hedge)
And long FTSE, slightly less short Dow (as a beta hedge).
Quotes (end of week)
FTSE 5172
Dow 10145
US Index 8050
EUR/USD 13634
Gold 1093.7
GBP/USD 15700
China raising reserve requirements by 0.5 bps also flattened out the Tuesday rebound in commodities, with most mining stocks ending the week pretty much flat.
Week ahead:
Significant releases to come from the UK, with CPI (-0.6% foreceast), UK unemployment (7.8% forecast, -10K job losses), and the Bank of England Minutes. I think UK unemployment is likely to have bottomed,and CPI to continue its inflationary trend from last month. I think GBPUSD could target the 1.6 region.
With fears over Greece likely to continue unless a clear plan of action is issued, relating to the IMF or some other bail out plan, there is likely to be only a short term, bounce in the Euro, and Dow.
I think the possiblity of further negative news relating to Italy, Spain, Portugal as well as Dubai (for which clear plans have not been revealed) the market is likely to remain ranged at best, but with all these uncertainties, I must remain bearish.
Greece and the property market:
I have been thinking whether, ironically, the situation with Greece and a resumption in risk aversion could be benefical to the American economy. With continuing fears we have seen yields on treasuries fall, this month, the 30YR has gone from 4.71 to 4.65%. With the possibility further risk aversion, I am interested in the possibility of a lower yield 30 YR treasuries being helpful in stimulating more buyer demand in the American property market, in the below sort of chain:
Eurozone problems=>Lower Yields on 30Yr=>Greater affordability of mortgages=>Increased demand in property market=>reduced foreclosures =>reduced "toxicity" of the MBS=>Greater excess reserves in banks=>Banks lend more freely=>Increased demand in property, hiring and so on..
However, that is more just a peculiarity I wanted to mention.
Week ahead my strategy would be to go long GBPUSD, and slightly short Eurusd (to beta hedge)
And long FTSE, slightly less short Dow (as a beta hedge).
Thursday, 4 February 2010
Trading Strategies for Non Farm Pay Rolls tomorrow: (Sell Dow, Sell miners?)
Non farm pay rolls strategies ( market expectation is for 10K jobs to be added):
The NFP release tomorrow is also potentially very beairsh for the Dow, and the market in general as we are due the release of the anuual "revision". Which could cut up to 842K jobs from the 04/2008-03/2009 payrolls!! Which would imply that the job market was worse than previously realised, at that time. I think the sheer surprise factor of seeing a big number like that could prove extremely bearish.
I expect the Dow to break 10,000 if the payrolls are flat or negative, and perhaps to break the 10,000 level in the Asian markets overnight, or early in the European morning session.
A) Non Farm Payrolls better than expected 15k-50k (I expect the dow to be around 9950, 10050 going into the results):
1)Buy the Dow, aiming for around the 10190. However I expect the dow to sell off quickly after that, as the market awakens to the continuing obstacles to the global recovery.
2) Buy Crude. Currently at around $73. To target $75.90, and may be give some back, and close around $74.70.
3)Buy mining stocks
4)Buy Large Banks
B) Non Farm Pay rolls worse than expected. -25K to -55K
1)Sell the Dow. Which should be at around 9980-10030 going into the result. I would look for an initial target for around 9930/9950. And then a further break below to the 9800 region, perhaps stabilising at 9820. With the possiblity of a further break below, after the european close, if the figure is closer to the -55k end.
2)Sell crude. Currently at $73 to targetthe $72 region intially, and then possibly break towards $70.90.
3) Sell mining stocks
4)Sell large Banks
C) Non Farm pay rolls -57K-100K
1)Same strategy as B, except I am looking for the Dollar to actually strengthen off "bad economic news" as a flight to safety and for the price of the 2Yr to go up (in contrast to the consensus view for this news result).
Any sell off in the dollar tomorrow should be looked at as a buying opportunity in my opinion. With US dollar index currently at 8022, aiming for 81-82 in the coming weeks.
The NFP release tomorrow is also potentially very beairsh for the Dow, and the market in general as we are due the release of the anuual "revision". Which could cut up to 842K jobs from the 04/2008-03/2009 payrolls!! Which would imply that the job market was worse than previously realised, at that time. I think the sheer surprise factor of seeing a big number like that could prove extremely bearish.
I expect the Dow to break 10,000 if the payrolls are flat or negative, and perhaps to break the 10,000 level in the Asian markets overnight, or early in the European morning session.
A) Non Farm Payrolls better than expected 15k-50k (I expect the dow to be around 9950, 10050 going into the results):
1)Buy the Dow, aiming for around the 10190. However I expect the dow to sell off quickly after that, as the market awakens to the continuing obstacles to the global recovery.
2) Buy Crude. Currently at around $73. To target $75.90, and may be give some back, and close around $74.70.
3)Buy mining stocks
4)Buy Large Banks
B) Non Farm Pay rolls worse than expected. -25K to -55K
1)Sell the Dow. Which should be at around 9980-10030 going into the result. I would look for an initial target for around 9930/9950. And then a further break below to the 9800 region, perhaps stabilising at 9820. With the possiblity of a further break below, after the european close, if the figure is closer to the -55k end.
2)Sell crude. Currently at $73 to targetthe $72 region intially, and then possibly break towards $70.90.
3) Sell mining stocks
4)Sell large Banks
C) Non Farm pay rolls -57K-100K
1)Same strategy as B, except I am looking for the Dollar to actually strengthen off "bad economic news" as a flight to safety and for the price of the 2Yr to go up (in contrast to the consensus view for this news result).
Any sell off in the dollar tomorrow should be looked at as a buying opportunity in my opinion. With US dollar index currently at 8022, aiming for 81-82 in the coming weeks.
Non Farm Pay Rolls tomorrow (and revisions)-Dow to break the 10,000 barrier?
The Dow fell sharply today from the 10200 region down to a low of 10001 as worse than expected intial jobless claims were released (480K vs 460K).
The Dow had done well at the start of the week due to some better than expected news from ISM figures, and good earnings results in technology among others, and we saw commodites and mining stocks stage a 5-10% recovery from last weeks sell off.
There are fears mounting over the "contagion" aspect of government debt problems in Greece, and how much it could spread. The market is concerned that, as people underestimated the subprime debt issue as being "contained", and not big enough to cause any serious problem, the risks of interconnectedness within the institutions bearing these risks, and how they could impact lending to the wider public and therefore the eocnomy in general were overlooked.
This brings us to an important question. Can the stock market, which is a reflection of the potential future earnings of a company do well, if the companies earnings are doing well presently, despite high levels of unemployment?
Has sustainable top line growth returned? I'm not convinced. Has sustainable growth resumed, vis a vis GDP figures? I'm not convinced (inventory build ups?).
If the companies continue to produce good earnings, and people keep buying the stocks on that, then surely the market must continue to rally despite the unemployment situation? I'm not convinced. Here's why.
Essentially, where before it was the toxic balance sheets of the banks, due to all the mortgage backed securities they owned, and fears of counterparty risk among banks and not knowing who's going to be able to repay you, that drove up overnight lending rates (accelerated by Lehman's bankruptcy), and brang forward the credit crunch as such.
Essentially now what we have are Governments with bad balance sheets, and as we see yields on Greece, and Portugal continuing to rise. How will this impact yields on Gilts,Treasuries, JBG's? The triple A ratings of the United States has been questioned by the S&P ratings agency recently, stating that if there is not a convincable fiscal debt reduction strategy they may lose their rating. What will the impact of this be for the united states, the proverbial last to default?
What will the impact of US ratings cuts be on their ability to finance the interest on the debts they already owe. With mounting unemployment certainly tax revenues are down. What will the impact of US sical problems be on the markets perception of China. The worlds largest owner of American Debt?
With no evidence that unemployment has stabilised, or that there is any near term infrastructure for hiring (except for the numerous random projects the American Government is trying to create to employ people, such as building new railways and so on..) the possiblity of 30y yields rising the property market is likely to trend lower. So adding to the possibility of an increasing number of foreclosures.
In short Government debt problems, in my opinion, are likely to cause a decline in the avilability of credit from banks, due to the fact that so many banks are capitalised by government bonds. Take for example the UK, where I believe currently the FSA allows banks to hold gilts, as a risk free assets. How will their capital requirements be affected by a government debt crisis? Surely this will result in lower levels of lending to the consumer, and thus have an impact on companies earnings prospects.
Hence I am bearish on the dow in the medium term.
The Dow had done well at the start of the week due to some better than expected news from ISM figures, and good earnings results in technology among others, and we saw commodites and mining stocks stage a 5-10% recovery from last weeks sell off.
There are fears mounting over the "contagion" aspect of government debt problems in Greece, and how much it could spread. The market is concerned that, as people underestimated the subprime debt issue as being "contained", and not big enough to cause any serious problem, the risks of interconnectedness within the institutions bearing these risks, and how they could impact lending to the wider public and therefore the eocnomy in general were overlooked.
This brings us to an important question. Can the stock market, which is a reflection of the potential future earnings of a company do well, if the companies earnings are doing well presently, despite high levels of unemployment?
Has sustainable top line growth returned? I'm not convinced. Has sustainable growth resumed, vis a vis GDP figures? I'm not convinced (inventory build ups?).
If the companies continue to produce good earnings, and people keep buying the stocks on that, then surely the market must continue to rally despite the unemployment situation? I'm not convinced. Here's why.
Essentially, where before it was the toxic balance sheets of the banks, due to all the mortgage backed securities they owned, and fears of counterparty risk among banks and not knowing who's going to be able to repay you, that drove up overnight lending rates (accelerated by Lehman's bankruptcy), and brang forward the credit crunch as such.
Essentially now what we have are Governments with bad balance sheets, and as we see yields on Greece, and Portugal continuing to rise. How will this impact yields on Gilts,Treasuries, JBG's? The triple A ratings of the United States has been questioned by the S&P ratings agency recently, stating that if there is not a convincable fiscal debt reduction strategy they may lose their rating. What will the impact of this be for the united states, the proverbial last to default?
What will the impact of US ratings cuts be on their ability to finance the interest on the debts they already owe. With mounting unemployment certainly tax revenues are down. What will the impact of US sical problems be on the markets perception of China. The worlds largest owner of American Debt?
With no evidence that unemployment has stabilised, or that there is any near term infrastructure for hiring (except for the numerous random projects the American Government is trying to create to employ people, such as building new railways and so on..) the possiblity of 30y yields rising the property market is likely to trend lower. So adding to the possibility of an increasing number of foreclosures.
In short Government debt problems, in my opinion, are likely to cause a decline in the avilability of credit from banks, due to the fact that so many banks are capitalised by government bonds. Take for example the UK, where I believe currently the FSA allows banks to hold gilts, as a risk free assets. How will their capital requirements be affected by a government debt crisis? Surely this will result in lower levels of lending to the consumer, and thus have an impact on companies earnings prospects.
Hence I am bearish on the dow in the medium term.
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