August 2009

US Stocks Edge Higher On Crude Oil Gains

US Session Key Developments

• Crude Oil Inventories Decline
• Merck & Co Holds On To Valued Patent

US Markets rose for the second day as advances in oil lifted energy stocks.  The Energy Department said that US inventories declined the most in more than a year.  Oil stockpiles fell 8.4 million barrels last week, the most since late May 2008.  Merck & Co led pharmaceutical companies higher after a judge upheld a patent.

DOW 30   9279.16               +61.22                   +0.66%

Merck & Co rose 2.51% as a judge held up a patent for one of its profitable asthma drugs.  The ruling led a rally in drug makers as fellow rival Pfizer Inc added 2.4%.

SPX 500   996.46                +6.79                      +0.69%

Occidental Petroleum Corp and Murphy Oil Corp led gains in the energy sector as crude oil rose to a two-month high after oil inventories fell the most in over a year.  Freeport-McMoRan Copper & Gold Inc led the group of basic material producers to a 1.1% gain in S&P.  The VIX Index continued to fall as markets appear more and more hopeful of a impeding economic recovery.  The index closed at 26.26

NAS 100   1969.24              +13.32                   +0.68%

The NASDAQ rose with Health Care and Utilities leading gains in the index.

Dow Remains in Downward Channel

The Dow has clawed back above the 9,200 level but remains within a potential downward trending channel. The blue chip index has been under pressure after forming a double top. The failure to break above the yearly high could lead to an extended move lower with potential to 8920-38.2% Fibo of 8,093-9,437.

The S&P 500 failed like the Dow has seen extended losses after putting in a double top and the break below 992 leaves 970 as the next support level.

The NASDAQ losses have started to accelerate after being turned away by Fib o resistance at 2,011 leaving a potential retrace back to 1,900. However, if the tech laden index resumes its bullish trend then a test of 2,059-the 61.8% Fibo of 2,518-1,265 remains a possibility.

Asian Equities Falter on Global Growth Concerns, Hang Seng Dips Below 20,000

Asia Session Key Developments

• Warren Buffet Talks Down U.S. Recovery
• Japanese All Industry Activity Index Fails to Impress

The stock markets in the Asia/Pacific slipped lower on Wednesday, with the Hang Seng slipping below the 20,000 level for the first time since July 28 as investors turned skeptical of the global recovery. At the same time, the Japanese all industry activity index rose 0.1% in June despite expectations for a 0.3% rise, while a separate report showed machine tool orders slipped 72.3% from the previous year amid an initial forecast for a 72.2% decline. Meanwhile, the Westpac leading index for Australia rose 0.7% in June after falling 0.4% in the previous month following the rebound in the stock market paired with a rise in building approvals.

NKY 225                                           10,204.00

The Japanese equity market tipped lower on Wednesday, with the Nikkei shedding 80.96 points (0.79%) to end the trade at 10,204.00 as 9 of the 10 subcomponents declined from the previous day. Financials slumped 2.16% to lead the decline, while health care advanced 0.43% on the day after the government confirmed a second death linked to the swine flu. Shares of Sanyo Electric jumped 10.0% after a newspaper report said Toyota Motor Corp will buy lithium ion batteries from the firm beginning in 2011, while Fuji Corp added 1.9% after the firm raised its annual dividend to JPY 12 from JPY 10. At the same time, Sony Corp slumped 3.9% after cutting the price of its PS3 gaming console to spur demands, while Honda Motor Co advanced 2.0% after Nomura Holdings raised its outlook for the Japanese auto sector.

HSI                                                         19,954.23

The Hang Seng tumbled 352.04 points (1.73%) to close at 19,954.23, and slipped below the 20,000 level for the first time since July 24^th, led by a 6.15% drop in consumer goods. Shares of Li& Fung Ltd, the largest supplier of clothing and toys to Wal-Mart and Target, slumped 6.15%  after Warren Buffet saw a risk for a slower recovery in the U.S., while Maanshan Iron and Steel slipped 5.8% to weigh on the overall market after reporting a net loss for the first-half of the year. At the same time, HSBC shed 2.28% after its shares began trading without the rights to the 8 cent dividend announced on July 28, while China Cosco Holdings plunged 7.4% as the Baltic Dry Index, which acts as a gauge for commodity shipping costs, tumbled 2.5% to mark the biggest drop in a week.

ASX 200                                            4,373.80

The ASX 200 fell for the third day, slipping 7.80 points (0.18%) to end the session at 4,373.80, driven by a 1.61% decline in utilities. At the same time, shares of Woodside Petroleum rallied 3.65% after first-half profits topped market expectations, while Qantas Airways added 3.46% after reporting a net income of A$117M for 2009. In addition, Macquarie Group advanced 2.54% as investors expect the investment bank to book A$250M in revenue from selling its stake Macquarie Airports, while, Boral Ltd gained 3.71% after the firm announced a full-year net income of A$142M.

Notable Asian Session Event Risk / Economic Releases

European Stock Markets Look To Follow US Markets, May Be Dragged Down By Economic Reports

Europe: What to Watch For

• US Stocks Rise On Corporate Earnings; Asia Sidesteps
• Commodities Rise With Risk Appetite
• German Producer Prices Fall To Record Lows

US Markets rose today, helping global equities rebound from the worst drop since April after strong earnings from Target and Home Depot renewed investor confidence of an impending economic recovery.  Despite recent signs of an improving housing market, reports on housing starts and building permits showed a still decrepit market for new homes amid a tight credit market rife with defaulting mortgages.  Commodities rallied over 2.5% as risk appetite entered the market.  German Producer Prices are expected to fall -6.5% in the year end July, the largest drop since records began in 1977.  The metric will weigh heavily on headline inflation reports as cheaper prices to producers will be passed on to consumers.  Further declines in prices will threaten an economic recovery in the Euro-Zone, as its largest economy sits on the cusp of stagnation, permanently stifling consumption and investment.

DAX 30   5250.74

German Producer Prices are expected to fall -6.5% in the year through July, the largest drop in over 30 years.  Schaeffler Group will transfer €5 billion of its €12 billion of debt to a holding company in order to finalize its debt restructuring and close its takeover of auto-parts manufacturer Continental AG.  DIC Asset AG, the commercial property company which said that rental income will decline in 2009 is scheduled to report second-quarter earnings.

FTSE 100   4685.78

Bank of England minutes from its latest policy meeting are scheduled to be released and will help markets gain insight into the expansion of the banks quantitative easing program.  Mervyn King unexpectedly announced further expansion of £50 billion adding to the initial £125 billion already put to work.  Eurasian Natural Resources Corp. the maker of ferroalloys and iron ore in Kazakhstan reports earnings.  Hochschild Mining Plc, Peru’s second-largest silver miner report earnings.

CAC 40   3450.69

Total SA, one of Europe’s largest oil producers looks volatile in the coming session as crude rose for the first time in three days.  Crude oil for September rose 2.3% as overall commodities advanced.

IBEX 35   10708.30

With no events on economic calendar, the Spanish index will likely follow similar trends seen in comparable European markets.

FTSE / MIB   21247.80

KR Energy Spa, the Italian renewable energy company said the offer for a sale of its warrants ended after it pushed to increase capital funding.

Upcoming European Session Event Risk / Economic Releases

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

US Equities Rise On Target and Home Depot Earnings

US Session Key Developments

• Target and Home Depot Post Better-Than-Expected Earnings
• Producer Prices Drop Most In 60 Years
• Housing Starts, Building Permits Fall, Miss Forecasts

US Markets rose today, helping global equities rebound from the worst drop since April after strong earnings from Target and Home Depot renewed investor confidence of an impending economic recovery.  The better-than-expected corporate earning reports overshadowed economic metrics that indicated the fragile state of the economy.  Producer prices fell a record -6.8% in the year end July, the largest decline in 60 years as the cost of energy and food declined.  Despite recent signs of an improving housing market, reports on housing starts and building permits showed a still decrepit market for new homes amid a tight credit market rife with defaulting mortgages.  Housing starts fell to 581K short of the 598K expectation, and building permits fell to 560K from expectations of 576K.

DOW 30   9217.94               +82.60                   +0.90%

Home Depot, the largest home-improvement retailer rose 3.1% during the trading session as the company reported strong second-quarter profits.  The home-improvement chain beat out estimates of an EPS of $0.59 with a posting of $0.67 gain.

SPX 500   989.67                +9.94                      +1.01%

Target rallied 7.6% as profits exceeded expectations by $0.13 per share.  Better-than-expected profits for the retail giant bolster confidence in the retail industry and consumer spending; sighting conditions may be improving.  The VIX Index, a measure of market fear, steadily declined from opening to 26.18

NAS 100   1955.92              +25.08                   +1.30%

The NASDAQ fell with the rest of the indexes as investors pulled out money from equities.  Oil and Gas led gains seen in the index, rising 2.68% as commodities advanced with crude oil gaining 1.05%.

Do Sentiment and Fundamentals Support the Bullish Recovery From March?

Are we in a genuine bull market? The rebound in risk appetite across the major asset classes since March would suggest so. However, history has shown us that bear market rallies are common place; and the subsequent collapse from these false recoveries can be even more extensive than the initial decline.

Taking a closer look at the market mechanics and fundamentals that currently back this rebound, it becomes clear that is real reason to doubt a steady advance from investors’ favorite assets. But first, we should look to the positives. First and foremost, the worst credit and financial crisis since the Great Depression has eased; and we haven’t heard a major rumbling in at least six months. What’s more, the worst recession in the same period has slackened its pace and many developed or developing nations expanding or nearly there. Naturally, this combination is encouraging enough to draw side-lined capital back into the market to seek out returns to perhaps recoup some of the dramatic losses net wealth has suffered through the 2007-2008 plunge. The graph below represents the net capital in money market funds. This is traditionally where investors park their capital when looking to protect capital. Clearly there is a lot of capital that can be put back to work and naturally inflate asset prices as demand returns.

On the other hand, fundamentals are not so straightforward. Sure the global recession is stabilizing and the lack of another credit seizure is enough of a draw to pull capital back into the market. However, we need to look beyond the benchmark where the waters are merely safe enough to return to. To facilitate a true bull cycle, there must be a strong and stable expansion in economic activity (and indirectly inflation). Yet, the general accepted consensus among economists and policy officials is that beyond a positive turn in growth, it will be some time before expansion takes hold. With unemployment still trending higher, trade severely diminished, government intervention prevalent and the corporate sector still cutting costs; the world’s economy will have to accept a lower, natural level of potential. This means less credit, less capital investment, restricted investor wealth and little hope for yields (rates) to rapidly advance.

There are signs of these underlying doubts in many of the asset classes that are showing such impressive recoveries on the surface.

Equities

Few other asset classes are as prized as stocks as a symbol for risk appetite. This is a relationship that is easy to believe given the progress the benchmark Dow Jones Industrial Average has enjoyed since the first quarter of this year. The trend is unmistakable. However, momentum is questionable. What is truly concerning is the volume that has accompanied this tremendous rally. While the index tests new highs for the year, fewer and fewer investors seem to be joining the rally. In the end, one trend will have to break.

Crude

Commodities are more sensitive to true fundamental trends due to their use as a raw material in production; but they too have a speculative role to play. Rather, the premium that buffers crude and other natural goods is speculating on economic activity and investor activity. Here, we see that the rebound has been far more prominent with a 120% advance from the lows carved out between December and February. However, open interest for futures have generally trended lower over the same period. For a commodity that is considered a severely limited resource, a lack of demand is a surprising sign.

Treasuries

Treasuries are the safe haven asset of the broader markets. When other risk-based assets are on the rise, capital usually finds its way back to this stalwart. The steady trend lower in face value for the benchmark 10-year note has been far less aggressive; but it also began far earlier. Here, we should expect to have a mild warning sign of a possible trend change in investor sentiment because there is a greater number of alternative assets to invest in that do not have the stigma of a record deficit behind them. Nonetheless, we see that open interest has started to perk up over the past two months and the T-note future contract eye its consistent trend and 200-day SMA.

Written by: John Kicklighter, Strategist for CFDTrading.com
Questions? Comments? Send them to John at jkicklighter@cfdtrading.com.

FTSE Turning at Fibonacci Resistance

Last week, the FTSE 100 rallied through the 38.2% retracement of the decline from October 2007 but closed the week well off its high.  A doji candle was formed (long upper and lower wicks but small body), warning of a turn.  Last week’s low was broken yesterday, which opens the door for additional weakness to 4512. 

Dow Susceptible To More Losses Following Double Top

The Dow dropped below support at 9,200 leaving 9,000 as the next barrier. The blue chip index has been under pressure after forming a double top. The failure to break above the yearly high could lead to an extended move lower with potential to 8920-38.2% Fibo of 8,093-9,437.

The S&P 500 failed like the Dow has seen extended losses after putting in a double top and the break below 992 leaves 970 as the next support level.

The NASDAQ fell back below 2,000 after being turned away by Fib o resistance at 2,011 leaving a potential retrace back to 1,900. However, if the tech laden index resumes its bullish trend then a test of 2,059-the 61.8% Fibo of 2,518-1,265 remains a possibility.

Nikkei, Hang Seng Advance on Higher Corporate Ratings While ASX Bucks Trend

Asia Session Key Developments

• Hong Kong Unemployment Holds Near Four-Year High
• Japanese Leading Index Tips Higher From Initial Forecast

Stocks in the Asia/Pacific were mixed on Wednesday, with the ASX tipping lower from the previous day, while the Nikkei and Hang Seng tipped higher after market experts raised their outlook for equities listed on the TSE and HKE. Meanwhile, the economic docket for Japan continued to reinforce a weakening outlook for future growth as nationwide department sales plunged 11.7% in July from the previous year, while a separate report showed the final reading for the leading indicator tipped higher in June to 79.9 from an initial reading of 79.8. At the same time, the jobless rate in Hong Kong held steady at 5.4% in July amid expectations for a rise to 5.5%, and demands for employment are likely to remain subdued throughout the second-half of the year as global trade conditions remain weak.

NKY 225                                           10,284.96

The Nikkei tipped higher from the previous day, adding 16.35 points (0.16%) to end the trade at 10,284.96, led by a 1.07% rally in technology. Shares of Trend Micro led the sector higher after rising 4.66% on the day, while Casio Computer Co jumped 7.11% after Credit Suisse raised the firms rating to ‘outperform’ from ‘underperform.’ NTT DoCoMo rose 2.45% after Mizuho Securities pushed the firms rating to ‘strong buy’ from ‘hold,’ while Sumitomo Mitsui Construction surged 13% to lead the market higher after winning a bid for a bridge order from the Vietnamese government0 while Topy Industries tumbled 6.2% after widening its forecast for a net loss to JPY 2.9B from JPY 1.9B. At the same time, Mitsubishi Corp slumped 2.97% on the back of lower commodity prices, while Mitsubishi Chemical slumped 2.00% after market rumors emerged that the firm may offer up to JPY 200B to takeover Mitsubishi Rayon.

HSI                                                         20,306.27

The Hang Seng pared early morning losses and added 168.62 points (0.84%) to end the day at 20,306.27, driven by a 6.36% jump in consumer goods. Shares of Li & Fung surged 6.36% after BNP Paribas raised the stocks rating to ‘buy,’ while HSBC advanced 1.89% after Goldman Sachs recommended buying the bank shares. At the same time, Air China shed 2.0% after saying that it will increase its stake in Cathay Pacific to 29.99% to weigh on the overall market, while shares of CLP Holdings slumped 1.87% after the firm reported a 42% drop in profits.

ASX 200                                            4,381.60

The ASX tipped lower of Tuesday, shedding 6.80 points (0.15%) to end the session at 4,381.60, led by a 1.43% drop in oil & gas. Meanwhile, shares of James Hardie Industries, the biggest seller of home sidings to the U.S., jumped 22.32% after raising its full-year forecast to the higher-end of market projections, while Monadelphous Group added 7.16% after reporting a 6.8% rise in net income. Meanwhile, BlueScope Steel shed 2.61% after HSBC lowered the firms rating to ‘neutral’ from ‘overweight,’ while shares of Western Areas slumped 8.30% after the firm reported a net loss of A$35.2M.

Notable Asian Session Event Risk / Economic Releases

European Stock Markets To Be Weighed Down By Global Economic Concerns

Europe: What to Watch For

• US Stocks Fall On Economic Recovery Concerns
• Euro-Zone ZEW Survey to Indicate Improving Sentiment

US Markets fell on concerns that the recent rally in equities has outpaced hopes for economic recovery.  Risk aversion helped prop up safe-haven assets such as the dollar, yen, and Treasuries as investors sold off riskier assets.  Euro-Zone ZEW Survey is expected to rise to 43 in August, up from July’s reading of 39.5.  The reading displays improving economic sentiment in the medium-term of the Euro-Zone economy as it approaches levels prior to the global recession.

DAX 30   5201.61

German ZEW Survey is expected to show an improving consensus of financial experts that the German economy is slowly recovering.  The metric is surveyed at 45.0, up from June’s 39.5, and towering over late 2008’s record lows that floated around -50.  As the largest economy in the Euro-Zone, indications of positive progression will help bolster sentiment of the entire region.

FTSE 100   4645.01

UK Consumer Price Index is expected to show that inflation shrank for the first month since January while the Year-Over-Year rate may slow to 1.5%, down from June’s annual rate of 1.8%.  With inflation below its target rate of 2%, the Bank of England has noted that inflation may be volatile as high unemployment weighs on wages and rising energy costs causes upward pressure on headline reports.

CAC 40   3419.69

Aeroports de Paris, the government-owned operator of the French capital’s airports said that July traffic declined 3.1% as consumers and businesses cut back discretionary spending on traveling.  Total SA, one of Europe’s largest oil producers looks volatile in the coming session as crude moves to two-week lows on falls in global equities, reducing the appeal of commodities to investors.

IBEX 35   10598.50

With no events on economic calendar, the Spanish index will likely follow similar trends seen in comparable European markets.

FTSE / MIB   20962.38

The Italian market will follow general trends similar to other European countries.

Upcoming European Session Event Risk / Economic Releases

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