July 2009

Strong Earnings From Caterpillar, UTC Send Futures Higher Offsetting Concerns Of Hawkish Bernanke

What To Watch For In The US Session

•    Bernanke Talks Interest Rates
•    Caterpillar Leads Strong Dow Earnings
•    Redbook Shows Sales Decline

Strong Earnings From Caterpillar, UTC Send Futures Higher Offsetting Concerns Of Hawkish Bernanke

Strong earnings from Caterpillar, UTC and DuPont help reverse futures which were trading lower on talk from Fed Chairman Ben Bernanke about raising interest rates. The central bank leader wrote an op-ed piece in the Wall St Journal which stated that a plan for raising interest rates in order to head off future inflation is being developed. However, he would also state that rates will remain accommodating for the foreseeable future. He will testify today before The prospect of tightening from the Fed lowered the growth outlook and the potential scope of an economic recovery. Those concerns were erased by the strong results from the Dow components led by Caterpillar which reported second quarter earnings of $0.72 versus forecasts of $0.22.

Dow Jones     8848.15
The DJIA futures have turned positive on the positive earnings after trading lower throughout the overnight. All of the Dow component that reported beat estimates including UTC, Coca Cola, DuPont and Merck which should lead to a positive day, unless we see a hawkish Bernanke

NASDAQ      1909.29
The Nasdaq index has also seen support on the positive earnings and with Apple expected to report robust figures after the bell we could see some front running of the number.

S&P 500      951.13
The S&P 500 could also find support as earnings continue to beat expectations which were at very low levels following expectations for a second Great Depression. Chairman Ben Bernanke could limit gains if he raises interest rate expectations, as the current low levels are helping companies especially banks generate profits. Also, we saw Redbook report that sales fell 1.7% in July versus the previous month which could weigh on consumer discretionary names.

Nasdaq Faces Fibo Resistance, Break Could Lead To Test of 2,000

The Dow continued to march toward a test of resistance at the June 11th high of 8,877. 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 broke through 943 the early January high leaving the June 11th high as the next barrier. If resistance holds there then we could see the broader index become range bound between 870 and 960. However, we could 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 psychological resistance at 1,900 and is threatening the 50.0% Fibo extension of 2,549-1,265 at 1,908.  A hold there could lead the tech laden index into a period of range bound price action.  However, a break above leaves large upside potential with 2,000 as the next resistance level.

Stocks in Asia/Pacific Mixed Ahead of Fed Bernanke’s Testimony, Nikkei Advances 2%

Asia Session Key Developments

• BOJ to Consider Different Options for Exit Strategy
• RBA Minutes Reinforce Improve Outlook for Growth

Stocks in the Asia/Pacific were mixed ahead of Fed Chairman Ben Bernanke’s testimony before the House Financial Services Committee, while the Nikkei advanced 2.73% following the Marine Holiday. Meanwhile, expectations for a global recovery pushed the MSCI Asia Pacific Index to a 9-month high, while Goldman Sachs raised its forecast for the S&P 500 as the firm expects a sharp rally throughout the second-half of the year. At the same time, the Reserve Bank of Australia board minutes encouraged an improved outlook for the $1T economy as the central bank sees ‘further signs of stabilization in the world economy,’ and the comments suggests that the RBA will continue to keep a floor on the benchmark interest rate as they anticipate a ‘gradual recovery to begin later in the year.’

NKY 225                                           9,652.02

The Nikkei gained 256.70 points (2.73%) following the holiday to close at 9,652.02, with all of the subsectors adding at least 0.41%, led by a 4.08% gain in basic materials. Moreover, Softbank Corp. rose 3.80%, leading financials higher, while shares of Honda Motor Co advanced 3.03% after the firm said it will extend overtime at two plants in order to meet demands. Meanwhile, the BoJ Minutes from the June 15-16 policy meeting said the central bank will adopt a variety of different measures in its exit strategy, and went onto say that ‘the measures should not be examined collectively but individually’ as they were meant to serve a separate purpose.

HSI                                                         19,501.73

The Hang Seng tipped lower, shedding only 0.64 points (0.00%) to close the day at 19,501.73 in Hong Kong. Tencent Holdings lost most of yesterday’s gains, falling 5.63% on the day, while shares of China Mobile slipping 2.53% after a government report said profits at major state companies were lower throughout the first half of the year. Meanwhile, HSBC Holdings made a solid gain of 1.92% to lead financials higher. At the same time, China’s Leading Index improved from last month however, the news failed to support the equities market as investors soaked in profits ahead of Chairman Bernanke’s testimony before the U.S. Congress.

ASX 200                                            4,050.70

The ASX 200 was also mixed today, moving up a marginal 0.40 point (0.01%) to close the day at 4,050.70. Rio Tinto traded 2.85% higher after reports that Chinese steel output hit a record high, with shares of BHP Billiton advancing 0.53%. At the same time, Harvey Norman Holdings shed 6.05% to end an eight-day winning streak after the firm reported a lower-than-expected rise in sales, while Mincor Resources jumped 19.50% after the firm raised production and lowered costs. Meanwhile, the Reserve Bank of Australia minutes showed the central bank continued to hold an improved outlook for global growth, and expects economic activity in the $1T to improve throughout the second-half of the year.

Notable Asian Session Event Risk / Economic Releases

European Stock Markets To Buoy On Hopes Of US Recovery

Europe: What to Watch For

• Wall Street Advances On CIT Rescue, Hopes Of Strong Earnings Week
• Asia Session Feeding Off US Gains

European stock exchanges look to parallel Asian market trends as recovery hopes for the US economy ripple across global financial markets.  The S&P hit an eight-month high as worries about a failing CIT were dispelled when the commercial financier hit an agreement with bondholders to receive an additional $3 billion in emergency funding.  Investors remain optimistic on future corporate earnings as last week’s reports sent equity markets soaring.

DAX 30   5030.15

Continental AG, one of the top five auto suppliers in the world, may raise €1 billion in a share sale in order to shore up their capital base.  The move comes as the auto maker reported that pretax earnings slid 91% in the second quarter on weak demand for car parts.  Volkswagen AG, Europe’s largest carmaker, forecasts that Mexican car manufacturing will drop 30% this year.  The data may indicate that the global recession is hitting emerging markets surprisingly hard, hurting corporations who looked to these regions for future growth opportunities.

FTSE 100   4443.62

UK Public Finances is set to increase to £20.2 billion in June from May’s £18.8 billion indicating the British Government’s increasing demand for financing to accommodate their spending trends.

CAC 40   3270.94

Guyenne & Gascogne SA, the operator of Carrefour SA stores in France and Spain reported second quarter earnings fell -0.9%.  Hermes International SCA, who produces luxury handbags, is scheduled to post second quarter revenue before opening.  Revenue figures may help markets evaluate the luxury- good market’s current state, as consumers curtail unnecessary purchases amid high unemployment and low levels of disposable income.

IBEX 35   10142.80

Iberdrola Renovables SA, the world’s largest operator of wind energy farms, is scheduled to release second quarter earnings after the market closes.  NH Hoteles SA and Sol Melia SA, the two largest Spanish hotel operators, appear susceptible to volatility as The Institute of Tourist Studies releases figures on travelers to the country in June.

FTSE / MIB   19516.72

Real estate company Beni Stabili SpA, is expected to release six-month earnings.  Leasing company Banca Italease SpA bought out Banco Popolare SC as Moody upgraded its long-term credit from Baa3 to Ba1.  With no events on the economic calendar, the FTSE/MIB is likely to follow similar trends seen in other European markets.

Upcoming European Session Event Risk / Economic Releases

Written by Kevin Yip, CFDTrading Analyst

For questions and comments email kyip@fxcm.com

Daily Commodities Fundamentals: Commodities Continue to Push Higher, Test Key Psychological Barriers

North American Commodity Update, Last Updated 7/20/2009 4:05 PM EST (GMT = EDT +5:00)

Commodities – Energy

Economic Optimism Drives Crude Prices Higher

Crude Oil (WTI)   $64.350                         +$0.790                             +1.24%
Crude Oil future prices picked up right where they left off last week, adding nearly another 1% during today’s trading session. Last week, Crude was driven by encouraging corporate earnings releases, better-than-expected employment figures and various other economic indicators all pointing to an economic turnaround. There were numerous reasons for Crude’s gain today, beginning with the US Leading Indicator, which increased by 0.7%, surpassing the 0.5% expectation. The indicator improved for the 3rd straight month, the first time we have seen such a streak since 2004. Increased economic optimism led to a speculation that demand for the commodity will soon increase, driving future prices higher. In related equity news, CIT Group announced a private-sector bailout today after the US Government refused to grant the struggling lender any more funding. The government’s refusal to issue more bailout funds revealed its newfound faith in the stability of the economy, contributing to additional commodity gains. European Equity Indices all closed higher during today’s trading, propping up the price of Crude near the $65-per-barrel level. Slight resistance exists just above $65, so Crude may struggle before eventually breaking this important price barrier.

Upcoming Department of Energy Inventories

Commodities – Metals

Precious Metals Achieve Gains on Weaker Greenback

Gold                   $949.700                           +$12.200                           +1.30%
Gold prices tapped a 5-week high at just under $955-per-ounce during today’s trading before falling back slightly to the psychological $950 level. Gold’s dramatic increase of late can be easily explained; the US dollar fell across the board today against its major competitors, falling to a 6-week low. Gold and the greenback often trade inversely as investors use the metal to hedge against dollar weakness/inflation. As investors prepare for an economic recovery, inflationary concerns set in and, in turn, bid up Gold future prices. Inflationary fears were so overwhelming that even an alarming German PPI report signaling deflation could not mute the metal’s gains today. Gold prices have struggled to remain above $950-per-barrel today, which may signal that investors are not ready to break the resistance quite yet. Expect prices to oscillate around this level in the short-run, though a breakthrough may be on the horizon.

Silver                 $13.635                    +$0.232                          +1.73%
Silver future prices continued to increase during today’s trading, bouncing off a recent low near $12.50 just two weeks ago. As was the case with Gold futures, Silver benefitted from dollar weakness as investors bought the metal to defend against inflation. The prospect of an economic recovery also drove Silver prices higher; the market continues to price in last week’s encouraging corporate earnings reports and positive leading indicators. The Bank of Canad’s Interest Rate Decision and various price index reports will be released; these announcements will move the commodity market as we learn more about global economic confidence and inflation.

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

European Markets Move Higher as Commodities Continue to Rally

Europe Session Key Developments

•    Commodities Rise on Continued Optimism
•    UK Index Closes in Positive YTD Territory

European Markets closed higher, extending last week’s rally as optimism on second quarter earnings continues to fill confidence in the second half recovery. Commodities consequently saw considerable gains with crude having risen to nearly $65 per barrel before pulling back. Metals also moved higher with copper on the Chicago Mercantile Exchange rising temporarily to a new high above its June peak to the best level since October. Indicator releases proved helpful today as Rightmove reported house prices rising in the UK for the fifth time in the past six months while the annualized decline narrowed. Also adding to sentiment, the German Bundesbank commented that Europe’s largest economy narrowed “only slightly” the second quarter as trade improved and recession eased. Optimistic fervor has led to positive year-to-date performance on all five majors with the Spanish IBEX leading at a 10.3% gain. Similarly, US markets are also seeing upside with the Dow30 higher since the start of the year, while the technology weighted NASDAQ up by more than twenty percent.

FTSE 100                      4,443.62                   +54.87           +1.25%
Trading in the British market led to a gain of more than one percent as Financials and Basic Materials led with gains of more than percent. Leaders on the board included raw material producers, up on higher commodities prices, and insurance stocks, as renewed acquisition talks appear between Resolution Ltd. and Friends Provident. Kazakhmys led the index at a 7.59% gain followed closely by Legal & General rising 7.57%. Lloyds bank rose 6.68% as the Sunday Times newspaper reported the bank may report profit in first half of the year. Other firms seeing gains included Prudential and Eurasian Natural, both up more than five percent. There remains significant optimism that the UK economy will emerge quickly from recession as steps taken to insure the safety of the banking sector have been largely successful for the remaining major firms.

CAC 40                     3,270.94                   +52.48                 +1.63%
French stocks rose the most of the five majors as Consumer Services and Basic Materials both managed gains of more than three percent while 36 of 40 stocks closed higher on the day. Hotel company Accor rose the most at 5.99% following a significant drop on Friday due to concern of lower sales. Also seeing a considerable gain was steelmaker ArcelorMittal, up 4.23% as commodities moved higher. Overall the index is now at the highest level since a sharp slide in mid-June.

DAX                         5,030.15                    +51.75             +1.04%
Stocks in Germany closed back above the 5,000 level for the first time in more than a month as gains in Financials, Industrials and Utilities led to more than ten point moves each for the index. Stocks seeing the most gains included steelmaker ThyssenKrupp, up 3.79% on higher commodities, along with retailer Metro as the Bundesbank reported that contraction narrowed sharply in the second quarter. On the flip side, Volkswagen shares tumbled 5.40% as the feud over its planned merger with Porsche continues with a delay. Optimism and quarterly results in the US has helped to lift equities from a recent slump and may continue to lead stocks closer to recent highs.

IBEX 35                     10,142.80                   +100.90                 +1.00%
Trading in the Spanish market led to a higher close of one percent as the index leads European year-to-date moves at more than ten percent. Basic Materials and Consumer Services rose more than two percent while a 1.49% rise in financials led index point gains. Banco Santander and Banco Bilbao, both heavily weighted in the index with gross weight at more than 30% led the index higher as the firms rose 2.12% and 1.24%, respectively. Others seeing considerable advances included a 4.55% rise in ArcelorMittal, as well as a 3.03% move in apparel maker Inditex. Spain’s economy remains relatively weak with the highest unemployment in the Euro-Zone at more than 17%, however investors appear to be betting on a sharp turnaround as conditions improve for the global economy in 2010.

S&P/MIB                        19,516.72                    +234.14                  +1.21%
Stocks in Italy closed higher by more than one percent while returning to positive performance on the year-to-date basis. Financial firms led gains with several firms higher including Unicredit, up 2.6%, along with a 1.5% gain in Mediobanca. Tiremaker Pirelli saw a sharp rise of 5.5% while oil company Eni gained 1.8% as crude moved higher. The Italian index remains heavily weighted on Financial firms and further stability in the sector could help the index move past the 20,000 level.

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

Global Macro Weekly Technical Overview

• Euro  trade remains choppy and unpredictable
• S&P Index still hanging on to possibility of h&s top
• Crude oil rallies expected to be well capped by previous neckline
• 10-Year Treasury setbacks seen limited; look to buy

We continue to remain suspicious of any rallies in risk appetite as reflected in the global macro markets over the past several days. While we have seen some impressive buying back into risk, we still hang onto the idea that market participants will once again look to pare back risk, as the reality of uncertainty within the global economy persists.

EUR/USD – While we maintain a mild bearish bias, it is very difficult to establish a clear medium-term outlook for the pair. At present it is unclear whether we are in the process of carving out a medium-term lower top by the yearly highs at 1.4340 ahead of the next downside extension below 1.3750, or are in the process of putting in a fresh higher low above 1.2885 ahead of an eventual break back above 1.4340. A compelling case can be made on both sides and we anxiously await a break of either of these key levels for a clearer directional bias. In the interim, the 100-Week SMA at 1.4260 has done a good job of capping gains. Strategy: LOOK TO SELL

S&P 500 Index – Gains have been most impressive over the past several days as the market mounts a recovery to retest the 2009 highs by 956 set back on June 11. However, any failure ahead of this level over the coming days, will keep alive hopes for the formation of a major inter-day head & shoulders topping formation, with the right shoulder currently in the process of carving out. As such, look for opportunities to sell above 940 in anticipation of a topside failure and completion of the topping formation. Only back above 956 negates. Strategy: LOOK TO SELL

Crude Oil – We had written of the formation of a double top in previous weeks which ended up playing out nicely to open the latest setbacks towards and through our measured move objective of $59, with the market reaching 58.30 ahead of the latest minor bounce. Despite the recent recovery, our outlook remains bearish with any rallies now seen well capped by former neckline support now turned resistance at 66.25. As such, any rallies towards 66.25 should be used as a good sell opportunity in anticipation of a deeper setback below 58.00 over the coming days. Strategy: LOOK TO SELL

10-Year Treasury – This chart somewhat mirrors price action in oil inter-day, with the formation of a double bottom opening a rally out from the 2009 lows back towards 119 ahead of the latest minor pullback. While in this case the previous neckline resistance turned support has been broken back to the downside, we still do not see any additional weakness to last, with the 116 area offering itself as formidable support. We would recommend looking to buy at current levels by 116 in anticipation o renewed strength back above 119 over the coming days. Ultimately, only below 114-08 negates and gives reason for pause. Strategy: LOOK TO BUY

S&P 500 Eying 1,000 With Break Above Resistance

The Dow continued to march toward a test of resistance at the June 11th high of 8,877. 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 continues to be held in check at 943 the early January high, if its holds then we could see the broader index become range bound trading between 870-950. However, we could 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 1,879-the yearly which leaves 1,900 as the next significant resistance level. A hold there could lead the tech laden index into a period of range bound price action.  However, a break above leaves large upside potential with 2,000 as the next resistance level.

Asian Equities Advance Following the Rise in Commodities, Speculation for V-Shaped Recovery in Asia

Asia Session Key Developments

• Hang Seng Advances to 10-Month High
• Australian Producer Prices Fall at a Record Pace in Second Quarter

Asian Equities Advance Following the Rise in Commodities, Speculation for V-Shaped Recovery in Asia

Stocks in the Asia/Pacific were broadly higher on Friday, with the HSI rising another 3.70% on the back of higher commodity prices paired with speculation for a V-Shaped recovery in Asia. The Hang Seng is now trading at a 10-month high and the MSCI Asia Pacific excluding the Japanese index is almost at the levels last seen on September 26. Moreover, the financing of CIT’s debts also helped to support the rebound in market sentiment, and the rise in risk appetite may continue to push global equities higher as market participants expect a global recovery later this year.

NKY 225                                           9,395.32

The Tokyo Stock Exchange was closed today due to the Marine Day holiday.

HSI                                                         19,502.37

The Hang Seng extended the rally from the previous week, surging 696.71 points (3.70%) to close the day at 19,502.37 in Hong Kong, led by a 7.39% gain in technology Shares of Tencent Holdings jumped 8.12% after a news report said the number of online shoppers rose to 87.9M in July, while China Life Insurance Co. gained 6.49% after the firm said profit may have risen 98% during the first half of the year. At the same time, industrials advanced 5.18% on the day, led by a 10.78% gain in COSCO Pacific Ltd, with basic materials adding 3.99% on the back of higher commodity prices. Meanwhile, a government report showed the unemployment rate increased to 5.4% from 5.3% in May, which is the highest level since 2005.

ASX 200                                            4,050.30

Stocks in Australia were higher Monday, with the ASX gaining 49.50 points (1.24%) to close at 4,050.30 in Sydney on the back of rising commodity prices. All of the subsectors were up, with basic materials leading the way with a 2.19% gain. Shares of BHP Billiton moved up 2.27%, while Telstra Corp. traded 2.09% higher after talks of a possible demerger of its copper network. At the same time, technology advanced1.88% ,with SMS Management & Technology adding 1.04%, while QBE Insurance led financials higher with a 2.09% gain on the day. Meanwhile, a report by the Bureau of Statistics showed prices plunged 0.8% from the first quarter to mark the biggest drop since recordkeeping began in 1998, and price pressures are likely to fall further throughout the second half of the year as economic activity falters.

Notable Asian Session Event Risk / Economic Releases

European Stock Markets To Follow Asia Rally As CIT Avoids Bankruptcy

Europe: What to Watch For

• CIT Avoids Bankruptcy, Asia Stocks Rise
• German Producer Prices Fuel Deflation

European stock exchanges are set to feed off gains seen in Asia session as US lender, CIT Group avoids bankruptcy.  Increasing risk appetite seems apparent as world bond yields surge and demand for safe haven investments wane.  German Producer Prices are scheduled to show the largest fall since 1987, fueling deflationary fears in Europe.  The onslaught of deflation in the region’s largest economy will inevitably weigh on Euro-Zone inflation numbers, threatening a prolonged recession as consumers and businesses halt spending and investment in order to hold out for the lowest prices.

DAX 30   4978.40

German Producer Prices are expected to fall -4.1% in the year end June, down from May’s -3.6%.  Continuing declines in producer prices will weigh heavily on future headline inflation reports, as lower wholesale prices are passed on in the form of cheaper consumer price tags.

Lufthansa AG, Europe’s second biggest airline, is seeking buyers for its unprofitable UK subsidiary British Midland.  With airline traffic at record lows, companies have been forced to ground planes, layoff workers, and selloff business segments to survive.  The future of global airlines remains grim as volatile fuel prices and decrepit demand weigh heavily of earnings.

FTSE 100   4388.75

Lloyds Banking Group Plc, whose biggest shareholder is the UK government, may report a profit for the first six months of the year as new accounting rules allowed them to add back billions of pounds in sub-prime mortgages to asset accounts.  Tesco Plc, Britain’s largest retailer, is trying to establish a separate credit rating for its financial services arm in order to increase the unit’s access to liquidity.

CAC 40   3218.46

Pernod Ricard SA, the world’s second largest liquor manufacturer reported earnings rose at the lower end of their target range of 3% to 5% in the year ended June 30.  The growth in the company’s earnings displays the competitive advantage of having a geographically diverse revenue stream.  Pernod Ricord SA generates 55% of sales outside of Europe, and has been able to maintain impressive revenue growth while European consumers cut back spending.

IBEX 35   10041.90

With no events on the economic calendar, the Spanish index is likely to follow similar movements seen in comparable European markets

FTSE / MIB   19282.58

Fiat SpA, Italy’s largest carmaker is not expected to continue its pursuit for General Motors’s Opel German unit as its initial offer has been eclipsed by other vying bidders.

Upcoming European Session Event Risk / Economic Releases

Written by Kevin Yip, CFD Trading Research

For questions and comments email kyip@fxcm.com

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