August 2009

US Stocks Fall On Global Economic Concerns

US Session Key Developments

• Asian, European Stocks Fall After Slowdown In China Lending
• Commodities Tumble On Market Risk Aversion

US Stocks followed losses seen in Asian and European sessions amid concern the global rally in equities has outpaced economic fundamentals needed for a true recovery.  China stocks led the decline as the Shanghai Composite Index plummeted 6.7%, the most since June 2008, on worries that a slowdown in lending will weigh on growth.  China and the US are very economically linked with China as the largest manufacturer of goods and the US being the biggest purchaser.  Commodities fell as copper slid the most in two months and crude oil fell below $70 a barrel.

DOW 30   9496.28               -47.92                    -0.50%

Exxon Mobil Corp fell 1.38% as investors sold off oil pushing prices below $70 a barrel.  Alcoa Inc suffered during the today’s session declining 3.6% during a broad selloff in commodities.  Alcoa has been suffered recently with a downgrade from Goldman Sachs and prospects for performance looking weak.

SPX 500   1020.62              -8.31                       -0.81%

Commodity companies led falls with Freeport-McMoran Copper & Gold and Exxon Mobil Corp tumbling throughout the session.  American International Group Inc, fell 9.8% as recent gains caused investors to worry if the stock is overvalued.  Morgan Stanley fell as a Bank of America analyst downgraded the financial giant noting rising compensation costs.

NAS 100   2009.06              -19.71                    -0.97%

Apple Inc fell 1.08% after it released Snow Leopard, a upgrade to the Leopard Operating System for a meager $30.  The tech giant announced a deal with China Unicom Ltd. to sell iPhones in China starting later this year, bringing the device to the world’s largest mobile market for the first time.

Daily Commodities Fundamentals: China Takes An Overnight Plunge, Oil Follows

North American Commodity Update, Last Updated 8/31/2009 6:00 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Falls on Economic Recovery Concerns

Crude Oil    $69.96                    -$2.78                   -3.82%
Crude oil plunged as much as 5% in a losing day and closed below $70 for the first time in two weeks.  Crude’s fall occurred after the Shanghai Index slid 6.7% overnight prompting concerns over the strength of the economic recovery in China, the world’s second-largest energy consuming country.  It was the largest such drop since October for equities in China, and put downward pressure on oil during the early hours of U.S. equity trading.  U.S. equities were one of a vast majority of equity markets to have losing days as MSCI world shares fell as much as 1.3%.  Furthering the bearish notions, there was disappointing economic data out of Canada, a commodity-reliant economy.  Canadian GDP grew at an underwhelming 0.1% in June, falling short of a 0.2% growth expectation.  Even more disappointing was the 6.1% contraction in first quarter reading, revised down from 5.4%.  The market will need clear-cut signs of economic expansion (or contraction) to break out of the $69-$75 range.

Commodities – Metals

Gold Falls, Silver Gains

Gold Futures    $953.50           -$5.30                 -0.55%
Gold took a hit to the downside today despite some dollar weakness as investors had less demand for the commodity as an inflation hedge.  Consumer prices out of the Euro-Zone were down 0.2% and ECB member Ewald Nowotny stated that inflation is “not an immediate concern.”  Gold has been unable to break through $958 and the price appears to be waiting on the next dollar move.  The release of key economic indicators in the U.S. including housing and unemployment figures later this week could provide a push for gold and the U.S. dollar.

Silver Futures    $14.923           +$0.108                  +0.73%
Silver futures finished above water today to continue an impressive upside move.  Silver has increased over 7% in the month of August, and 32% on the year.  The commodity appears to be forming a bullish pennant over the past seven weeks.  Economic sentiment going forward will determine if a bullish breakout is in the cards.

Written by James Russell, CFDTrading Research
Questions/Comments about this article? Send them to JRussell@fxcm.com

European Stocks Decline as Equities Overbought and Asian Market Falls

Europe Session Key Developments

• Commodities Fall on Asia Concern
• Light Trading day on Indicators/Holiday

European Markets resumed declines with stocks appearing to form a temporary top as correction appears likely on expensive valuations. Asian equities fell prior to the open with the Shanghai composite down nearly seven percent as investors selling shares of Chinese stocks as concern grew that curbed lending will reduce growth in the nation. Commodities suffered as a result with oil trading back under $70 per barrel while fundamental releases provided little impetus for a lift. The UK market was closed today while indicators came in mixed. On the one hand, Hometrack reported rise in house prices in Britain for the first time in two years. Also, Euro-Zone deflation proved smaller than previously estimated. While it is clear that economies are well on the way to growth in the second half of the year, it remains uncertain whether profits at firms will rise as consumer spending to see significant improvement.

FTSE 100                      4,908.90
The U.K. market was closed for trading on Monday

CAC 40                     3,653.54                   -39.60                 -1.07%
Stocks in France closed lower with losses in all sectors while only five of forty stocks rose. Industrials and Basic Materials suffered the most with respective declines of 1.50% and 1.73%. Overall losses proved minimal with lender Dexia down the most at 3.76% followed by automaker Renault with a similar move of 3.62%. Other large firms also led declines as steelmaker ArcelorMittal sold off 2.84% while insurer Axa dropped 2.49%.

DAX                         4,486.30                    -52.74             -0.96%
German stocks closed down by nearly one percent with weakness in seven of nine sectors and Health Care providing the largest gain at 0.41%. Losses were similar to those in the French market with stocks in a general decline. Fertilizer maker K & S fell the most at 2.4% while steelmakers ThyssenKrupp and Salzgitter fell nearly as much.

IBEX 35                     11,365.10                   -77.60                -0.68%
Stocks in Spain closed with the smallest loss of the five majors as three of nine sectors managed to gain on the day while Basic Materials fell 1.78% and Financials were responsible for the bulk of index point declines. Major firms in the rout included construction firm Obrascon Huarte, down 2.73% following a Fitch rating downgrade last Thursday. Other laggers included ArcelorMittal, down 2.61% while wind turbine maker Gamesa fell 2.18%. Banks look a hit as well with Banco Popular falling 1.44% while BBVA dipped 1.39% and Santander fell just short of one percent.

S&P/MIB                        22,420.43                    -252.11                  -1.11%
Stocks in Italy fell the most as oil prices declined and financial shares that make up the bulk of the index suffered losses. Losing the most was bank UBI, down 4.09% on news that the firm is considering a joint venture in insurance. Major firms seeing a drop included Unicredit down 2.32% and STMicro lower by 2.12%.

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

Holiday Volume, ECB Rate Decision and U.S. Non-Farm Payrolls Recipe for Volatility

A U.K. bank holiday and the U.S. Labor Day weekend bookend a week of potential low volumes and significant event risk which is a recipe for volatility. We may not see the beginning of any meaningful trends but traders looking to scalp could be in for a treat. Rate decisions from the RBA and ECB combined with the release of the FOMC minutes will go a long way toward impacting interest rate expectations. Central banks aren’t expected to raise rates over the near-term but forward looking traders will look for clues to who will be the first to start tightening in order for them to make their bets accordingly. GDP releases from the Euro-Zone, Switzerland and Australia will give insight into the depth of the global recession and the potential for a recovery. The main event risk for global equity markets should come from the U.S. as the ISM gauges for the manufacturing and service sector combined with the Non-Farm payroll report will provide insights into the scope of the recovery for the world’s largest economy. The U.S. manufacturing sector is expected to have expanded in August for the first time since January, 2008 with a reading of 48.2. However, the service sector which accounts for 70% of the economy is lagging behind and is forecasted to remain in contraction at 48.2. A print above 50 for both sectors could spark risk appetite and raise the outlook for U.S. growth. Any bullish response could be limited until Friday’s Non-Farm payroll report crosses the wires. The expected loss of 225,000 jobs would be the least since August, 2008 but a slight improvement from July’s -247,000. Therefore, we may need to see job losses fall below 100,000 to generate a sustainable bullish reaction, as traders may be cautious ahead of the holiday weekend and the G-20 meeting in London.

Euro Short Term Resistance at 1.4230/50

Euro / US Dollar

Until a break above 1.4452 or below 1.4044, there is no directional bias.  A rally above the range high opens up the door for an extension to the December 2008 high of 1.4720.  Coming under 1.4044 would suggest that an important top is in place and that the longer term bear that began last summer has resumed.  Short term resistance is at 1.4320.

British Pound / US Dollar

If a 4th wave triangle ended at the end of July, then the subsequent rally to 1.7050 was a terminal thrust and a significant top is in place.  A drop below 1.5800 is required in order to confirm hat a top is in place however.  Staying above there keeps open the possibility that an ending diagonal is unfolding from 1.5800.

Australian Dollar / US Dollar

As the AUDUSD nears its 2009 high, the bearish short term pattern has been called into question yet remained valid.  A drop below .8151 would negate any bullish potential and open up a move to .7700.

New Zealand Dollar / US Dollar

Coming under .6640 would negate the blow-off top scenario that I have discussed in recent days and also mean that channel support (since March) has been broken.  Shorter term trendline support is being put to the test right now.  Divergence at multiple degrees of trend also favors bears.

US Dollar / Japanese Yen

After a false break through channel resistance, the USDJPY is back below both the 55 and 200 day moving averages.  The pair has failed at the 38.2% of the decline from 97.81.  Only a break below 91.73 would eliminate the larger range and give scope to a test of 87.00 and legitimate breakdown.  Risk on shorts can be moved to 95.10.

US Dollar / Canadian Dollar

The USDCAD is similar to the EURUSD in that until the pair breaks its range, there is no directional bias.  However, a 5 wave decline is visible from 1.3068.  The decline could be wave A of an A-B-C corrective decline or wave C of a larger flat from the December 2008 high.  Either way, bulls are favored until at least 1.1730.

US Dollar / Swiss Franc

The USDCHF is in the exact same position as the EURUSD.  A C wave is either complete or will complete upon slipping beneath the December 2008 low at 1.0367.  A rally above channel resistance would strongly suggest a low.

British Pound / Japanese Yen

Bigger picture, the pair remains in a large range (146.70-163.00) and 150.00 is potential support before the range low.  Staying beneath 153.68 keeps the pair headed on a path lower towards the range low of 146.74.  Short term divergence with RSI warns of at least a pause in the decline (if not outright reversal), so beware of a turn..

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) and the DFX Trend Index every day after the NY close.  He is also the author of Sentiment in the Forex Market.  Follow his intraday market commentary at DailyFX Forex Stream.  Contact Jamie at jsaettele@dailyfx.com

Asian Stock Markets Falter on Growth Concerns, BoJ Maintains Dovish Outlook

Asia Session Key Developments

• BoJ Governor Shirakawa Expects ‘Moderate’ Recovery
• Japanese Democratic Party Comes into Power

Disappointing earnings from China weighed on the stock markets in Asia/Pacific, with the Hang Seng tumbling nearly 2 percent on the day. The Nikkei started the day positive as the market rallied on the DPJ take-over of the government after a land-slide victory however, the Shanghai Composite slumped 6.7% and looks poised to mark its fifth consecutive weekly decline as the outlook for global growth deteriorates. For the past month the Shanghai Composite has fallen for a total of 21%, making it the worst performing stock index in the world for that period. Meanwhile, Bank of Japan Governor Masaaki Shirakawa maintained a dovish outlook for inflation and expects a ‘moderate’ recovery as businesses continue to face fading demands from home and abroad. The central bank head went onto say that it will take a ‘considerable’ amount of time before price pressures return to a ‘desirable level,’ and the BoJ is likely to keep the benchmark interest rate at the record-low going into the following year as the outlook for growth and inflation remains weak.

Nikkei 225                                            10492.53

The Nikki index fell 41.609 points (0.39%) to close at 10492.53 amid the election of the Democratic Party, led by a 0.95% drop in basic materials. Hino Motors tumbled 3.51% to weigh on the index after the firm, in conjunction with Toyota Motors, announced they will test a breath-alcohol ignition-interlock system to eliminate drunk driving.  On the other hand, CSK Holdings, which deals with computer-related services, surged 8.45%, its highest value in two months, as Nikkei Newspaper announced that the company may receive approximately 30 billion yen in capital aid. Moreover, Sekisui House rose 3.47% after posting a net loss of 2.37 billion yen during the six-months through July 31 amid expectations for a 4.1 billion yen loss.

Hang Seng                                           19,724.53

The Hang Seng Index plunged 374.43 points (1.86%) to close at 19,724.53, with all of the nine components falling lower.  Industrials and consumer goods tumbled 4.36% and 2.73% respectively to lead the decline, with shares of Hang Lung Properties sliding 5.66% as Hong Kong home prices rose to a 1-year high as potential buyers took advantage of cheap mortgages. Moreover, China Petroleum & Chemical slumped 4.05% after the company curbed expectations for higher production, while Cosco Pacific Limited slipped 4.30% as Citigroup reiterated its ‘sell’ rating on the company.

S&P/ASX 200                                      4479.10

The ASX started the week off with a 10.50 (0.23%) point loss to close at 4479.10 in Sydney. Telecommunications tumbled 3.44% to lead the decline, while technology rallied 2.71% to hold up the index from further losses.  Shares of Australia & New Zealand Banking Group Ltd, Australia’s fourth largest bank, rose 4.06% after it announced full-year profits climbed from the previous year as lending grew more than estimated, while Harvey Norman Holdings advance 5.4% after JPMorgan and UBS raised their ratings on the firm. At the same time, Carnarvon Petroleum Ltd slumped 12.50% as one of its oil well in Thailand was sidetracked due to operational issues.

Notable Asian Session Event Risk / Economic Releases

Sharp Fall In Chinese Stocks Raises Valuation Concerns Pointing Toward a Lower U.S. Open

What To Watch For In The US Session

•    Chinese Stocks Decline
•    Chicago PMI Ahead
•    Week of Event Risk Ahead OF Holiday

Sharp Fall In Chinese Stocks Raises Valuation Concerns Pointing Toward a Lower U.S. Open

Chinese stocks fell sharply by 6.7% setting the tone for global equity markets. The Shanghai index recorded its second biggest monthly lose in 15 years and reached its lowest level in three months. The depreciation has raised concerns that stocks worldwide may be overvalued as evidence emerges that a global recovery may be limited with consumers remaining retrenched and lending standards tight. However, evidence that the recession has ended continues to cross the wires and has been the supporting factor for U.S. markets. Today the Chicago PMI is expected to add to the brightening picture with an improvement to 48 from 43.4 which would put it on the cusp of expansion. The manufacturing sector continues to show strength as companies look to rebuild their inventories in anticipation of an economic recovery. However, fears are that if consumer consumption fails to follow then we could see a sharp decline in activity as companies look to remain lean until demand becomes more consistent. We could see sharp spikes during the week as FOMC minutes and the employment report will cross the wires during a week with potentially low volume heading into the holiday weekend.

Dow Jones     9544.20
The DJIA futures are pointing toward a lower open as global growth concerns are expected to weigh on the blue chip index.

NASDAQ      2028.77
The Nasdaq was the only major index to end last week on a positive note but may find it hard to build upon those gains as the outlook for a robust recovery dims.

S&P 500      1028.93
The S&P 500 could see a positive reaction the improving domestic manufacturing sector but broader growth fears may be too much to overcome and could eventually drag the index lower.

S&P 500 Forming Base Or Top?

The Dow has finally broke the 9,500 level which leaves the 50.0 % Fibo level of 11,867-6,470 at 9,810 as the next major barrier. Failure there could lead to a retracement back to support at 9,100/200.

The S&P has started to consolidate following its break above the 38.2% Fibo level at 1,013. We could be seeing a base forming before another bullish thrust above psychological resistance at 1,050. However, we could be seeing a top leading to a retrace back to support at 980 and beyond.

The NASDAQ has rallied to break above the 61.8% extension which could lead to a resumption of the bullish trend. The psychological level of 2,100 may present resistance. However, the tech laden index has yet to completely clear the level which could lead to a retrace.

European Stock Markets To Follow Risk Aversion Seen In Asia Session

Europe: What to Watch For

• Asia Stocks Fall On Lower China Earnings
• Japanese Yen Gains On Election Of New Ruling Party
• Euro-Zone Consumer Price Index Estimate To Fall

Asia stocks fell; mining companies and Japanese exported led the decline as Chinese companies reported lower-than-expected profit.  Baoshan Iron & Steel fell 7.1% as profits plummeted 93% as industrial production demand for raw material falls with product demand from businesses worldwide.  The Japanese Yen strengthened as the Democratic Party of Japan sent markets to buy up Yen possibly shifting to risk aversion.  The Euro-Zone Consumer Price Index estimate is expected to show that prices fell at an annual pace of -0.3% in August, a small improvement from the report’s previous reading of -0.7%.  If the estimate materializes, and a continuing deflationary trend persists, the threat of stagnation will threaten economic recovery in the region as consumers and businesses perpetually hold off spending in as they wait for the best possible bargain.

DAX 30   5517.35

Air Berlin Plc, Europe’s third largest discount carrier will meet with the pilots’ union in hopes of reaching an agreement and avoid a looming strike.  HCI Capital AG, the German fund manager reported that losses widened to -€36.1 million from -€18.5 million after it renewed financing agreements in restructuring efforts.  Volkswagen AG said it will export enough vehicles to offset sales drops in its domestic market.

FTSE 100   4908.90

With no events on the economic calendar, the British index is likely to follow trends seen in comparable European markets.

CAC 40   3693.14

L’Oreal SA, the world’s largest cosmetics maker plans to expand in emerging markets like the Middle East and Africa, citing growth opportunities in these untapped regions.  Total SA, France’s largest oil producer will keep a crude refinery shut down amidst weak fuel demand.  Wendel, one of Europe’s largest private equity firms will report fist-half earnings.

IBEX 35   11442.70

Afirma Grupo Inmobiliario SA, the Spanish real estate developer reported that earnings improved over the year, posting a loss of -€66.7 million compared to a -€383 million from a year earlier.  Solaria Energia & Medio Ambiente SA, Spain’s largest solar energy company is scheduled to release its first-half earnings.

FTSE / MIB   22672.54

Italian Retail Sales are expected to rise 0.2% in June ameliorating annual rates to an estimated -1.9%, up from May’s previous reading of -2.9%.  Improving monthly figures may indicate that Italy’s record fiscal stimulus is beginning to filter into the broader economy and shore up demand.  Italian Consumer Price Index is set to fall -0.1% in the year end August, staying constant with its previous reading.  Improving retail demand will prop up prices for consumer goods and should stabilize the headline inflation figure.

Upcoming European Session Event Risk / Economic Releases

Written by Kevin Yip, CFDTrading Analyst          For questions and comments email kyip@fxcm.com

European Stock Exchanges Position to Reverse Lower

Weekly Strategy

FTSE 100

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 4751, has been reached and is where the rally from 4096 is equal to 61.8% of the 3461-4521 rally.  The next level is 5156, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

The FTSE is setting up a Rising Wedge chart formation indicative of a bearish reversal ahead. Negative divergence on the RSI oscillator bolsters the downward bias. Near-term support is seen at 4888.90.

DAX

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 5506, has nearly been reached and is where the rally from 4524 is equal to 61.8% of the 3589-5176 rally.  The next level is 6113, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

As with the FTSE, the German benchmark index is showing a bearish Rising Wedge with negative RSI divergence. A break of support at 55023 opens the door for a move to resistance-turned-support at 54420.

CAC 40

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 3535, has been reached and is where the rally from 2958 is equal to 61.8% of the 2466-3400 rally.  The next level is 3892, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

Another rising wedge is seen on the CAC 40, again with negative RSI divergence. Near-term support is seen at 3668.40. A break below this will likely see a test of the psychologically significant 3600.00 handle.

IBEX 35

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 1124, has nearly been reached and is where the rally from 925 is equal to 61.8% of the 670-993 rally.  The next level is 1247, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

Spanish shares fit in with positioning noted on other key exchanges: a Rising Wedge points to a bearish bias, and negative RSI divergence offers confirmation. A break below the wedge bottom at 1141.81 opens the door for a move to the 23.6% Fibonacci retracement level (1128.42).

FTSE MIB

Long-Term Technical Outlook

There are 2 levels that most likely produce a top and neither has been reached.  The first level, 22798, is where the rally from 17626 is equal to 61.8% of the 12332-20702 rally.  The next level is 25996, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

The FTSE/MIB looks essentially the same as other European benchmarks, with a Rising Wedge and negative RSI divergence clearly in place. A move below the wedge bottom at 22609.38 will aim below the 22500.00 handle.

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