May 2009

European Equities Rally As 3-Month Libor Falls To Record Lows

Europe Session Key Developments

• Libor 3-month At Lowest Rate On Record Since As Far As 1990
• Financials Lead The Rally On The Move But Remain Exposed To Losses
• Market Optimism Will Stay Strong For The Short-term

European equities continued to rally today as the London-interbank-offer-rate declined to as low as 79 basis points today, the lowest level on record since as far back as1990. The drop comes as a sign of relief for overly battered financial institutions and signals that central-bank efforts to lower the rate may be paying off. After months of continual easing and unorthodox efforts by central banks to lower the rate, the rate has showed steady decline in past weeks. This steadiness is important since it may represent a much more stable and long lasting decline; one that would allow the economy to stabilize and companies to shift focus from short-term survival to long-term growth opportunities. With lower financing costs that could result from this, companies will be able to borrow more freely and pursue consolidation in industries where weaker companies may be facing bankruptcies. This is one of the key ingredients for a turnaround for the economy and if established could begin to solidify the bottom that many market participants have been searching for. Nevertheless, though positive, the news does not firmly establish this turnaround. In reality, a number of economic risks threaten to derail this development. Financial Institutions continue to hold substantial exposure to loans that are likely to show further losses in the coming quarter. Beyond that, even with lowered financing costs, the economy will remain weak in the near-term. Many companies and individuals will still have trouble meeting obligations. These conditions could potentially lead to another wave of losses. Losses from these exposures would limit the willingness of banks to lend to each other and could consequently raise the Libor once again. As such, fundamentally speaking equity rallies may be hasty in their movements. On the other hand, in the past months sentiment has driven markets rather than traditional fundamental analysis. In turn, this unexpectedly positive development will likely maintain market optimism for some time. Equities will likely continue to show strength for the short-term.

FTSE 100 4440.71 +92. 60 +2.13 %
UK equities were lead by the Financial and Technology sectors, which rose by 4.77% and 5% respectively. The Financials sector rose as Lloyd’s Banking gained 9.87% following announcement of agreement with UK Treasury to convert preferred shares into common stock. Barclays gained over 6.1% as well after announcing it would pursue sale of its asset management unit, which could amount to about $12 billion when sold.

CAC 40 3238.80 +69.75 +2.20%
Technology and Finance sectors lead rallies with gains of 4.17% and 4.28% respectively. Alcatel-Lucent gained 2.49% after a CFFO release showed Cash flow from operations rose 368% YoY in same period. STM Micro also gained over 9.13% after several analysts including Goldman Sachs raised the company to a buy. Arcelor Mittal showed gains of 4.24% despite posting a $100 million first quarter loss as it announced that it had begun talks with labor unions to reduce costs. The Utilities sector showed some weakness with a decline of 0.6%.

DAX 4841.98 +104.48 +2.21%
Financials and Technology sectors too led the German index, which gained 3.92% and 3.8% respectively. Telecoms were also buoyed by Deutsche-Telekom gaining 1.99%. In the financial sector, Commerzbank gained over 9.07% after announcing its Czech branch doubled its year over year profits of same period. It also announced that its shareholders approved a common stock sale to the government in order to raise capital. Deutsche-Bank AG similarly gained 7.2% after it announced it had won bid to handle the auctioning of Electricite De France SA’s distribution network in Britain.

IBEX 35 9159.30 +180.70 +2.01%
Strength in the Financials and Basic Materials sectors lead rallies, with gains of 3.4% and 3.2% respectively. Telefonica prices rose 1.31% after it announced it would raise its stake in Chinese telecom company, China Netcom group to from 5.24% to 9.19%. Banco Santander also gained 4.26% despite the Bank of Spain announcement that the bad loans ratio rose to 4.2% from 1.17% since last year.

S&P/MIB 19912.00 +364.00 +1.68%
The Technology sector showed impressive gains of 8.92% followed by the Telecom sector, which gained 5.04%. Uncredit Spa rose by as much as 12.85% as some analysts raised target price for the company while others downgraded it to reduce from hold. Telecom Italia SA also gained 5.6% after announcing sale of £760million of bonds due December 2017. Citigroup also upgraded the company to buy.

-Written by Stefan Tifigiu, CFDTrading Research
Please send any comments about this report to Stifigiu@fxcm.com

Euro Fibonacci Support Holds; AUD and NZD to New Highs

Euro / US Dollar


A push above 1.3742 is still required to satisfy the minimum requirement for wave Y, at which time I will expect a top and reversal (objectives are at points from 1.3800 to 1.4200). The near term trend is bullish as long as price is above 1.3250 but there is a count that could lead to a triangle unfolding as wave B from the March high (1.3742). Due to other USD counts, the bullish count seems more probable at this point.

British Pound / US Dollar


The short term GBPUSD pattern is at odds with the other USD crosses, thus confidence is low in direction. There are 5 waves down from 1.5356 which suggests at least one more bear leg. A push above 1.5356 would negate the short term bearish implications. Bigger picture, wave 4 within the 5 wave decline from the 2007 high (2.1160) is probably still underway. 1.5735, the confluence of the 38.2% of the decline from 2.0162 / December 2008 high, seems a likely target. This level intersects with a resistance line at the end of May.

Australian Dollar / US Dollar


The rally from .6953 is wave v of C. Higher RSI on the 240 minute chart suggests that the top is not yet in place (tops almost always occur with momentum divergence). A small 4th wave may be complete. Structure is bullish above .7245.

New Zealand Dollar / US Dollar


Wave structure along with the RSI condition explained in the AUDUSD analysis favors a new high in the NZDUSD as well. Wave structure is bullish above .5782.

US Dollar / Japanese Yen


The USDJPY has broken beneath its 2+ month head and shoulders neckline. This development is bearish and even more so in the context of long term wave structure, which suggests a new all time low (below 80). I wrote last week though that “I want to urge caution as the pair approaches 93.50. The circled area could still be a triangle in the X wave position. With this in mind, bears may want to lighten up.” With the USDJPY over 100 pips off of its low today, the triangle count gains some traction.

US Dollar / Canadian Dollar


I wrote the last few days that “5 waves down from 1.2510 are probably complete so a correction, back to at least 1.1768 (former 4th wave price extreme) is expected. As the correction plays out this week, I’ll look to identify the top.” A top may be in place now as the rally from 1.1475 is overlapping (corrective) and the USDCAD reversed from the former 4th wave extreme (an Elliott guideline). There is short term resistance from 1.1720 to 1.1750.

US Dollar / Swiss Franc

Whereas the EURUSD has yet to exceed its March high of 1.3742, the USDCHF has already dropped below its March low of 1.1157. In other words, minimum expectations have been met for wave Y. So, it is possible (but not probable given the patterns the other USD crosses) that a low is in place. Near term, USDHCF strength has been thwarted by a trendline drawn off of April and May highs. A drop below 1.0976 would expose Fibonacci support at 1.0925.

Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday, GBP on Thursday, AUD on Friday), and the DFX Trend Index every day after the NY close. He is also the author of Sentiment in the Forex Market.

Please send comments about this report to jsaettele@dailyfx.com

Crude Oil Bounces Off Previous Highs, Silver Remains Range Bound

Long-Term Technical Forecast for Crude Oil

Recent commentary has been that “a possible wave count is an expanded flat, which would require a push above 59.66.”  The wave count described is no longer possible but probable as crude is about to exceed 59.66.  Although the minimum for wave C is just above 59.66, crude could soar as high as 71.33, which is the 161.8% extension of wave i of C.

Long-Term Technical Forecast for Gold

Gold is oscillating between the 55 and 200 SMAs.  Structure since the top at 1034 is a mess, which means that an expanded flat is probably underway.  Under this count, Gold would make an unorthodox top above 1034 in wave B of the flat prior to crashing (below) 681 in wave C.

Long-Term Technical Forecast for Silver

Silver’s waves are quite clear.  The drop from the March 2008 high to the October 2008 low was in 5 waves, indicating that any subsequent rally should prove corrective.  The rally from 8.65 was corrective but the decline from 14.63 was also corrective.  As such, it is likely that a complex correction is underway towards an extension at either 16.08 or as high as 19.5.

European Stocks Remain Undecided despite Weak Economic Data

Europe Session Key Developments

•    GDP Readings Indicate Euro Region Falling Deeper into the Recession
•    TARP Funds Made Available to Insurance Industry

European markets ended another trading session with indecision despite a list of European GDP readings indicating a contraction in economic activity; meanwhile US insurers get their turn to receive government funds through the Troubled Asset Relief Program.  A consistent event we saw today were members of the Euro-Zone posting an economic contraction far worse than anticipated by economists.  Germany’s economy had the largest quarterly contraction in at least 40 years while the France’s economy continued to shrink for the fourth straight quarter.  The bearish readings led economic activity to shrink in the Euro-Zone by a record 2.5% for the first quarter while surveys forecasted only a 2.0% decline.  However, the economic deterioration across the Euro region proved to be ineffective at pushing markets lower since major indices remained at levels similar to yesterdays close.  Now to take our attention away from lagging economic indicators, six US-based insurers were granted government funds through the TARP as banks scurry to repay their capital infusion from the same program.  The insurers however accept the bailout funds with open arms as an increase in their capital base will raise confidence in the institution’s ability to honor their insurance obligations.  Combined with the optimistic speculation of economic recovery in the US, the extra confidence may lead to a boost consumer spending, in turn improving demand for exports.

FTSE 100                      4,348.11                   -14.47               -0.33%
The FTSE closed the day with a slight drop as the only two sectors able to post gains were Basic Materials and Industrials with 1.64% and 1.25%, respectively.  Telecommunications and Health Care helped led to index lower with losses over 1% each.  BT Group was the top loser for the index with a 3.85% drop, followed by Standard Life with a 3.64% decline.  Experian was one of the top gainers, rallying 3.82% after JPMorgan Chase changed the credit-checking company’s rating to “overweight.”

CAC 40                     3,169.05                   +12.76                 +0.40%
France’s leading index saw marginal gains with only Telecommunications, Technology and Health Care closing in the red.  Basic Materials helped lead the index higher with a 2.27% gain.  Societe Generale was one of the top gainers for the index, rising 2.57% as Bank of France announced Societe Generale’s ability to pass ‘stress tests.’  Cap Gemini and Alcatel-Lucent were a few of the day’s losers as the companies fell 3.43% and 1.95%, respectively.

DAX                         4,737.50                    -0.97            -0.02%
German equities edged slightly lower with Health Care and Telecommunications dragging the index lower with more than 1% loss each.  There were no sectors that had more than a 1% gain.  Commerzbank gained 2.80%, helping the Financials sector rise 0.92% as CEO Martin Blessing announced the bank will no need additional capital from the government.  He also guaranteed limited government control over the bank.  Linde, a maker of industrial gases was one of the day’s biggest losers with a 2.10% decline.

IBEX 35                     8,978.60                   -5.60                 -0.06%
Spain’s stock market closed the day with a small loss with Technology posting a jump in gains of 6.09%.  However, the advance was countered by Health Care and Consumer Services falling 1.29% and 1.58%, respectively.  The gain in Technology was due to Indra Sistemas as the computer services company posted 1Q earnings of 46.5 million euros.  Gamesa also gained 5.25% after Goldman Sachs changed its price estimates from 18 euros to 19 euros.

S&P/MIB                        19,548.00                    +277.00                  +1.44%
Italy’s leading index had the most gains out of all the major indices as Technology and Basic Materials led the index higher with a 3.44% and 2.52% gain.  The only sector that closed in the red today was Consumer Services with a 0.88% loss.  Parmalat was one of the gainers, rising 8.20% as 1Q profits jumped to 176.3 million euros.  Intesa Sanpaolo was also a top gainer with a 7.36% advance as Cheuvreux changed the bank’s rating to “outperform.”

Euro Correction May Be Complete; Bullish above 1.3250

Euro / US Dollar

A push above 1.3742 is still required to satisfy the minimum requirement for wave Y, at which time I will expect a top and reversal (objectives are at points from 1.3800 to 1.4200).  Near term, a correction of the advance from 1.3250 to 1.3720 may be complete.

British Pound / US Dollar

The short term GBPUSD pattern is at odds with the other USD crosses, thus confidence is low in direction.  Bigger picture, wave 4 within the 5 wave decline from the 2007 high (2.1160) is probably still underway.  1.5735, the confluence of the 38.2% of the decline from 2.0162 / December 2008 high, seems a likely target.  This level intersects with a resistance line at the end of May.

Australian Dollar / US Dollar

The rally from .6953 is wave v of C and the objective at .7630 has already been reached (which is where wave v of C would equal wave i of C).  The 50% retracement of the decline from .9822 at .7693 is giving bulls fits for now but one more high seems likely this week.  Higher RSI on the 240 minute chart suggests that the top is not yet in place (tops almost always occur with momentum divergence).  Watch the top of the short term Elliott channel for resistance after the AUDUSD breaks to a new high.  A small 4th wave may be complete.  Structure is bullish above .7245.

New Zealand Dollar / US Dollar

Wave structure along with the RSI condition explained in the AUDUSD analysis favors a new high in the NZDUSD as well.  Wave structure is bullish above .5782.

US Dollar / Japanese Yen

The USDJPY has broken beneath its 2+ month head and shoulders neckline.  This development is bearish and even more so in the context of long term wave structure, which suggests a new all time low (below 80).  However, I want to urge caution as the pair approaches 93.50.  The circled area could still be a triangle in the X wave position.  With this in mind, bears may want to lighten up.

US Dollar / Canadian Dollar

I wrote the last few days that “5 waves down from 1.2510 are probably complete so a correction, back to at least 1.1768 (former 4th wave price extreme) is expected.  As the correction plays out this week, I’ll look to identify the top.”  A top may be in place now as the rally from 1.1475 is corrective and the USDCAD reversed from the former 4th wave extreme (an Elliott guideline).  A cautious bearish bias is warranted against 1.1791.

US Dollar / Swiss Franc

Whereas the EURUSD has yet to exceed its March high of 1.3742, the USDCHF has already dropped below its March low of 1.1157.  In other words, minimum expectations have been met for wave Y.  So, it is possible (but not probable given the patterns the other USD crosses) that a low is in place.  A drop below 1.0976 would expose Fibonacci support at 1.0925.

Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday, GBP on Thursday, AUD on Friday), and the DFX Trend Index every day after the NY close.  He is also the author of Sentiment in the Forex Market.

Please send comments about this report to jsaettele@dailyfx.com

US Dollar, Japanese Yen Slip as US Continuing Jobless Claims Reach New Highs, Ahead of US CPI

- Swiss Franc Down After SNB Verbal Intervention – EUR/CHF Shows Potential for Break
- Euro, British Pound Consolidate Below Weekly Highs – Outlook May Hinge Upon Euro-zone Q1 GDP Release

US Dollar, Japanese Yen Slip as US Continuing Jobless Claims Reach New Highs, Ahead of US CPI
The US dollar and Japanese yen lagged behind the rest of the majors as increased risk appetite led US equities and FX carry trades higher. US economic data was mixed, as jobless claims surged beyond forecasts while the producer price index (PPI) rose in line with expectations. Initial jobless claims jumped by 32,000 during the week ending May 9 to 637,000 while continuing claims rocketed by 202,000 during the week ending May 2 to yet another record high of 6,560,000, suggesting that the slowing job losses we saw reflected in last Friday’s non-farm payrolls report may have only been temporary. Meanwhile, PPI rose 0.3 percent for the month of April as food costs jumped 1.5 percent. Excluding food and energy costs, PPI only rose a slight 0.1 percent, but despite these increases the annual rates of growth for both indices fell back. Indeed, headline PPI tumbled 3.7 percent from a year ago, marking the sharpest drop since January 1950, while core PPI slowed to a 9-month low of 3.4 percent. These numbers suggest that Friday’s US event risk should hit the wires in line with forecasts.

At 8:30 ET, the release of the April reading of the US consumer price index (CPI) is likely to highlight the ultra-slow pace of price growth in the US economy. Indeed, CPI is anticipated to have stagnated during the month, bringing the annualized pace to -0.6 percent – the lowest since January 1955 – from -0.4 percent. On the other hand, the core measure – which excludes volatile food and energy costs – is anticipated to rise 0.1 percent, leaving the annualized rate at 1.8 percent. Overall, the news is likely to add to concerns that the US is on a one-way track to deflation, a concern that has been cited by “a few” Federal Open Market Committee (FOMC) members, according to the latest FOMC meeting minutes. However, the markets may only respond to the news if core CPI starts to fall dramatically.

Related Article: Crowds Buy into US Dollar Weakness, Signaling Losses Likely

Swiss Franc Down After SNB Verbal Intervention – EUR/CHF Shows Potential for Break
The Swiss franc may have made headway versus the US dollar and Japanese yen, but the currency ended the day down against the commodity dollars, euro, and British pound after Swiss data pointed toward deflation and the Swiss National Bank verbally intervened in the market. At 3:15 ET, the Swiss producer and import price index unexpectedly slipped 0.2 percent for the month of April, dragging the annual rate down to a more than 22-year low of -3.6 percent from -2.8 percent. A breakdown of the report shows that the drop was due primarily to falling import costs, which is partially the result of the persistent appreciation of the Swiss franc, despite the SNB’s first intervention announcement on March 12. In fact, the SNB specifically said they would purchase foreign currency to limit the appreciation of the Swiss franc against the euro as the Euro-zone is Switzerland’s biggest trader partner.

Since then, though, EUR/CHF has retraced approximately 50 percent of the pair’s rally between March 10 and March 17, and perhaps in an effort to stop the decline, SNB Governing Board member Thomas Jordan said that the central bank was “implementing franc policy” and that the SNB wanted to prevent further franc appreciation.” Jordan also said that while it was hard to forecast, he saw a turning point for the Swiss economy in 2010 and noted that Swiss credit market conditions were still very good. That said, EUR/CHF has spent a lengthy amount of time consolidating within a very tight range. Indeed, the Bollinger Bands width is now at the lowest level since November 2007, which was followed by a rapid 300 point break lower, suggesting that EUR/CHF could be facing a break in the near-term as well, though the move has the potential to be bullish or bearish.

Euro, British Pound Consolidate Below Weekly Highs – Outlook May Hinge Upon Euro-zone Q1 GDP Release
The EUR/USD and GBP/USD pairs both spent much of Thursday consolidating below their weekly highs, but breakouts could occur in the near-term. Indeed, GBP/USD may be forming a short-term head and shoulders pattern, as the pair’s rally stalled at the 61.8 percent fib of 1.5353-1.5066 and the May 10 highs near 1.5242/50 (shoulders). Meanwhile, EUR/USD may be forming its own head and shoulders pattern, with the shoulders sitting at 1.3665 and the neckline looming below at 1.3555.

In 2008, the release of Euro-zone CPI drew significant attention and sparked major volatility for the euro. However, indicators of growth have become more important, as the European Central Bank has shifted its focus away from inflation and on to the global and regional economic slowdown. As a result, traders should keep an eye on the advanced reading of Q1 GDP, which is forecasted to contract for the fourth straight quarter, this time at a rate of -2.0 percent, compared to -1.6 percent in Q4 2008, while the year-over-year rate could fall by a whopping 4.1 percent. Such data would indicate that the Euro-zone’s recession deepened into the start of 2009, and would only raise the odds that the ECB will consider cutting rates further or will need to take more drastic steps than their current plan to buy 60 billion euros worth of covered bonds, and the news could trigger steep losses for the euro. On the other hand, better-than-expected results could lead EUR/USD to continue its rally toward 1.4000.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

SUPPORT AND RESISTANCE LEVELS

Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com

European Stocks Closed with Uncertainty as Markets Lack Fundamental Catalyst

Europe Session Key Developments

•    ECB Policy Officials Offer Contrary Opinions over Quantitative Easing Outlook
•    Short Economic Docket Leaves Markets without a Discernible Direction

European markets ended the day with marginal changes in either direction, reflecting the indecision between European Central Bank monetary policy committee and the inability of a short economic event list to drive the markets.  This is certainly not the first time ECB policy officials have maintained contrary opinions amongst one another.  Prior to the rate decision by the central bank on May 7th, ECB President Trichet had to issue a gag-order to control the confusion generated from the policy makers.  However, we can see the same problem about to rear its ugly head again as Bundesbank’s President Axel Weber is voicing concerns over a potential sharp rise in inflation and asserts a cap of €60 billion euro used for quantitative easing (QE); meanwhile Slovenia’s President Marko Kranjec states the ECB will likely increase QE efforts and perhaps expand the program further than euro-dominated covered-bonds.  Although a healthy dose of argument to represent both perspectives is always welcomed, a clear opposition between ECB members could lead to a loss of confidence that the ECB will be able to lead the euro region out of the recession.  Taking a look at the economic docket, we can see a lack of known market-movers for the day.  Despite another contraction in EU car registrations and a decline in Swiss factory prices year-over-year, the indicators proved to be ineffective to push the markets lower.  However, market participants will certainly pay close attention to economic events tomorrow as forecasts indicate a dismal contraction in German and Euro-Zone economic activity.

FTSE 100                      4,362.58                   +31.21               +0.72%
The FTSE closed the day with marginal gains as all sectors posted gains except Health Care and Oil & Gas, which fell 0.25% and 1.14%, respectively.  Financials, Technology and Industrials were the sectors that helped boost the index higher with gains over 2% each.  Invensys, a supplier of controls for whirlpool washing machines was one of the top gainers in the index with a 13.25% advance as the company announced plans to pay the first dividend in six years.  AstraZeneca fell 1.75% after the drugmaker’s rating was downgraded by Jefferies to “underperform.”

CAC 40                     3,156.29                   +3.39                 +0.11%
France’s leading index saw marginal gains with an evenly balanced amount of losing and winning sectors.  Industrials, Technology and Oil & Gas were the only sectors which moved more than 1%.  Cie de Saint-Gobain, a European supplier of building materials was one of the top winners for the day, jumping 5.81% after Bank of America upgraded the company to a “buy” rating.  Bouygues fell 2.69% after the construction company announced a 2% drop in 1Q sales.  Total SA was another loser for the day, falling 1.68% as the International Energy Agency forecasted lower demand for crude oil in 2009.

DAX                         4,738.47                    +10.86            +0.23%
German equities edged slightly higher despite only Industrials, Financials, and Telecommunications being able to close in the green.  Salzgitter was one of the top gainers with a 5.03% rally even though the company posted a 1Q pre-tax loss.  Salzgitter also announced a target for a pre-tax break-even for 2009.  Commerzbank fell 3.2% after a report indicated the bank may still need €13 billion to repay government funds.

IBEX 35                     8,984.20                   -16.40                 -0.18%
Spain’s stock market closed the day with a small loss as no sector in the IBEX 35 moved more than 1%.  Repsol, a Spanish oil refiner also fell 0.87% due to IEA cutting forecasts for crude oil demand in 2009.  Endesa, a Spanish power producer rose 2.43% as the company expanded their operations to Portuguese markets.  Gamesa also gained 4.47% as investors anticipated 1Q earnings for the wind-turbine maker.

S&P/MIB                        19,271.00                    -110.00                  -0.57%
Italy’s leading index posted a loss for the day with Basic Materials and Telecommunications dragging the index lower with a 3.91% and 3.04% loss, respectively.  The declines were countered by rallies in Consumer Services and Industrials.  Banco Popolare was one of the gainers for the day, rising 2.74% after the bank was upgraded to “market perform” by Keefe, Bruyette & Woods.  Geox was the top loser with a 8.98% decline as 1Q earnings fell 9% year-over-year.

Crude Prices Decline As US Retail Sales Release Dissapoints

Commodities – Energy

Crude Prices Decline As US Retail Sales Release Disappoints

Crude Oil (WTI)                             $57.800               -$1.050           -1.78%
Despite a large drop in crude inventories, crude prices declined for the session as global equities sputtered throughout the day. Crude prices have benefited in the past months from an increase in investor risk appetite, but today was the source of weakness as prices fell despite bullish supply data. Even with the unexpected drop in supplies, crude fundamentals remain stacked against current prices. In the face of several weeks of negative fundamental data, crude prices still gained on market optimism. Now that hopes of a near-term economic rebound are being challenged further by releases, crude prices will likely cave in to those fundamentals. In the way of data, US housing figures continue to disappoint while today is Retail Sales report (declining 0.4%) suggests sharper contraction in consumer spending than expected; all factors that would place further downward pressure on crude prices. Given the interconnected nature of markets, investors selling positions to meet margin calls today also exacerbated price declines. As it stands, fundamental pressures that were unrequited for the past few months will likely begin to push prices lower. Barring a return to equity rallies, expect prices to decline in the near to medium term.

Commodities – Metals

Safe-havens Gain As Equities Continue To Decline

Gold                                                       $926.600             +$2.700       +0.29%
Gold prices continued to rise modestly today as equity markets turned sour. While gold is benefiting from the uncertain nature of the economy, a recovery would mean that much of that source of strength would dissipate. On the other hand, the beginnings of a recovery would also open up the way for dormant inflationary pressures to emerge. Given the sheer amount of capital injected into the economy, this is a considerable risk. Nevertheless, as the economy continues to sputter, financials remain weak, and housing data points to perhaps even more pain in the coming year, markets will likely continue to ebb and flow with sentiment. As such, until the economy shows signs of a more certain direction gold prices will likely trade flat or show only modest gains.

Silver                                                    $13.9800             -$0.235        -1.65%
Silver prices gave back most of yesterday’s gains as equity markets turned sour. Despite conditions that are normally beneficial for safe-havens, silver is used in many industrial applications and is thus subject to weakness from lower global production. Recently, this paradoxical relationship with gold has begun to resurface and could become more pronounced as the economy turns weaker. Some investors of the metal will find that global weakening in the economy will lead to lowered demand for the metal. In response, they will likely sell their holdings, placing further strain on prices. Strength that would be provided by its safe-haven status could be offset by this. Consequently silver will likely gain modestly in the short-term.

-Written by Stefan Tifigiu, CFDTrading Research
Please send any questions/comments about this article to Stifigiu@fxcm.com

Crude Prices Post Modest Gains As US Equities Rebound

Commodities – Energy

Crude Declines Modestly As Optimism Stalls

Crude Oil (WTI)       $58.800            +$0.300            +0.51%
Crude prices seemed well on their way to decline for the session until midday sentiment reversed and US equities showed some strength. The move in crude prices is surprising given the strong fundamental pressure which the market is experiencing. The weakened state of financials coupled with the need to raise further capital will hinder lending. Without a full recovery in financial markets an economic turnaround cannot occur within the US. That fact coupled with today’s record drop in US home prices does little to make the case for a near-term recovery that would support current crude prices. Record supply levels of crude coupled with weak demand forecasts for the year point sharply toward lower prices. The Department Of Energy echoed this prospect today and tomorrow’s supply figures will likely reinforce this notion. Nevertheless, there has been a disconnect between strong fundamental influences and pricing and crude prices will only decline if there is a return to extended weakness within equity markets. The only support thus far for prices at their current levels has been optimism within the equity markets. Given the absence of any strong optimistic news, the prospects for further rallies are dim. As such, crude prices will likely give in to fundamental pressures and decline in the near to medium term.

Commodities – Metals

Safe-havens Gain As Markets Show Uncertainty

Gold                                 $923.450         +$10.120              +1.11%
Gold prices bounced today flirting with the psychologically significant $925 level as market uncertainty grew and the US dollar declined. There is reason for Gold prices to remain resilient but given current market uncertainty, prices may have trouble breaking beyond current levels. As a result of the unprecedented level of capital that has been injected into the financial system, inflationary risks remain very real for the long-term. However, this risk will be muted until a full-fledged recovery will be underway. As a result Gold prices will likely trade flat between the two pressures and technical signals may become more important under these conditions.

Silver                              $14.250            +$0.300             +2.15%
Silver prices gained strongly today as safe-haven metals benefited from dollar weakness. As stated earlier, silver has many industrial applications. As a result, declines in production activity may place some downward pressure on prices. Nevertheless, any heightened risk aversion that would benefit precious metal value will still benefit silver prices. Look for modest gains in the near term.

-Written by Stefan Tifigiu, CFDTrading Research
Please send any questions/comments about this article to Stifigiu@fxcm.com

European Equities Show Modest Declines On Mixed Releases

Europe Session Key Developments

•    Better Than Expected Releases Prop Up Equities In Early Trading
•    Mixed Earnings Reports Lead To Greater Risk Aversion
•    Financials Remain Weak, Prospects For Future Remain Unclear

European equities closed off the volatile session with modest declines as unexpectedly positive economic releases collided with mixed earnings reports. Although the UK manufacturing year over year shows the biggest drop since the series began in1949, the month’s reading showed an unexpectedly better decline of only 0.1%. The release adds to a growing list of slightly positive data that show some signs of possible stabilization in the economy. Other companies meanwhile showed better than expected results. Both may suggest a more positive outlook for the economy but investors looking to peg these releases as sure signs of a bottom may be a bit too hasty. A reversal will ultimately depend heavily on the health of the financial sector. In this regard, financials remain in a weak state and retain significant exposure to assets that could erase gains of the recent quarter. In the current climate, these losses pose greater risk of loss, and ultimately reversing any positive developments in the credit markets. If that happens, the market could revisit another credit crunch and derail a turnaround. Investors are likely eying Friday’s release of the Euro-zone GDP report to see if the recession has deepened further. Given the ECB’s expectation that it has, equities will likely shift sentiment toward the downside and pare some of the quarter’s gains.

FTSE 100                     4425.54        -9.96        -0.22 %
A much better than expected manufacturing production release (only declining 0.1%) for the month helped buoy stocks in earlier trading. Some of this strength was mitigated by an unemployment report that showed the largest increase since the 1981 recession. Although some sectors maintained gains, declines in financials and basic materials sectors of over 3.4% and 3.60% respectively pulled back the index for a modest decline for the session. Major financial movers by volume were RBS, which declined 5.64%, Lloyd’s banking which declined over 10.27% and Barclays declining 6.45%. All other sectors exhibited strength with Telecoms and Health Care leading the way. The Health Care center gained 2.5% while the Telecom sector gained over 2.89%, as Vodafone traded up by 3.22%.

CAC 40                          3231.10         -17.57        -0.54%
The French Index also showed modest declines. The European Aerospace Group, makers of the Airbus line of airplanes, showed a 70% decline in revenue for the quarter, declining over 3.25% for the day. Other major decliners by volume were Arcelor Mittal, which declined 4.26% on concerns of further weakness in commodity demand, and Vivendi, which declined 6.48% on concern tighter spending concerns. The Financials and Consumer Service Sectors showed the most weakness, declining over 2.4% and 2.21% respectively. The Telecom sector showed the most strength as France Telecom gained 2.65% for the session.

DAX                                4854.11          -12.80         -0.26%
Consumer price growth showed a rebound off its lowest level today rising up to 0.7% for the month, suggesting further weakness in the economy. Some weakness was seen in the Industrials and Consumer Goods sectors, which declined 1.39 and 1.29% respectively. ThyssenKrupp AG declined over 6.43% as the company announced that it expected a full year loss before taxes somewhere in the “mid to high-three digit million euro” range. Weakness was offset by strength in the Telecom buoyed by Deutsche-Telekom, which gained 2.09%, and Health care sectors, which gained 1.08%

IBEX 35                       9269.00       -47.80         -0.51%
Weakness in Telecoms, Financials and Basic materials pushed the index slightly down. The three sectors declined 2.37%m 1.27%, and 1.10% respectively. Banco Santander  declined over 1.37% after the bank’s CFO announced it was not looking into acquisitions, but would finance purchases of Italian Solar Parks. Banco Bilboa Vizcaya Argentina also declined 1.14%. Weakness was offset by gains in Consumer Services sector which gained over 3.05%.

S&P/MIB                     20337.00   +137.00     +0.68%
The Italian Index was the only index to show modest gains today. Strength was led by an impressive gain of over 4.5% in the Telecom sector, pushed up by Telecom Italia’s gain of 4.67%.Weakness was seen in the Technology, Financial and Consumer Services Sectors which showed declines of 0.8%, 0.4%, and 1.04% respectively. Some major movers by volume were Unicredit Spa with a decline 0.94%, Fiat Spa which gained 3.05% after announcing further details of its restructuring plan with Chrysler.

Written by Stefan Tifigiu, CFDTrading Research
Please send any comments about this report to Stifigiu@fxcm.com

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