July 2009

European Stocks Closed Mixed as Earnings Weakness and UK GDP Outpaced Optimism in German IFO

Europe Session Key Developments

•    Technology Earnings from Microsoft Disappoint
•    Commodities Mixed on Session

European Markets closed lower today as optimism in German IFO data and improvement in Euro-Zone PMI data failed to lift stocks higher following sharp upside in the past two weeks. Helping to propel stocks lower, advanced reading of U.K. GDP for the second quarter came in at a contraction of 0.8%, worse than the 0.2% contraction forecast on Bloomberg. At the same time, earnings proved less impressive as Microsoft reported a decline in revenue that sent its stock down more than ten percent early in US trading. Also, e-commerce site Amazon reported worse than expected net income along with lackluster sales and guidance lower than analyst estimates. On the upside, Euro-Zone PMI data came in better than expected as contraction narrowed in July while German IFO data showed better than expected improvements in current conditions and expectations. Ultimately, markets have rallied sharply in the past two weeks, and profit taking ahead of the weekend is not all too surprising following mixed data.

FTSE 100                      4,576.61                   +16.81               +0.37%
The British FTSE closed higher by nearly half of one percent as strength in Telecommunications and Financials outpaced losses in five sectors amid a GDP report that came in worse than expected. Vodafone propelled telecoms higher by more than two percent as the stock climbed 2.87% amid better than expected earnings on revenue figures. Financials also rose with the London Stock Exchange up 4.31% amid news the firm plans to expand into corporate bond markets in the fourth quarter. Others moving noticeably included venture capital firm 3i group and insurer Standard Charter, both up more than three percent.

CAC 40                     3,366.45                   -7.27                 -0.22%
Stocks in France took a turn into a lower close as eight of ten sectors declined while Industrials rose 0.81% and Financials gained 0.41%. While UK GDP contracted at a fairly small rate, it proved higher than estimates, and combined with PMI data still showing contraction, stocks shed gains going into the weekend. Utility EDF fell the most at 4.47% as recessionary forces are likely to curb power demand and lead to lower prices.

DAX                         5,229.36                    -17.92             -0.34%
The German DAX fell more than three tenths of one percent as weakness was noted in nearly all sectors while more than half of stocks closed lower. Gains were seen in several large firms including a 3.54% move in steelmaker ThyssenKrupp and a 2.53% gain in shares of Volkswagen. On the lagging end, shares of drug maker Merck fell sharply at more than a 14% loss as the company reported a 48% fall in profit to €109 million.

IBEX 35                     10,438.60                   +68.80                 +0.66%
Trading in the Spanish market led to the highest close of the five majors despite unemployment rising in the second quarter to 17.9%. Eight of nine sectors gained while Health Care fell 1.15% as drug maker Merck reported poor earnings in Germany. Financials continued its winning streak with a move of 0.88% higher as insurer Mapfre rose 3.25% while Banco Santander, the largest in Spain, climbed 1.54%.

S&P/MIB                        20,161.18                    -81.13                  -0.40%
Stocks in Italy closed lower by the most of the five majors as the recent rally gave way to selling pressure. Despite the concern, the index remains above the 20,000 mark and is higher by more than three percent on the year. Recovery in the auto sector and improvements in retail spending may help the economy recover quickly from its fourth recession since the start of the decade.

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

Fibo Resistance Ahead For Dow, Break Could Lead To Test of 9,500

The Dow has clearly broken out to the upside and reached a new yearly high of 9,096 before closing back below the former mark of 9,088 set on January 6th. There is also resistance at 9,123 -the 50.0% Fibo extension of 11,790-6,470. A break above there could see the blue chip index look to test 9,500.

The S&P 500 has risen to its highest level since last November setting a new yearly high of 979. A break above Fibo resistance leaves 1,000 and the November 4th high of 1,075 as the next barriers.

The Nasdaq has broken above the 50.0% Fibo extension of 2,549-1,265 at 1,908 leaving 2,000 as the next barrier. We could see an ultimate test of 2,059-the 61.8% Fibo before the tech laden index finds solid resistance.

Stocks in Asia/Pacific Continue to Advance, Nikkei Rallies for Eighth Day

Asia Session Key Developments

• Hang Seng Reaches 20,000 for First Time Since September
• MSCI Asia Pacific Index Marks Longest Winning Streak Since 2004

Stocks in Asia/Pacific Continue to Advance, Nikkei Rallies for Eighth Day

Stocks in the Asia/Pacific continue to move higher, with the Nikkei marking an eight-day win streak with a1.55% gain on Friday. Much of the gains today were fueled by the better-than-expect 1Q GDP report from South Korea, with investors driving the markets higher on speculation that the bear market has come to an end. As a result, the MSCI Asia Pacific Index marked the longest winning streak since 2004, and the rise in market sentiment may continue to drive global equities higher over the following week.

NKY 225                                           9,944.55

The Nikkei rose 151.61 points (1.55%) to close at 9,944.55 in Tokyo, with eight of the 10 components pushing higher. Canon Inc. rose 4.43% after Nomura upgraded the firms rating to “buy,” while shares of Advantest Corp. jumped 4.39% after the Nikkei business daily said orders for chip-test equipments may have doubled in the previous quarter. Meanwhile, KDDI Corp. slumped 1.37% even after the firm announced profit rose 19% in the first quarter. At the same time, the Japanese Industry Activity Index increased 0.7% in May amid expectations for a 0.7% rise, and the data suggests activity in the world’s second-largest economy may remain subdued as global trade conditions remain weak.

HSI                                                         19,982.79

Stocks in Hong Kong were higher on Friday, with the Hang Seng gaining 165.09 points to end the week at 19982.79, led by a 4.71% rally in basic materials. Most of the major stocks were relatively steady however, China Shenhua Energy Company added 4.24% on speculation that coal demand will grow in 2010. Moreover, Ping An Insurance gained 3.03% after the firm was approved for national interbank lending in China. Notably, the Hang Seng hit 20,000 for the first time since the collapse of Lehman Brothers.

ASX 200                                            4,089.80

The ASX 200 was tipped higher on Friday, with the index adding 25.70 points (0.63%) to close at 4,089.80, led by a 1.80% gain in consumer goods. Wesfarmers gained 3.79% while Macquarie Group shed 4.31% as trading resumed today, following the company’s announcement that it would cease to be a substantial holder of Macquarie Communications Infrastructure Group. Meanwhile, the mutual fund manager AMP Capital Investors announced that they are dumping their holdings of government bond following the bullish rally in the global equities market.

Notable Asian Session Event Risk / Economic Releases

European Stock Markets To Follow Wall Street On Rising Recovery Optimism

Europe: What to Watch For

• Dow Jones Rallies Past 9000 On Canada’s Outlook
• Euro-Zone Purchasing Manager Index Hints Improvement

European stock exchanges look to feed off Wall Street’s rally as US housing numbers showed surprising confidence in the US real estate market and better then expected earnings lifted investors.  The Bank of Canada said that it expects its country to come out of recession by the end of this quarter.  The bold statement rippled through the US session as hopes of a domestic recovery heightened.  The Euro-Zone Purchasing Manager Index is expected to slightly rise as European executives remain optimistic of bettering economic environments.  The Manufacturing index is forecasted to rise to 43.5 in July, up from June’s 42.6.  The Services index is expected to rise to edge up to 45.2 in July, higher then June’s reading of 44.7.

DAX 30   5247.28

The German IFO – Expectations Survey is set to measure at 90.1 in June, up from May’s 89.5, marking the seventh consecutive month increase.  Though the metric indicates improving sentiment among German firms, the surveyed figure still falls well short of the 100 centerline between positive and negative outlooks.

Daimler AG, the world’s largest truck maker, is scheduled to release the Euro-Zone’s truck and bus sales for June.  The report may shift market sentiment of the auto industry if figures are not inline with general expectations.

FTSE 100   4559.80

UK Gross Domestic Product is expected to fall -5.2% in the year through the second quarter as the economy slides deeper into recession.  High unemployment continues to weigh on consumer spending and corporate profits, while weak demand from abroad plagues industrial production.

British Airways Plc, one of Europe’s biggest airlines, has unsuccessfully ended talks with the union representing its cabin crew.  The struggling industry has been forced to cut wages and flights as consumers and businesses cut travel.

CAC 40   3373.72

French Manufacturing and Services are expected to hint slight improvements on rising surveys of the Purchasing Manager Index.  PMI Manufacturing is forecasted to rise to 46.5 in July from its previous reading of 45.9, and the PMI Services is set to measure at 47.7 from June’s 47.2 reading.  The metrics indicate rising sentiment among French executives, however remain far from levels of normality.

Air France-KLM Group, Europe’s largest airline, reported that first quarter revenue fell 21% as the global recession reduced passenger traffic.

IBEX 35   10369.80

With no events on the economic calendar, the Spanish index is likely to parallel risk trends seen in comparable European markets.

FTSE / MIB   20242.31

Italy’s second largest power generator, Edison SpA is scheduled to release first half earnings.  Fiat SpA, the nation’s largest auto maker sold €1.25 billion worth of bonds to help the company with liquidity issues.

Upcoming European Session Event Risk / Economic Release

Written by Kevin Yip, CFDTrading Analyst

For questions and comments email kyip@fxcm.com

Dow Breaks 9000 After G7 Country Says Its Recession Will End This Quarter

US Session Key Developments

• Bank of Canada Says Country Recession to End This Quarter
  
• June Existing Home Sales Strongest Since February
  

Dow Breaks 9000 As G7 Country Says Its Recession Will End This Quarter

Wall Street pulled off one of the most stunning days in its history after the Dow Jones Industrial Average broke the 9000 mark for the first time since the beginning of September. Sentiment flourish after the central bank of Canada, a G7 country, said that its own recession would end this quarter. Word that at least one of the global economic leaders would be getting through this crisis in a quicker-than-expected manner served investors well. June existing home sales surged ahead, growing 3.6% when estimates called for the figure to rise by only 1.5%.

Dow 30              9069.29             +188.03                        +2.12%

The Dow finished the day slightly ahead prior to a surge in activity that sent the blue-chip index to a high of 9096.27. As such, only three stocks finished in the read. McDonald’s sent the Consumer Services sector down hill after it reported earnings that matched that of expectations.

SPX 500              976.29                 +22.22                        +2.33%

The VIX (fear gauge) declined today for the fifth of six days, declining by only 0.03 points to 23.43. Basic Materials gained 3.03% with Dow and DuPont surging ahead after DuPont’s CFO stated that Chinese demand would continue to drive growth for the company.

NAS 100             1973.60                +47.22                          +2.45%

Every sector in the NASDAQ finished in the green with Telecommunications and Oil/Gas adding more than 4.1% to their numbers. Technology finished ahead 1.83%, but may falter tomorrow on Microsoft‘s post-session earnings report. The Redmond, Washington-based company posted earnings that were shy of Wall Street estimates.

Daily Commodities Fundamentals: Crude Soars, Gold Slips, Silver Slightly Up

North American Commodity Update, Last Updated 7/23/2009 3:54 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Push Forward, Testing $69 During Intraday

Crude Oil (WTI)   $67.180                         +$1.780                             +2.72%
Crude Oil future prices saw significant gains today after encouraging fundamental economic data and corporate earnings were released. Crude reached levels near $69-per-barrel during intraday trading before retracing slightly back near $67, still over a 2.5% gain during the session. US Existing Home Sales, which exceeded expectations by 50,000, proved to be a significant market-mover for Crude prices. Less than an hour later, the Bank of Canada’s Monetary Policy Report provided extremely bullish sentiment in the market, stating that the recession would end this quarter.  The report came in conjunction with additional corporate earnings that exceed analyst expectations, led by AT&T and Ford. Equities all pushed higher as a result, with the Dow surpassing the psychological 9000 level for the first time since January. If Crude can hold strong through tomorrow’s session, it will have added over 10% since 7/10.

Upcoming Department of Energy Inventories

Commodities – Metals

Gold Stuck Near $950, Silver Gains Modestly

Gold                   $950.500                           -$2.800                           -0.29%
Gold future prices did not perform as well as expected today, trading generally sideways yet again. During today’s session, Gold hit a 6-week high immediately following the surprising fundamental data releases. However, the metal could not hold onto its gains, falling from near $957-per-ounce back to around $952, marking a slight decline on the day. For weeks, Gold has been trading inversely with US dollar strength as investors waver between risk aversion and risk appetite. The reason for Gold’s standstill is two-fold; the US dollar was mixed across the board today, beating safe-haven currencies like the Yen and the Franc but losing badly to the Canadian dollar. Additionally, recent inflationary reports have signaled that price growth has been controlled; Gold usually thrives upon inflation concern, as investors use the metal to hedge.

Silver                 $13.770                    +$0.070                          +0.51%
Silver future prices continued to pass higher today, adding another modest gain to what’s becoming an impressive run for the metal. Dollar weakness was not the driving force behind Silver’s gain today; rather, the prospect of a global economic recovery led to a bid up of the dually useful metal. As mentioned yesterday, the UK Retail Sales figure had potential to be market moving today. The release was just one of numerous fundamental data reports that contributed to Silver’s gain today, as US Existing Home Sales and the Bank of Canada’s Monetary Policy also propped up Silver future prices. Tomorrow could end another successful week for Silver; since 7/10, Silver has added nearly 9%.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

European Stocks Rally Higher as Strong Data Adds to Optimism on Second Half Recovery

Europe Session Key Developments

•    Commodities Rise as Market Optimism Continues
•    Indicator Releases Show Improvements

European Markets appeared to moderate in their advance yesterday but followed through with a sharp rally of more than two percent in several major indices as earnings reports and data continue to show improvement and possible growth in the third quarter. Earnings reports today proved less significant while indicators and comments spurred upside in stocks. Data in the UK proved especially uplifting as retail sales rose 1.2%, well above the Bloomberg forecast of 0.3%, as higher confidence and moderation in job losses has led to improvements in spending. Also, Loans for house purchasing rose to more than 35,000 following a slight last month that had some concerned over the pace of improvement. The housing sector saw additional gains when US existing home sales late in the session came in at 3.6% higher on a monthly basis. Economists had expected an increase of just 1.5%. Also raising sentiment, the Bank of Canada issued its lately Monetary Policy Report in which the group demonstrated a hawkish view on recovery with growth in GDP now expected in the third quarter. Previously, growth had been expected to start in the fourth quarter of 2009. Better than expected earnings, combined with strong news and indicators are making a strong case that economic deterioration may not be as sharp as some grim estimates, such as the IMF, suggest, while also pointing to growth in the quarters ahead. Looking to Friday news, UK GDP data will be of chief importance as a small contraction in the island nation could be an early signal of improvements in other advanced economies.

FTSE 100                      4,559.80                   +66.07               +1.47%
Stocks in the UK rose in five of ten sectors with more than 70% of equities higher on the day. Basic Materials led by 4.87% while Financials trailed second at 3.04%. Weakness was felt in Utilities, down 1.37%, and a 0.42% dip in Industrials. Raw materials producers led the index as metal prices increased considerably. Kazakhmys rose the most at 9.52% followed by an 8.86% gain in Eurasian Natural and greater than seven percent moves in Fresnillo, Vedanta, and Xstrata. Also seeing considerable upside was Lloyds bank, which gained 5.33% as improvement in housing and loans could bode well on financial outlook. Overall the index rose the least of the five majors.

CAC 40                     3,373.72                   +68.65                 +2.08%
Stocks in France gained more than two percent as 36 of 40 stocks climbed along with gains in all sectors. Basic Materials and Financials also led the French index higher similarly to the UK, although five sectors managed more than two percent gains at the close. Several firms saw more than 5% gains including alcohol producer Pernod-Ricard, manufacturer Saint-Gobain and insurer Axa. Indicators in France today saw business confidence improve slightly while production outlook came in worse than expected.

DAX                         5,247.28                    +125.72             +2.45%
Trading in the German market led to the largest gain of the five majors as three largely weighted sectors, Industrials, Basic Materials, and Financials, all rose more than three percent. Steelmaker ThyssenKrupp gained the most at 6.92% followed by mailing operator Deutsche Post as the firm reported it will profit in 2009 and completed a convertible bond sale. Others seeing consider gains of more than three percent included drugmaker Bayer, Deutsche Boerse and Deutsche Bank.

IBEX 35                     10,369.80                   +216.40                 +2.13%
Spanish equities rose more than two percent as all sectors gained and more than 85% of stocks posted in the green. Basic Materials led with a 3.49% gain followed by greater than two percent moves in four other sectors. TV station operator Gestevision Telecinco rose the most on the day for the second time with a 5.65% gain after Goldman Sachs removed the company from its conviction sell list, despite keeping its rating at “sell.” Also gaining notably on the session was a 5.38% move in shares of construction firm Obrascon Huarte Lain and a 4.68% gain in insurer Mapfre

S&P/MIB                        20,242.31                    +316.60                  +1.59%
Italian stocks gained more than one percent as optimism spread and research from the Isae helped add to optimism. The research group commented that GDP will grow in the third quarter for the first time since Q1 2008. Still, the economy is expected to contract 5.3% in the year and expand 0.2% in 2010.

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

Dow Could Stall At 9,000 Leading To Sideways Price Action

The Dow has started to get heavy after breaking above resistance at the June 11th high of 8,877. We may still see a test of the psychological barrier of 9,000. However, if we see a hold there then the blue chip index could see sideways price action over the short-term before the next trend.

The S&P 500 advance is threatening resistance at 956- the June 11th high. If we see a hold there then the broader index could become range bound between 870 and 960. However, we may be seeing the beginning of a longer-term bullish trend as the golden cross formation is signaling which a break above could confirm.

The Nasdaq has broken above the 50.0% Fibo extension of 2,549-1,265 at 1,908 leaving 2,000 as the next barrier. However, the Fibo level could still hold and a retrace may see the tech laden index settle back into range bound price action.

Hang Seng Advances to 10-Month High, Nikkei Rallies for Seventh Day

Asia Session Key Developments

• Softer Yen Boosts Nikkei, Japanese Exporters
• Hang Seng Continues to Outperform

Hang Seng Advances to 10-Month High, Nikkei Rallies for Seventh Day

Stocks in the Asia/Pacific were broadly higher, with the Hang Seng jumping to a 10-month high, while the Nikkei rallied for the seventh consecutive session following the depreciation in the Japanese yen. Meanwhile, a report by the Japanese government showed the trade surplus expanded for the first time in nearly two-years, with exports falling at its slowest pace on the year, and the data encourages an improved outlook for future growth as policymakers expected a global recovery later this year.

NKY 225                                           9,792.94

The Japanese equity market rallied for the seventh day, boosted by the depreciation in the Yen, with the Nikkei closing 69.78 points (0.72%) higher at 9792.94, led by a 1.59% gain in technology. CSK Holdings Corp advanced 7.40% to lead the subsector higher, with shares of Sumco Corp and Fujitsu Ltd adding 6.84% and 3.43%, respectively. At the same time, KDDI Corp. fell 1.35% ahead of its earnings report , which showed a 19% rise in first-quarter profits, and the stock may benefit from the cost-cutting measures as the firm anticipates its fixed-line business to turn profitable over the next two-years.

HSI                                                         19,817.70

Stocks in Hong Kong pared losses from the previous session, with the Hang Seng soaring 569.53 points (2.96%) on the day to close at a 10-month high of 19,817.70. All 42 securities listed on the index were higher, with each subsector up by at least 1.19%. Bank of Communications Co. jumped 5.24%, with shares of China Life Insurance Co. advancing 4.98%, after Goldman Sachs issued a higher price target for the firms. At the same time, China Petroleum & Chemical Corp. shot up 5.28% after the NYMEX crude advanced to $65 a barrel, with PetroChina gaining 2.73% after the firm announced it will begin trial operations at its refinery in north-western China.

ASX 200                                            4,064.10

The ASX 200 was marginally lower on Thursday, with the index falling 4.40 points (0.11%) to close at 4,064.10, driven by a 1.41% drop in consumer services. National Australia Bank fell 5.22% after the firm said it sold $1.6 billion worth of shares at discount to shore up its capital. Moreover, shares of Woolworth declined 3.73% after they were cut from “buy” to “hold” by RBS. At the same time, Macquarie Group was up 4.76% after being upgraded to a “buy” from Citigroup, but trading was halted before the investment bank announced it would cease to be a substantial holder of Macquarie Communications Infrastructure Group.

Notable Asian Session Event Risk / Economic Releases

European Stock Markets To Move On Retail Sales

Europe: What to Watch For

• US Session Stalls Seven Day Rally, Asia Rises
• Euro-Zone Running Current Account Deficit

European stock exchanges look set to react to retail sales reports from both Great Britain and Italy.  Higher expectations of growth from the year prior may indicate that huge stimulus packages are starting to filter through the larger economy.  Wall Street ended seven days of consecutive gains, with stocks falling as crude slid, dragging down oil companies.  The Asia session is gaining on a weakening Yen, strengthening the market’s outlook for Japanese exports.  Although the Euro Trade Balance reported a surplus of €0.8 billion, the Euro-Zone Current Account is likely to continue its deficit as net income payments and unilateral transfers leave the region.

DAX 30   5121.56

The jet-engine maker MTU Aero Engines Holding AG is scheduled to release second quarter results which will help convey the current condition of capital investment in the aerospace industry.  With no events on the economic calendar, the German index is likely to parallel risk trends seen in comparable European markets.

FTSE 100   4493.73

UK Retail Sales are set to show an increase of 2.1% in the year end June, overshadowing May’s -1.6% decline.  The metric may help bolster the market’s future outlook for the UK economy, showing that the Britain’s £26 billion stimulus plan is beginning to filter out and uplift various sectors of the broader economy.

The UK government announced that it will spend 1.1 billion pounds on a project to convert two traditional rail lines into more efficient rail ways.  The civil works project is aimed to boost the economy and reduce carbon emissions.

CAC 40   3305.07

Economic indicators are expected to corroborate a general trend that the French economy is declining, but at a slower rate.  French Business Confidence Indicator is expected to increase to 77 in July, up from June’s 75.  The survey of French business leaders still shows a struggling economy with the surveyed metric falling well short of the 100 boom-bust reading.  French Own-Company Production Outlook is forecasted at -14 in July, rising slightly from June’s -18.  Similarly, Production Outlook Indicator is expected to edge slightly up in July to -38.  All indicators hint at heightening optimism of recovering business conditions, yet are still far from “normal” conditions.

Cie. De Saint-Gobain, Europe’s largest supplier of building material reports first half earnings which are estimated to fall over 80% as demand from the construction industry faltered.  Publicis Groupe SA, one of the world’s top advertising agencies, reports first-half results.

IBEX 35   10153.40

The Spanish commercial banking industry appears grim as Banco Sabadell SA and Bankinter SA, two of the largest commercial banks in Spain are expected to report second quarter losses as defaulting loans continue to plague banks’ bottom lines.

FTSE / MIB   19925.71

Italian Retail Sales are expected to rise 0.3% in the year end June, bettering May’s -0.6% decrease.  The increase in consumer spending on retail goods may indicate that Italy’s €40 billion stimulus package is starting to ripple through the economy.

Upcoming European Session Event Risk / Economic Releases

Written by Kevin Yip, CFDTrading Analyst

For questions and comments email kyip@fxcm.com

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