October 2009

European Stocks Fall as Optimism Wanes on Financial Earnings

Europe Session Key Developments

•    Earnings Revenue Weakness Drags Stocks
•    Oil Remains Near Recent Record While Dollar Gains

European Markets ended the week higher while paring much of the gains on Friday as equities fell following earnings results in the US and trade balance figures for the Euro-Zone that posted far below expectations. Several large firms came out with reports that disappointed investors, including General Electric and Bank of America. Conglomerate giant GE reported profit above expectations, while revenue fell 20% from the previous year and orders declined by 18%. Meanwhile, Bank of America posted a rise in revenue which failed to lift sentiment as losses widened in home lending and credit cards. As unemployment continues to climb in the fourth quarter, such weakness is likely to continue to impact earnings and lead to restrictive lending practices. The Euro-Zone may be particularly hit hard by banks limiting lending as companies in the region scour banks for funding more so than in the US. Also of high concern is the recent strength in the euro, as the currency nears the $1.50. As trade figures today showed, further appreciation could adversely affect prospects for growth in export demand.

FTSE 100                      5,190.24                   -32.71               -0.63%
Stocks in the UK fell for a second day as weakness was noted across nearly all sectors with Financials largely responsible for the move as the sector declined 1.66%. Oil & Gas, meanwhile, gained the most at less than one percent as crude remains near a recent high. With more than two-thirds of stocks trading down, concern may be building against further upside, despite the index trading at the highest level in more than a year.

CAC 40                     3,827.60                   -56.23                 -1.45%
French stocks closed lower by more than one percent as weakness was noted across all sectors, with the exception of Oil & Gas. 34 of 40 stocks fell with broad declines ranging from Health Care to Construction, while Financials also saw weakness amid weak reports recently from Bank of America, and Citigroup. Cement maker Saint-Global fell more than 4%, despite rumor the firm will see improvement in second half earnings. Also falling more than 4% was drug maker Sanofi-Aventis as Cheurvreux cut its rating to “underperform” while BofA removed the stock from its prestigious ‘Europe 1’ list. The broad move in stocks may be a response to the scale of the recent advances, which included a further 7.72% rally in the past two weeks.

DAX                         5,743.39                    -87.38             -1.50%
Europe’s shrinking trade surplus, largely a factor of Euro-strength, is likely to have a significant affect on the German economy. Exports in Europe fell 5.8% on a seasonally adjusted basis, while imports declined by 1.3% in August. On an individual basis, all sectors closed lower today, with the largest weakness noted in Industrials, Basic Materials, and Financials. Upside proved minimal as no stock saw a gain of one percent or more, while six firms, including Commerzbank and Deutsche Bank, saw declines of more than two percent.

IBEX 35                     11,676.40                   -173.30                -1.46%
Spain’s main index closed lower as losers outnumbered winners by a ratio of four-to-one and losses were noted across all sectors. Health Care was the biggest lagger, down 3.61% while Financials also dragged the index with a drop of nearly two percent. As concern begins to weigh on financial earnings, Santander saw a move lower of more than two percent while BBVA fell 1.09%. Also leading the index lower was Telefonica, down more than one percent on strong volume.

S&P/MIB                        24,152.34                    -187.42                  -0.77%
The Italian index closed lower for a second day to end the week higher by 1.61%. More than two-thirds of stocks fell while gains proved limited in most leaders. Financials fell throughout much of Europe, and Italy proved little exception to the rule as many of the nation’s top banks posted declines. The largest two, UniCredit and Intesa SanPaolo, both fell more than one percent each.

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

Asian Shares minus Nikkei 225 Swing to Downside

Asia Session Key Developments

• Japan’s Government Reiterated that Unemployment Remains a Difficult Situation
• Hong Kong and Australian Shares Slip Lower on Overnight

 

Asian Shares minus the Nikkei 225 Swing to Downside

               

The Japanese equities markets advanced on Friday despite the government reiterating last month’s assessment that unemployment remains a difficult situation.  However, the Nikkei 225 bounced back after trading to the downside overnight to advance .18% ahead of Governor Shirakawa speech in Tokyo. In Australia, shares plunged .48% led by the financials shares slipping .72%, while Hong Kong stocks shed .31% after opening 138 points higher.

 

Nikkei 225                          10,257.56

The Japanese equities market soared higher on Friday to the highest level in three weeks, with the Nikkei rising 18.91 points (0.18%) to close at 10,257.56.  4 out of 10 components rose higher on the day with consumer services leading the rise, adding 2.81%, followed by health care gaining 0.62%. Shares of Japan Airlines Corp fell to a 7-year low, shedding 11.40% due to Moody’s downgrading the debt rating of Japan Airlines to B1 as the company is seeking its 4^th state bailout. At the same time,  Sumco Corp slipped 5.82% as MF Global downgraded the company rating to “sell,” while Fast Retailing Co, Japan’s largest casual clothing chain operator,  soared 5.51% in the midst of Macquarie Group raising the company’s stock price estimate for 12 months to 16,000 from 14,000.

 

Hang Seng                        21,929.90

The Hang Seng fell 69.18 points (0.31%) to close at 21,929.90 as 5 out of the 9 components traded lower, with consumer goods slipping 3.19% to lead the decline. Shares of China Resources rallied 3.61% amid speculation that the company may begin talks with Esprit on a joint venture partnership, while China Overseas Land & Invest shed 2.86% on the back of higher home prices. Moreover, BOC Hong Kong Holdings LTD lost 1.81%.

 

S&P/ASX 200 Index           4,836.40

Stocks in Australia retraced from its 13-month high yesterday, shedding 23.50 points (0.48%) to trade at 4,836.40. 7 of 10 components traded lower on the day, with Industrials declining 1.11% to lead the plunge.  Shares of Nexus Energy surged 9.72% to hit a 4^th month high as the company is set to start exploring off the southeastern coast within a week, while  Harvey Norman Holdings fell 6.72%amid the company announcing that FY2010 Irish losses may be as much as A$50 Million. At the same time, Platinum Australia declined 5.74% on the back of weak metals trading.

 

Oil Retains Momentum into Week-End, Metals Vulnerable to Further Downside

Commodities – Energy

Crude Trades at Highest Levels in a Year, US Dollar Trend Remains in Focus

Crude Oil (WTI)     +$77.76     +$0.18     +0.23%
Crude prices have continued to push higher to trade just below $78/barrel, the highest in a year. A bit of event risk is on tap tomorrow with the Baker Hughes count of oil rigs operating in the US set for release against the backdrop of September’s Industrial Production data, which is expected to show that output grew just 0.2% in September, the lowest since June. Considering the number of working rigs has been rising for the past four months, the two metrics together may produce a picture of oversupply that could produce a pullback in crude prices. Third-quarter earnings from energy giant Halliburton may also produce an impact. However, no meaningful correction will be possible without a strong rebound in the US Dollar, whose sharp decline has been the dominant catalyst behind recent gains as traders look to crude as an inflation hedge. Technical positioning is broadly bullish, with prices clearly above significant resistance at the top of a rising channel and looking to the psychologically significant $80 level as the next major hurdle.

Commodities – Metals

Metals Find Near-Term Support but Downward Pressure Remains Formidable

Gold      $1049.11     -$1.09     -0.10%
Gold has continued to diverge from oil prices, breaking below minor trend line support to pause ahead of the $1045 level. A survey of traders polled by Bloomberg showed that the metal may continue lower as the recent rally encourages profit-taking from speculators while driving away jewelry demand. A sustained break below $1040 will see little support emerging until prices meet resistance-turned-support at $1021. US equity index futures are pointing to a lower open on Wall St, suggesting risky assets may correct a bit a bit into the final day of the trading week and boost the safety-linked US Dollar, adding to downward pressure.

Silver     $17.34     -$0.01     -0.06%
The drop in silver has continued to outpace that of its more expensive counterpart, with prices now positioned above support-turned-resistance at the $17.28 level. A break lower leaves the door open for decline all the way to $16.75. As with gold (and all USD-denominated commodities, for that matter), equity futures positioning merits attention, hinting an upswing in the greenback could give silver just enough of a nudge to launch the next leg of a bearish correction.

A Drop in Gas Inventories Extends Crude Oil’s Rally to a Sixth Session

North American Commodity Update, Last Updated 10/15/2009 2:24 PM EST (GMT = EDT +4:00)

Commodities – Energy

A Drop in Gas Inventories Extends Crude Oil’s Rally to a Sixth Session

Crude Oil (WTI) -  $75.75  //  $0.57  //  0.75%
Despite the pull back in other commodities and speculative-based asset classes, crude put in for a sixth consecutive advance. This is the best trend for the market since the period through August 6th. Comparing the general level of sentiment across the markets towards speculative assets today, oil’s advance seems out of place. However, the pullback in risk appetite under most circumstances was limited; and the energy market was further responding to its own fundamentals. The delayed Energy Information Administration’s (EIA) report on inventories diverged somewhat from the API report released late yesterday. Whereas the API reported crude stocks were down 172,000 barrels; the Energy Department reported its measure was up 0.1 percent or 334,000 barrels. Yet, gasoline inventory unexpectedly plunged 5.23 million barrels (2.44 percent) last week – the biggest drop since 2008.

Demand heading into the winter (despite forecasts for one of the coldest seasons in years) seems to be relatively weak. Though distillate inventories fell 1.1 million barrels in the week through October 9th, they are still near 26-year highs. Furthermore, refineries are operating at 80.9 percent capacity, the lowest since April. Some producers have already started their response to the glut in supply by cutting shipments. OPEC is expected to ship 22.58 million barrels per day through the four weeks ending on October 31st  for a cut of 0.4 percent. They are currently following a compliance rate of 62 percent.

Commodities – Metals

Gold and Silver See a Sharp Correction as Risk Appetite is Tempered

Gold  -  $1048.10 //  -$14.30  //  -1.34%
The stalled advance in equities and temporary bounce in the dollar was enough to send gold tumbling mid-day in the Asian session. The steady decline that followed was marked by significant volatility and intraday low made for the worst decline since September 24th. Such a pullback was inevitable though considering the slow, steady congestion that was pushing the commodity consistently to new record highs was finding very restrained support from risk appetite. At these heights, it is hard to deny from a fundamental perspective that gold is oversold. Both arguments for the precious metal acting as a stand in for the US dollar and acting as an inflation hedge come with flaws. Price pressures are none-existent and policy makers have said that inflation will likely hold below target for the medium-term. As for the greenback alternative, we have seen risk appetite send capital to all asset classes. With gold already at record highs and no source of return outside capital gains, the potential for profit is limited. Another sense of gold nearing extremes, the SPDR Gold Trust (the largest gold ETF) was unchanged for a sixth session at 1.109 metric tons. What’s more, last week’s COT report showed net long positions held by speculators was at a record high of 239,668. A more meaningful slump could be ahead.

Silver  -  $17.36 //  -$0.53  //  -3.00%
Like its more costly counterpart, silver was sharply lower on the morning. However, gold’s many roles (dollar alternative, inflation hedge, speculative asset) was able to dampen its own decline; whereas silver was suffering a much steeper contraction. In fact, silver was looking at this biggest loss among the precious metals. Sentiment was the primary driver for this metal. While the turn in underlying risk appetite has not been so severe as this price action would suggest, the advance beforehand has encouraged profit taking on the investment that does not naturally bear yield.

-Written by John Kicklighter, CFDTrading Research
Questions/Comments about this article? Send them to jkicklighter@dailyfx.com

Dow 10,000-Now What?

The Dow finally closed above 10,000 for the first time in over a year. A break above the psychological level will expose significant potential to the longer-term target of 10,495. However, the monumental level could spark a retracement with support at 9,430-10/2 low.

The S&P 500 set a fresh yearly high of 1,093 and is now looking to test 1,120-50.0%Fibo of 1,576-666.

The NASDAQ eclipsed its yearly high of 2,167 and continued bullish sentiment could lead to a test of 2,250- 61.8% Fibo of 2,861-1,265.

Japanese Shares Tip Lower For the First Time in 6 Days; Australian Stocks Surge amid Rise in Consumer Confidence

Asia Session Key Developments

• Japanese Industrial Production declines for the 5^th consecutive month
• Australian shares gain .60% to reach a 13-month high
  

Japanese Shares Tip Lower For the First Time in 6 Days; Australian Stocks Surge amid Rise in Consumer Confidence    

The Japanese equities market closed to a 4-week high subsequent to the Bank of Japan upgrading the assessment of the economy for a second consecutive month. In particular, BOJ stated “Japan’s economy has started to pick up” as was previously mentioned at a policy meeting on Wednesday.  The central bank will decide the fate of its current emergency credit-easing programs, but the bank is expected to follow the recent U.S. withdrawal from the plan sooner-than-later as inflationary fears develop. In Australia, shares rose to a 13-month high to trade at 4,859.90, while stocks in Hong Kong gained .87% to close at 22,079.69 led by the increase in the Dow Jones Industrial Average on Wednesday as the index carried momentum to break the 10,000 benchmark.

 

Nikkei 225                          10,238.65

The Japanese equities market soared higher on Thursday after the Dow Jones exceeded 10,000, with the Nikkei rising 178.44 points (1.77%) to close at 10,238.65. All 10 components pushed higher, amid Consumer Services lead rise, adding 2.49%, followed by Technology gaining 2.19%. Shares of Japan Airlines Corp slid 10.94%, the lowest since October 2002 due to speculation that the airline may seek 300 billion of debt relief, while Pioneer Corp surged 5.17% as demand for audio and video equipment goods surged higher. At the same time, Toshiba Corp rallied 3.86% in the midst of talking to three Finnish utilities companies to build atomic plants in order to gain share of the European Market.

 

Hang Seng                        21,999.08

The Hang Seng rallied 112.60 points (0.51%) to close at 21,999.08 as 8 out of the 9 components traded higher, with consumer goods gaining 3.92% to lead the advance. The advancement marks a newly fresh high for the index since the collapse of Lehamn Brothers. Shares of Foxconn International soared 6.70% as the company’s global handset team revised the FY09 shipment growth forecast from -6% to -1%, while Cosco Pacific Limited rose 3.76% as global demand for shipping container leasing services continue to rise. At the same time, Henderson Land Development slipped 1.75% due to the company selling duplex apartments at a record price.  

 

S&P/ASX 200 Index           4,859.90

Stocks in Australia jumped to a 13-month high, gaining 28.80 points (0.60%) to trade at 4,859.90. 8 of 10 components traded higher on the day, with Industrials rising 1.46% to lead the expansion.  Shares of Elders LTD shed 13.04% despite the company forecasting a fiscal 2010 underlying profit of A$55.7 million, while Nexus Energy climbed 9.09% on the back of higher energy prices. Moreover, OM Holdings gained 9.06% on the bank of higher Metals. 

Notable Asian Session Event Risk / Economic Releases

Oil, Metals Diverge as US Dollar Stages Uneven Rebound

Commodities – Energy

Crude Breaks Key Resistance at $75, Positions to Continue Higher

Crude Oil (WTI) $75.22 // $0.04 // 0.05%
Crude prices have broken above key resistance at $75.00 and proceeded to take out the upper boundary of a rising channel that had been guiding prices higher since September. Familiar catalysts are in play, with swelling optimism about the global recovery driving expectations of future demand all the while the US Dollar continues to slump, adding buying interest from traders seeking an inflation hedge. From a technical perspective, the break opens the door for a move to test resistance in the $77.50 – $78.50 area.

Commodities – Metals

Gold Diverges from Oil Prices as US Dollar Stages Uneven Rebound

Gold $1053.55 // -$8.85 // -0.83%
Curiously, gold prices are clearly diverging from the weak-dollar theme that has guided metals and energy prices over recent days. While crude continues to push higher, gold has taken out rising channel support and now looks to set to break below a flatter minor rising trend line to open the way for a decline to $1044.00. This is especially interesting given the backdrop in the currency markets, where the US Dollar is bouncing higher nearly all the majors with the notable exception of the British Pound. It seems a realignment of sorts is underway, though it remains to be seen what is produced once it is completed.

Silver $17.55 // -$0.33 // -1.85%
The drop in silver has been even more pronounced than that of gold, with prices testing below major support at $17.50, the range bottom that has contained prices since the beginning of the month. We will continue to monitor markets as things develop, but early cues seem to hint that a material reversal in risk appetite may be brewing.

Crude Oil Trades at Critical Resistance

Crude oil prices previously thundered through trendline support, but the break above trendline resistance led to impressive gains through recent trade. The commodity now trades near previous double-peaks at approximately 76.00, and the next day or so of price action could prove critical to broader direction. Near-term support is seen at congestion near 72.50, while a break of 76 resistance opens up a continuation of recent gains.

Gold prices have set fresh record highs through recent trade, hitting substantially overbought conditions on daily oscillators and showing few signs of slowing. There are obviously no historic levels from which to draw resistance, except to note that price cannot go higher indefinitely. Nearest support is at the psychologically significant 1050 and 1000 marks.

Silver has put in similarly impressive gains, but the mostly industrial metal nonetheless trades at fairly clear technical resistance. The 18.000 mark is a clear psychological level and likewise represents the top of the pair’s year-to-date rising trend channel. Failure at said mark leaves the metal at risk of sharp declines, with next real support not seen until clear congestion at 17.000. Risk/reward favors a short from these levels.

European Stocks Rally Higher on Earnings and Fundamental Data

Europe Session Key Developments

•    China Export Growth Fuels Demand Speculation
•    Earnings Boosts Tech, Financial Sectors

Following declines yesterday, European markets rallied to fresh high for the year as earnings reports led to broad buying across all sectors. Intel’s strong Q3 release buoyed technology stocks as the chipmaker’s sales came in ahead of estimates, while the firm’s guidance also came in higher than expected. JPMorgan Chase also reported during the middle of the trading session in Europe with a strong $3.59 billion in net income. The reports helped boost sentiment on third quarter results, while a recent release on Chinese trade added evidence for global expansion as exports posted the smallest annual contraction in nine months. Export data indicated US and European demand increased sharply, while improvement was noted across the board in Russia, Brazil, the U.K, and others. Ultimately, strong earnings in the third quarter may lead businesses to minimize further layoffs as sales are anticipated to rise along with increased consumer wealth as equities have gained and housing stabilized. Such improvements are likely to buoy spending as winter shopping draws near. The third quarter appears off to an impressive start, while results in the fourth quarter will prove far more significant as analysts look for an increase in top-line sales that currently seems nowhere to be found.

FTSE 100                      5,256.10.17                   +101.95               +1.98%
Stocks in the UK rose to a new high as gains were noted in nearly all sectors with Financials and commodity-affected stocks seeing the biggest advances. Rio Tinto helped lead miners higher as the firm announced record iron ore production in the third quarter, while also raising its own 2009 output forecast. Kazakhmys rose nearly ten percent while Vedanta and Xstrata advanced more than seven percent. Also recovering from yesterday’s concern over banks were firms including Barclays, up 7.68%, as JPMorgan Chase’ earnings report raised optimism. The financial sector is likely to continue to see growth ahead in activities including M&A and underwriting as the onset of growth fuels action as valuations remain well below historical levels.

CAC 40                     3,845.80                  +46.19                 +2.14%
French stocks climbed more than two percent as 36 of 40 stocks gained along with a rally of 3.41% in Financials as earnings from JPMorgan Chase in the US helped to lift sentiment. Oil & Gas also rallied nearly three percent as crude advanced closer to the top of its range at approximately $75 per barrel. Major firms moving included Total up 2.95% as well as a 3.31% move in BNP Paribas. Meanwhile, resurgence in China’s trade helped ArcelorMittal to rally more than five percent as the steelmaker announced it will partially restart a furnace that had been shutdown to save costs earlier in the year.

DAX                         5,854.14                    +139.83             +2.45%
Germany’s benchmark index closed higher by more than two percent as the Basic Materials sectors, along with Industrials, rallied more than four percent. Significant improvement in China’s export figures affirm investor sentiment that export based economies, such as Germany, will recover quickly as growth climbs in the final quarter of the year. Chemical maker BASF rose the most at more than seven percent as the firm reported profit falling to €1.25B according to preliminary results. Other winners included Siemens, up more than five percent, as technology related stocks rallied on Intel’s strong projections for Q4.

IBEX 35                     11,870.90                   +262.60               +2.26%
Spanish stocks climbed more than two percent as strength was noted across nearly all sectors while Basic Materials and Financials climbed more than three percent each. The nation’s three largest firms all advanced, with Telefonica and BBVA up more than two percent while the nation’s largest bank, Santander, rallied 4.26%. Optimism affected the trading of such firms as JPMorgan’s earnings report raised sentiment for other financial groups. Firm-specific news, meanwhile, also lifted the shares as Bank of America upgraded its price target on Santander.

FTSE MIB                        24,348.23                    +419.46                  +1.75%
Italy’s main index climbed the least of the five majors while extending gains to a new high for the year as the heavily weighted financial sector saw considerable gains across the board. Firms including Unicredit, Unipol and Intesa Sanpaolo advanced more than two percent each. Overall, confidence is sweeping across equity markets and many firms are seeing upgrades and estimate increases ahead of third quarter results and the expected growth to come in 2010. Despite this, any cracks in spending that emerge could bode poorly for markets and lead to a sharp pullback.

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

Crude Marks New Year High, Extends Five-Day Rally as Dow Advances Fills in for Delayed Output Numbers

Commodities – Energy

Crude Oil (WTI) -  $74.88  //  $0.73  //  0.98%
The world’s most precious resource is now the most expensive it has been in almost exactly a year. Crude is now filling out its fifth consecutive daily advance – the most consistent bull trend since the run between August the 18th through the 24th. Despite marking the impromptu high for the year, price action has been otherwise choppy. The run to the intraday high of $75.40 (for the nearby futures contract) was not clear cut and would eventually fall back into a loose range between $75.20 and $74.50. This hesitancy to capitalize on what is arguably a breakout mimics the same pace that equities, other commodities and FX is developing. What is the common link between all these asset classes? Appetite for risk. Despite the blatant and steady rally that has developed over the past seven months, a steady advance is not guaranteed. It is growing increasingly difficult for fundamentals to support and justify such high prices.

Outside the broader themes, demand is still a prominent concern for oil traders. This morning, the American Petroleum Institute (API) reported crude production in the US rose 35 percent through September from the same period a year ago to 5.29 million barrels per day. This is reportedly the highest output levels since 2005 and has been buffered by tempered demand due to the recession and a light hurricane season. Due to the Columbus day holiday, the API has pushed back its weekly release schedule to 16:30 EST. The Energy Information Agency (EIA) will release its numbers tomorrow at 11:00 EST. However, Managing Director Tanaka in the meantime offered a few comments on the market when speaking about the greenhouse agreement expected to be reached in Copenhagen in December. He said that future spikes in oil prices were still a “concern,” and the outlook for demand was “not promising.”

Commodities – Metals

Another Record High from Gold Doesn’t Support Momentum

Gold  -  $1062.40 //  -$1.90  //  -0.18%
Gold has set a new, intraday record high for a second consecutive session; but today’s overall advance lacked the conviction seen in Tuesday’s drive to a new high. This breaks somewhat from the tight correlation with risk appetite that has guided gold prices while the market’s demand for a safe haven has diminished and the threat of inflation still seems distant. The next spark for volatility in gold will come through tomorrow’s US consumer inflation data. If there is any merit to concerns over emerging price pressures we (and policy officials) will have to come through this data. The August data showed the first significant uptick in the plummeting, annualized CPI gauge (up to a 1.5 percent pace from a 50-year low 2.1 percent pace in July); but we have yet to establish this as a turn in trend. To support an outlook for policy officials tolerating inflation in an effort to ease the nation’s deficit, we first need to see the foundation of a imminent reversal in inflation. In other news, ETF Securities reported it attracted $233.2 million this past week to reach a record capital under management of $16 billion. Risk appetite is obviously not aimed at equities alone – especially with the commodity grabbing headlines by pushing record highs.

Silver  -  $17.86  //  $0.07  //  0.39%
While Silver was showing a bullish change mid-day in the US session, the commodity was nonetheless showing price action that very closely resembled that of gold – new highs, lots of chop and little progress. The congestion that has dominated price action ever since the most recent rally climbed above the September 17th swing high has shown the limited interest in this semi-speculative metal. Practical demand for this commodity is equally tepid with the outlook for growth finding little additional news to brighten the already optimistic, global outlook.

-Written by John Kicklighter, CFDTrading Research
Questions/Comments about this article? Send them to jkicklighter@dailyfx.com

« Previous Page — Next Page »