June 2009

European Daily Fundamentals: European Shares Modestly Positive After US Session Boosts Optimism

Europe Session Key Developments

• European Shares Bounce on US Data and Geithner Comments Toward End Of Session
• European Releases Show Contraction Continues, Financial Sector Remains At Risk
• Fundamental Weakness Will Continue Well Into 2010, Rallies Unlikely To Continue

European shares bounced from modest declines toward the end of the US session as US manufacturing data showed contraction at a less than expected pace. This compounded some of the optimism raised by yesterday’s more positive trade balance and construction output figures. While some say the releases may point to some level of easing in the pace of contraction, continuing claims does not account for those that no longer are eligible for further unemployment claims. As such, these lukewarm releases are far from signs of a full-fledged recovery. In the meantime, the real economy continues to contract and several sectors remain exposed to major risks. Financial institutions for example hold several types of securities tied to such loans as commercial mortgages, student loans, consumer credit, and others. All of which contain greater probability of losses as the recession lingers for such an extended period. For consumers mounting job losses and tightened credit conditions will hamper spending and keep the European economy subdued until well into 2010. Looking forward, there is little evidence pointing to improving conditions that would justify further equity rallies. Given these conditions, equities will likely begin to pull back for the near-term.

FTSE 100                       4280.86        +2.40        +0.06%
UK Equities closed with modest gains as Retail Sales unexpectedly fell 0.6%. Some sectors gained however with Telecoms, Consumer Goods, and Technology sectors leading gains. Vodafone pushed up Telecoms gaining 2.4% as news crossed of possible pledge for stake in the company by Essar. Unilever gained 1.55% as their Net Income rose to $7.53 million. Lloyd’s Banking also gained 3.28% after being raised to neutral by Macquarie.

CAC40                          3194.06        +32.92        +1.04%
The French index gained modestly as Basic Materials sector rose1.83% boosted by Arcelor Mittal’s 2.10% gain following its announcement that its Czech unit would not pay dividends for 2008. Utilities also gained 1.79% as EDF rose 3.09% following announcements by the company that striking employees were “gradually” returning back to work. Financials gained 1.78% as several institutions continued gains after announcements of debt sales.

DAX                        4837.48        +37.50        +0.78%
German rose modestly as well with the Telecom, Financial and Utilities sectors leading the way. Deutsche-Telekom gained 2.89%, boosting the sector following announcement that it would increase its Hellenic Telecom stake by another 5%. Financials also gained 2.76% with Deutsche-Bank RG leading the way with a 3.45% gain following its unveiling of the world’s first “carbon-counter” that would monitor greenhouse gas emissions. The utilities sector also gained 1.49% as E.ON AG jumped 2.31% following its announcement of carbon transfer partnership with Donjiang in China.

IBEX35                        9384.00        +100.80        +1.09%
The Spanish Index gained the second most of the five, led by a 1.67% gain in financials, a 1.24% gain in Telecoms, and a 1.14% gain in Utilities sectors. Banco Santander gained 2.43% despite Swiss Government probes in to its involvement with the Madoff fraud and bad-loan ratios for April month gaining. Telefonica gained 1.24% following announcement of Spinvox winning agreement with the company. A 3.26% gain in Enagas boosted utilities following its announcement that its Balearic Islands Pipe project would be finished by the third quarter.

FTSE MIB                       19233.79        +210.74        +1.11%
The Italian Index gained the most out of the five with Financials, Consumer Services, and Technology sectors leading the way. The three sectors gained 1.80%, 1.71%, and 1.69% respectively. Unicredit Spa gained despite a possibility of downgrades from Moody’s Investors. Mediaset Spa boosted consumer services with a gain of 3.39% following a revision to “buy” by Royal Bank of Scotland. The Technology sector was boosted by a 1.69% gain in STM Microelectronica after winning an “Electron D’Or” award for best power converting product.

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

Downside Risks Remain For Nasdaq Despite Positive Finish

Staying above 8227 keeps the near term trend pointed up.  The rally from 6470 to 8588 was in 3 waves (wave W) and the decline to 8221 was a small expanded flat.  The break above 8588 confirms that wave C is underway.  A likely target area is where wave C would equal wave A; which is near the 50% retracement of the decline from the 2007 high; at 10334.

The Dow continued to trade lower after falling below the 200-Day SMA, which may make it susceptible for more losses. We could see momentum send the blue chip index lower to test support at 8,250.

The S&P count is the same as the Dow count.  A B wave is complete at 879.  A target is 1142 (100% extension) and the index should remain above 879 now.

The S&P 500 continued to trade lower to test support at the 200-Day SMA at 903 but failed to break below the technical level. We could see support send lead to a reversal and a re-test of 943. However, if bearish momentum continues we could potentially see the broader index fall to 880 where it will find solid support.

The Nasdaq is in the same position as the other US indexes.  The index should remain above 1664 on its way to a test of the 50% to 61.8% retracement area of the decline from 2862.  This zone is 2063 to 2251.  The 100% extension of the rally from 1264-1773 is in this zone at 2172.

The Nasdaq regained its footing yesterday and managed to be the only major index to end the day in positive territory. However, it wasn’t enough of a move higher to negate the possibility of a test of former congestion near 1,665. However, psychological support at 1,700 could slow its momentum and lead to a reversal.

Asian Stock Markets Slump, World Bank Raises Growth Forecast for China

Asian Market Update, Last Updated 6/18/2009 6:07 AM EST (GMT = EDT +5:00)

 

Asia Session Key Developments

 

·         World Bank raises China’s 2009 growth forecast to 7.2% from 6.5%

·         China’s pension fund may continue to add to U.S. debt holdings

 

Asian Stock Markets Slump, World Bank Raises Growth Forecast for China

 

Stocks in Asia/Pacific slumped on Thursday, with the benchmark indices tumbling lower on the back of lower commodity prices paired with mounting concerns for the U.S. banking sector. Standard and Poor’s cut its credit rating for 18 U.S. banks, which include Wells Fargo and Capital One Financial, while global commodity prices slipped lower as investors continue to weigh the outlook for global growth. At the same time, the World Bank raised its growth forecast for China, and expects the world’s third-largest economy to grow at an annual rate of 7.2% this year, while Dai Xianglong, the chairman of the China’s pension fund, said that the country may continue to add to its holdings of U.S. Treasuries as the dollar stabilizes.

 

 

NKY 225                                           9703.72

The Japanese benchmark equity index slumped 137.13 points (1.39%) to end the trading session at 9,703.72, with 9 of the 10 components falling lower. The decline was led by a 2.7% drop in oil & gas, with Nippon Steel Corp. dragging the index lower after a government report said metal outputs fell for the eighth consecutive month in May, while Mitsubishi Corp slipped 4.2% following the drop in commodity prices. Moreover, Honda and Sony shed 2.6% and 3.1%, respectively after the Japanese yen continued to appreciate against the U.S. dollar, while Mitsubishi Motors gained 3.3% after a newspaper said that the firm plans to develop electric cars that they would be able to sell at a lower price.

 

 

HSI                                                         18084.60

Shares in Hong Kong slipped lower, with the Hang Seng index falling 307.94 points (1.70%) to end the day at 17,776.66, led y a 2.14% drop in financials. The Bank of China slumped 6.7%, with HSBC falling1.3% after Standard & Poor’s lowered its credit rating on 18 U.S. banks, while Aluminum Corp of China fell 2.9% on the back of lower metal prices. At the same time, China Resources Power Holdings Co gained 4.9% to lead the market higher after BNP Paribas raised its outlook for the firms.

 

 

ASX 200                                            3892.10

The ASX 200 tipped lower on Thursday, marking the fourth consecutive decline this week, with the index falling 12.00 points (0.31%) to close at 3,892.10 in Sydney. The decline was led by a 3.1% drop in basic materials, with Rio Tinto tumbling 9.0% after the firm sold $15.2B in shares at discount. At the same time, shares of Eastern Star Gas Ltd jumped 13.3% to lead the market higher after the firm said gas outputs were ‘steadily increasing,’ while Westfield Group, the largest owner of shopping centers around the world, added 1.8% after the firm initiated talks with banks to raise approximately $1.25B in loans.

 

 

Notable Asian Session Event Risk / Economic Releases

UK Stocks Break Resistance, Spanish Shares Confirm Double Top

FTSE 100

Long-Term Technical Outlook

The FTSE is at risk of at least a pullback if not an outright reversal as daily RSI has rolled over from overbought territory. The rally from 3461 is likely to extend much higher over the summer months. But, will the advance carry more or less in a straight shot from current levels or will a pullback occur before the next advance? Remaining above 4295 keeps the FTSE 100 on a path towards 5106-5495 (50% and 61.8% of previous decline). A drop below 4295 would lead to a deeper decline in what is probably a B wave.

Short-Term Technical Outlook

The FTSE has broken below support / resistance at 4307.61. From here, prices are now aiming at the 100-day moving average at 4109.84.

DAX

Long-Term Technical Outlook

The DAX pattern is the same as that of the FTSE 100. Staying above 4653 keeps the index headed higher towards 5870-6409. These levels are defined by the 50% and 61.8% retracements of the decline from the 2007 high. The 100% extension of the first leg of the advance (wave A, from 3589-4980) is in this zone at 6045.

Short-Term Technical Outlook

German shares have surpassed support at the bottom of a rising channel and are now testing 48066, the 23.6% Fibonacci retracement level. A break lower will target the 38.2% Fib at 45759.

CAC 40

Long-Term Technical Outlook

The decline from the 2007 high in the CAC 40 is in 5 waves and either wave 1 or 5 is extended. It seems more probably that wave 5 is the extended wave because if wave 1 were extended then wave 2 would be uncommonly small. Either way, the index is most likely headed significantly higher over the next several months. The target zone is the former 4th wave, which is 441-5142. The 61.8% is in the middle of this zone at 4754. Near term, staying above 3115 keeps the trend pointed up. Coming under there would lead to a deeper decline in what is probably a B wave.

Short-Term Technical Outlook

The French benchmark index has broken below the lower boundary of a rising channel. Prices now testing support / resistance at 313490, with a break lower targeting the 100-day moving average at 301057.

IBEX 35

Long-Term Technical Outlook

Same story with the IBEX 35. The rally from the low (6703) is corrective but has more room to run. Staying above 8829 keeps wave C headed higher towards 1137-1247. This zone is defined by the 50%-61.8% retracements of the decline from the 2007 high. Wave C would equal wave A near the lower end of this zone at 1159.

Short-Term Technical Outlook

The IBEX 35 has confirmed a double top at 97240 with a break below support at the bottom of a rising channel. From here, prices aim at the 23.6% Fibonacci retracement level (90279).

S&P/MIB

Long-Term Technical Outlook

The FTSE MIB (Milan) index took the same structure as the CAC 40 on the way down from its 2007 high. The index is currently testing the 200 day SMA, which should give way as the target zone for the index is not until 30062-34711 (former 4th wave….wave 5 is extended). Remaining above 18752 keeps the trend pointed higher. Coming below there would lead to a deeper decline (next support would be 17133) before the next leg up.

Short-Term Technical Outlook

Italian shares have broken below support at 19479.98. The next level of support lines up at 18726.68, the 23.6% Fibonacci level.

Commodities Daily Technicals: Crude Pulls Back From Top Of Multi-Month Trend Channel

Short-term Technical Outlook For Crude Oil

Short-term Technical Outlook For Gold

Short-term Technical Outlook For Silver

Commodities Daily Fundamentals: Commodities Gain Modestly On Dollar Reversal

Commodities – Energy

Crude Rebounds As Dollar Reverses Gains Toward End of Session

Crude Oil (WTI)   $70.960                          +$0.490                                +0.70%
Crude prices swung to modest gains toward the end of the session as dollar gains reversed. Pressured by a number of factors, the US dollar is likely to remain at lower parity to other currencies for some time. This comes as deficits remain at record levels and will likely stay that way without drastic efforts to reverse them. However the chances of such actions to come to fruition are very low since the economy remains in a recession. In turn, the conditions for extended dollar weakness will likely continue on for some time and fashion support for crude prices. On the other hand, global economic activity will remain subdued and by extension so too will crude demand. Stockpiles remain high and ongoing crude production from major suppliers like OPEC will continue to keep them at elevated levels. Meanwhile crude demand will likely stay weak as well since the global economy remains in contraction. Fundamental forces like these should provide some countering pressure for crude prices. In turn, crude prices will likely range between major resistance levels at $65 and $75 for the medium term.

Commodities – Metals

Safe-haven Metals Gain On Dollar Weakness

Gold                   $940.000                           +$8.0000                              +0.93%
Gold prices continued to post modest gains for the day. Dollar weakness and expectation for greater inflation will likely continue to stand in favor of gold strength for some time. At the moment, the dollar continues to show indecision in movement and such gyrations could again lead to withdrawl from the dollar as a safe-haven. While gold will benefit from this in the near-term, it will also gain on expected inflationary risks for longer-term investors. And though presently muted, capital injections are large enough to make inflation a substantial risk for the future and is likely being hedged against by some longer-term investors. As a result, Gold prices can be expected to gain for the medium-term.

Silver                 $14.3400                         +$0.2100                               +1.45%
Silver prices gained as equity markets continued to decline. Gains will likely continue going forward but will be offset if the economy continues to show signs of contraction as silver is used in many industrial applications. However, if expectations turn such that economic activity will improve, silver has the potential to gain at a much faster pace than gold due to both effects of its safe-haven status and its industrial application. Expect modest gains for the near to medium-term.

-Written by Stefan Tifigiu, CFDTrading Research
Questions/Comments about this article? Send them to Stifigiu@fxcm.com

European Stocks Continue Declines as Optimistic Fervor Loses Steam

Europe Session Key Developments

•    Oil Pulls Back Under $70 Per Barrel
•    Basic Materials Falls on Commodity Declines
•    Concerns in Financials Linger

European markets closed lower across the board as traders continue to sell following a sharp rally in the five majors since early March. Indicators continue to come in better than expected with “less bad” data including lower jobless claims in the UK and improving trade balance surplus in the Euro-Zone. Data across the pond had minimal impact on European markets as US CPI posted around estimated changes. While indicators had little effect, financial firms continue to retrace lower as concerns linger that economic slowdown would create a negative feedback loop that leads to high loan losses on safer products. S&P today downgraded 22 U.S. banks’ credit ratings and earlier in the week, a report released by the European Central Bank warned of $283 billion in potential losses through 2010 in Europe. Markets appear to have overextended and this correction continues as concern lingers on how quickly the global recession will end and when central banks and governments will begin to cut back on fiscal spending and monetary easing.

FTSE 100                      4,278.46                   -50.11               -1.16%
The British index closed with the smallest loss of the five majors as six of the ten sectors fell along with more than 75% of stocks. Basic Materials suffered a sharp drop of 6.53% while Oil & Gas trailed far behind with a loss of 1.93%. Telecom rallied 3.37% on a 3.71% move in Vodafone and a 3.02% in BT group as news of a deal between Vodafone and Deutsche Telecom appears close to finalization while Morgan Stanley upgraded BT group, the UK’s largest phone company. Seeing leadership in the loser spots once again this week are miners including Xstrata, down 10.19% along with greater than seven percent declines in Lonmin, Vedanta, Kazakhmys, Eurasian Natural and Rio Tinto.

CAC 40                     3,161.14                   -52.81                 -1.64%
Trading in the French market led to a drop of more than one percent as seven of ten sectors fell along with 80% of stocks. Basic Materials led the loss 4.26% with Industrials trailing closely at 3.72%. Several firms closed down more than six percent including lender Dexia, tube maker Vallourec, and world’s largest steelmaker ArcelorMittal. Others seeing considering downside as traders sell the rally include tiremaker Michelin and cement producer Lafarge with losses of more than four percent each.

DAX                         4,799.98                    -90.74             -1.86%
The German index closed lower by nearly two percent as falling commodity prices and risks that recession will not quickly have caused selling in Europe’s largest exporting nation. Seven of the nine sectors closed lower including a 3.69% fall in Basic Materials and declines of more than two percent in three other sectors. Fertilizer maker K & S fell the most at 13.96% as the company lowered its guidance on production cuts in the face of lower demand. Also falling considerably at more than six percent were Commerzbank, steelmaker Salzgitter and conglomerate industrial firm ThyssenKrupp.

IBEX 35                     9,283.20                   -214.70                 -2.26%
Spain’s IBEX closed lower by more than two percent as no stocks on the exchange closed higher while seven sectors posted declines that ranged to the worst at 4.95% in utilities. Following closely behind was a 4.67% drop in Basic Materials as commodities continue to pullback. Builder Sacyr Vallehermoso fell the most at 7.35% along with a 6.63% drop in Acciona. Sacyr told reporters that it will end the year with 11 billion euros worth of debt and a comfortable position according to the chairman of the firm. Index point declines meanwhile were led by a 6.09% drop in energy company Iberdrola that resulted in a shave of 52.62 index points as the firm sold 1.3 billion euros worth of new shares.

S&P/MIB                        19,023.05                    -566.58                  -2.89%
Trading in Italy led to a loss of nearly three percent as all sectors declined. Basic Materials led the pace at a 6.91% loss while the Financial sector, which makes up nearly half the index weight, fell 4.03%. Holding company Prysmian led losses at 8.88% while shares of bank UBI were off by 7.01%. Italy’s banking sector suffered as the OECD reported the nation is in a sharp recession that may result in a contraction of 5.3% while adding that debt would rise to 110% of GDP and commenting that banks may need to raise capital further to deal with potential losses.

Written by Roman Kadinsky, CFDTrading Research
Please send any comments about this report to Rkadinsky@fxcm.com

Crude Tests Its Trend, Commodity Currencies Do the Same

Risk appetite and commodity trends typically move more-or-less in tandem. However, there are times when they the link wanes or even breaks down. This correlation has certainly ebbed over the past 48 hours. Since Monday’s follow through on the G8 meeting outcome, sentiment winds have clearly died down. However, some of the commodity bloc currencies (especially those valued against the Japanese yen) have extended and even accelerated their declines. Now with crude – one of the key natural resources for many of the commodity-heavy export nations – on the verge of breaking a mature trend; we see the Australian, Canadian and New Zealand dollar’s threatening the same. The technicals are clear; but the fundamentals are still murky. Uncertainty surrounding the Iranian presidential election protests and North Korean aggressions have put the energy market on edge. One thing is certain though, a breakout of this caliber can trigger a shift across asset class boundaries.

FedEx Dour Outlook and Falling Inflation Raise Doubts Over Global Recovery

What To Watch For In The US Session

•    CPI Falls To 60 Year Low
•    FedEx Forecasts Extremely Difficult Environment
•    Futures Point To Flat Open

FedEx Dour Outlook and Falling Inflation Raise Doubts Over Global Recovery

U.S. consumer prices fell to -1.3% on an annualized basis which was the lowest in 60 years and may lower profit expectations for companies who continue to battle shrinking margins. Energy costs fell by 1.3% leading the prices lower but we may see a reversal with oil’s recent rise. Companies will have to deal with rising input costs while being unable to pass on costs to consumer will fin it difficult to generate gains. FedEx forecasting that the first two quarters of its fiscal year will be extremely difficult has also dampened optimism and has led futures lower. However, we have seen the inflation data sink the dollar which could add support for commodities and related equity names. Additionally, the lack of a threat of inflation will keep the Fed from raising interest rates which will allow companies to continue to obtain cheap credit.

Dow Jones     8504.67
The DJIA futures turned negative in the FedEx forecast as the transportation giant is a good proxy for the global economy and its dour outlook may signal that a recovery will be slow to come.

NASDAQ      1796.18
The Nasdaq index is seeing futures positive and could see a positive day as tech names continue to be viewed as a safe haven in the current downturn.

S&P 500      911.97
The S&P 500 is looking at a flat open as the prospect of shrinking profit margins is being offset by the expectations that credit costs will remain low going forward.

S&P 500 Looking To Test Support At 200-Day SMA

Staying above 8227 keeps the near term trend pointed up.  The rally from 6470 to 8588 was in 3 waves (wave W) and the decline to 8221 was a small expanded flat.  The break above 8588 confirms that wave C is underway.  A likely target area is where wave C would equal wave A; which is near the 50% retracement of the decline from the 2007 high; at 10334.

The Dow continued to trade lower after falling below the 200-Day SMA, which may make it susceptible for more losses. We could see momentum send the blue chip index lower to test support at 8,250.

The S&P count is the same as the Dow count.  A B wave is complete at 879.  A target is 1142 (100% extension) and the index should remain above 879 now.

The S&P 500 continued to trade lower and is now threatening to test support at the 200-Day SMA at 903. If bearish momentum continues we could potentially see the broader index fall to 880 where it will find solid support.

The Nasdaq is in the same position as the other US indexes.  The index should remain above 1664 on its way to a test of the 50% to 61.8% retracement area of the decline from 2862.  This zone is 2063 to 2251.  The 100% extension of the rally from 1264-1773 is in this zone at 2172.

The Nasdaq showed further weakness and is now looking like it could possibly fall to former congestion near 1,665. However, psychological support at 1,700 could slow its momentum and lead to a reversal.

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