December 2009

European Markets Continue to Gain on Optimism in Coming Year

Europe Session Key Developments

•    Commodities Lower as Dollar Rally Continues
•    GDP Revisions Hardly Limit Gains
•    DAX/CAC Rise to New High

European stocks closed higher by less than one percent as optimism surrounding 2010 continued to reign against weakness in indicator releases. Two pieces of concern included the revision to UK and US GDP data, which failed to meet estimates. At the same time, GfK’s confidence indicator for Germany fell for the second month to 3.3, the lowest since July. Another grim sign was a decline in components of the indicator, including willingness to buy and an increase in willingness to save. Traders’ reaction to such news proved minimal as expectations improved. Other weakness that normally leads to decline in markets also had minor effect, including a decline in energy and metals. As the DAX and CAC soar to new highs, it remains clear that investors expect strong growth in 2010. As firms largely remained profitable through cost cutting measures in 2009, the coming year is likely to bring about much needed top-line growth that will lead to higher profit margins. While this would bode well for equities, concern must be noted as central banks begin to flush out the tremendous liquidity brought on by easing monetary policy and extra measures. This could have a negative effect as the year continues, but is certainly not expected to begin in the first quarter. Traders should not be entirely fooled by new highs and considerations of jumping in on the bandwagon, as optimism and upgrades cannot fuel a rally by themselves. Ultimately, volatility as the year closes is likely to remain low as volume suffers the usual seasonal holiday dip.

FTSE 100                      5,328.66                   +34.67               +0.65%
British posted a gain of nearly two-thirds of a percent as all sectors rallied, with the exception of Basic Materials following its strong showing on Monday. Cairn Energy continued to lead with a 6.41% following a recent announcement the firm plans to drill in Greenland sooner than previously forecast. Market leaders included healthcare with GlaxoSmithKline up 1.92% while oil companies including Royal Dutch Shell and BP, which account for more than twelve percent of the index weight, climbed more than one percent each. Should inflation rise in the next year, commodities may see considerable gains to help the FTSE outperform its peers.

CAC 40                     3,898.38                  +26.32                 +0.68%
The French market closed with a gain of more than two-thirds of a percent as strength was noted in all but 7 stocks. Financials fell 0.24% following strong performance on Monday, along with just a slight rise in Basic Materials. Oil company Total climbed 1.73% to lead the index move, followed by healthcare with Sanofi-Aventis rising 1.08%.

DAX                         5,945.69                  +15.16              +0.26%
German stocks advanced the least of the five majors following GfK’s consumer confidence reading that came in lower as willingness to buy fell on an increase in willingness to save. Six of nine sectors advanced, while half of the 30 stock group posted gains. Big movers for the index today proved minor with most of the index points coming from just north of one percent gains in insurer Allianz and Deutsche Telecom.

IBEX 35                     11,890.80                   +60.00                +0.51%
The Spanish index climbed approximately half of one percent as gains were noted in seven of nine sectors. Health Care climbed the most at 3.46%, while Technology and Industrials gained more than one percent each. Losses were noted in more than 25% of stocks including a 1.75% drop in oil explorer Repsol. Overall the IBEX has traded in a range under 12,000 since mid-September, but remains the best performer in 2009 with a gain of 28.65%.

FTSE MIB                        22,982.56                    +243.88                  +1.07%
Italy’s benchmark index climbed the most of the five majors with a gain of more than one percent. The index has now closed at the highest level in a month, but still remains range bound and suppressed from its mid-October highs. Ultimately, the heavily-financial weighted index remains pegged to performance in financials, a group that, up until the past few months, had rallied immensely since March.

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

Dow Looks To Trade Sideways On Holiday Volume

The Dow continues to remain range bound and heading into the Holiday trading session traders increases the chances that we could see further consolidation. The compressed price action still leaves the door open for a potential breakout with a break above 10,500 a bullish sign and a drop under 10,200 favoring a bearish move.

The S&P 500 sharply is looking to re-test the upper bound of the current range where we see staunch resistance at 1,120- 50.0% Fibo of 1,576- 666 increasing the chances of a retrace. If the current trend continues, then look for a test of the lower bound at 1,080.

The NASDAQ continues to remain in an ascending triangle pattern and appears ripe for a breakout. A break above Fibo resistance could lead to a test of 2,400. A break below trendline resistance brings back into play the longer-term triangle formation.

Stocks in Asia/Pacific Advance as Japan’s Cabinet Office Holds Improved Outlook for Global Growth

Asia Session Key Developments

• Japan’s Cabinet Office Maintains Economic Assessment for Fifth Month
• Japan’s Small Business Confidence Weakens Further
• Australia’s Leading Index Slips Lower in October

Asian stocks pushed higher on Tuesday as policy makers in Japan held an improved outlook for global growth, driving the Nikkei 225 to its highest close since September 24^th of this year. Japan’s Cabinet Office said economic activity in the region is “picking up” during its monthly report in Tokyo, and maintained its assessment for the fifth consecutive month as the economy emerges from the worst recession since the post-war period. In addition, policy makers noted that small and mid-sized firms remained “cautious” even as business confidence improves, and went onto say that the country remains in a “mild deflationary phase” as private sector spending falters. Moreover, Bank of Japan Governor Shirakawa said monetary policy should not be driven by short-term price movements as it fuels economic imbalances, and argued that instability in the global financial system would weigh on the nation’s banking sector as credit conditions remain tight. Nevertheless, the index of small business confidence in Japan slipped to 40.4 in December from 43.0 the month prior, while supermarket sales plunged 8.0%, and conditions may get worse going into the following year as policy makers see a risk for a protracted recovery. In Australia, the conference board leading Index for October pushed 0.3% lower, marking its first decline in 5 months as rural goods exports and shares prices tumble, while overall balance of payments in Hong Kong fell to $106.63 billion in the third quarter from $143.10 billion the quarter prior.

Nikkei 225                          10,378.03

The Japanese equity markets climbed for a second straight day amid a weaker yen, leading the Nikkei 225 to gain 194.56 points (1.91%) and close at 10,378.03. All ten components traded higher on the day, with technology leading the way, adding 3.12%. Shares of Isuzu Motors, Japan’s largest maker of light-duty trucks, surged 6.83% as the company is seeking talks with General Motors to review a jointly operated engine-making factory in the U.S., while Nissan Motors, Japan’s third-largest automaker pushed 6.07% higher as the automaker along with Toyota Motor leads the gain in production among the nation’s carmakers in November as government incentives spur demand. Meanwhile, Fuji Electric Holdings leapt 8.22% subsequent to the Nikkei newspaper reporting that the electronic-devices maker will begin mass producing next-generation, power-saving semiconductors in the spring of 2011, while Japan Tobacco jumped 5.26% as the company due to Japan, the world’s fourth-largest cigarette market, plans to raise the price of tobacco taxes for the first time in four years due to the shortfall in tax revenue that the government faces, in addition to discouraging smoking.

Hang Seng                        21,092.04

Hong Kong shares halted a four day losing streak, leading the Hang Seng Index to advance 143.94 points (0.69%) and end the trade at 21,092.04 as four of the nine components traded higher on the day. Shares of Hang Lung Properties soared 5.67% as regulators look to tighten rules on how show apartments are displayed for new developments in order to prevent buyers from being misled, while Industrial & Commercial Bank of China, the world’s most profitable bank added 2.62% as Chairman Jiang Jianqing told reporters that the company does not have any financial needs in the short term. At the same time, Aluminum Corporation of China gained 1.21% on the back of higher commodity prices, while HSBC Holdings pushed 0.75% higher subsequent to the Office of Fair Trading announcing that it would drop an investigation into overdraft fees charged by banks after the U.K. Supreme Court ruled against it.

S&P/ASX 200 Index           4,704.20

Stocks in Australia traded to the upside on Tuesday, leading the S&P/ASX 200 to gain 69.10 points (1.49%) and close at 4,704.20. All ten components traded higher on the day, with financials leading the way, rising 1.76%, followed by a 1.70% gain in industrials. Shares of BHP Billiton, the world’s largest mining company, climbed 1.71% after the Age newspaper reported that the mining company may consider selling the remaining nickel assets in 2010 in order to raise approximately $3 to $7 billion, while Newcrest Mining gave back 2.07% on the back of lower gold prices. Meanwhile, Macquarie Group, Australia’s largest investment bank rose 1.94% as the bank is close to an agreement to purchase the derivatives division of Sal. Oppenheim Jr. & Cie., while, Murchison Metals advancing 5.61% after the iron ore producer reported a “significant” recourse increase at its Jack Hills project.

Notable Asian Session Event Risk / Economic Releases

US Stocks Close Stronger With NASDAQ Setting Fresh 2009 High

U.S. Session Key Developments

•    Commodities Fall on Dollar Strength
•    Credit Protection Declines

US markets closed up approximately one percent while the NASDAQ composite index gained to 15-month high as technology outperformed following an upgrade to chipmaker Intel. News driving today’s optimism proved minor with no key indicators on release except the Chcago Fed national activity index, which posted better than expected. Instead, drivers included optimistic growth projections for the UK and euro region, while M&A activity painted light on firm’s fiscal health. Some major highlights included Sanofi-Aventis’ announcement to acquire Chattem Inc. for $1.9B, while mining equipment maker Bucyrus will purchase the mining equipment division of Terex Corp for $1.3B. Alcoa’s nearly $11B joint venture with a Saudi Arabian firm also lifted sentiment. Other trading, which would have a negative effect, included lower commodity prices as dollar strength remains near a three-month high. Crude remains above $70, while gold plummeted another $18, or 1.64%, to under $1100 per ounce. Ultimately, equities have performed strongly this year with gains of more than 40% in the NASDAQ. Performance next year promises to play on two significant trends. Weighing on both sides will be economic growth versus the Federal Reserve’s eventual need to raise rates.

DJIA 30                      10,414.14                   +85.25               +0.83%
The Dow closed with the smallest gain of the five majors as five of thirty stocks fell while Basic Materials climbed 3.08%. Leading the index was aluminum producer Alcoa, up 7.89% on news of its joint venture with Ma’aden. Other leaders included Intel, up 2.5% following an upgrade to ‘overweight’ by Barclays, and a 2.32% rise in JPMorgan. As the index is largely filled with multinational firms, underperformance may be the result of dollar strength.

S&P 500                     1,114.05                   +11.58                 +1.05%
The broader S&P500 index gained just over one percent as all sectors advanced while winners outpaced losers by more than 7:1. Leading today were raw material producers including Alcoa, up 7.89%, while AK Steel and US Steel each rose more than 6%. Of the ten largest firms, seven posted gains while losses in GE, P&G and J&J were minimal. Stocks have performed well this year, but the S&P500 has hardly moved since mid-November.

NASDAQ                    2,237.66                    +25.97             +1.17%
An upgrade to chipmaker Intel, and strength across the board, helped the NASDAQ outperform today and rally to a new 2009 high. At the same time, nearly a third of the 2755 securities tracked posted declines. Of the ten largest firms traded, none posted declines.

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

European Markets Start Week with a Rally on Low Volume

Europe Session Key Developments

•    Commodities Mixed as Dollar Rally Continues
•    EC,CBI Project Growth on Stimulus
•    DAX Rises to New High

European markets closed higher by nearly two percent as equities rallied on low volume with few event releases to mark the session. Key news included the European Commission releasing its growth forecast for the region in the next year, while the Confederation of British Industry raised its growth forecast in the UK. Other factors affecting trading today included higher commodities for most of the session, while US dollar strength eventually led to a pullback. Regardless of weakness in commodities, confidence in equities remains clear with most indices near their highs while Germany’s DAX closed at a fresh high. Raised forecasts in the year ahead will lead to an improving environment for jobs, and top-line for many firms should rise. 2009 has mostly seen strong equity performance as firms fought to sustain and increase margins amid contraction in sales. Despite the optimism surrounding expectations, indices have largely seen little-change since November. This is definitely a concerning sign as investors now forecast sooner and larger rate hikes in 2010 that could put a hamper to the equity rally. The end of the year is normally marked by low volume and no significant trading action. As such, a breakout may not occur for some time.

FTSE 100                      5,293.99                   +97.18               +1.87%
British posted a strong rally today following downside late in the previous week. Volume proved light at less than 700 million shares, compared to north of two billion on Friday. All sectors advanced while only three stocks closed lower. Financials and Oil & Gas led with gains of more than two percent. Insurers posted strong moves today as Prudential and Aviva climbed more than four percent while Old Mutual posted a gain of 3.77%. Action also proved high in commodities, with Cairn Energy up 4.66% as the energy explorer pushed forward a drilling program in Greenland. Should inflation rise in the next year, commodities may see considerable gains to help the FTSE outperform its peers.

CAC 40                     3,872.06                  +77.62                 +2.05%
The French market closed with the largest gain of the five majors as all sectors posted gains including a 3.06% rally in Oil & Gas. Market leaders included oil company Total and steelmaker ArcelorMittal up more than three percent each as commodities increased early on. Financials also posted higher following recent weakness in the past week. BNP Paribas and Societe Generale advanced nearly 3% as well.

DAX                         5,930.53                  +99.32              +1.70%
German stocks climbed to a fresh 2009 high following weakness in the past two trading sessions. Four sectors rallied more than two percent while only three stocks fell. Infineon and Siemens led with gains of 3.91% and 2.79%. The impressive performance of the DAX reflects underlying fundamental improvements and improving global trade. The Baltic Dry Index, a measure of shipping prices for commodities, has fallen since mid-November. At the same time, rising growth expectations should lead to increasing exports for Germany, a factor that could help the DAX outperform.

IBEX 35                     11,830.80                   +185.80                +1.60%
The Spanish index climbed more than one percent with Basic Materials surging 3.04% while nearly all other sectors also gained. Winners included steelmaker ArcelorMittal, up 4.03%, while insurer Mapfre gained 2.31%. Smaller moves of just under two percent were noted in Telefonica, and Spain’s two largest banks, BBVA and Santader. Overall the IBEX has traded in a range under 12,000 since mid-September, but remains the best performer in 2009 with a gain of 28.65%.

FTSE MIB                        22,738.68                    +266.25                  +1.18%
Italy’s benchmark index climbed for the first time in three days with the smallest gain of the five majors. Since peaking in mid-October, the FTSE MIB has settled into a tight and ever-narrowing range. Recent concerns over Greece’s debt rating seem to show little impact on Italian equities, which have largely priced in the news. Despite its own high public debt, Italy’s issues appear to be better managed with lower deficits in the fiscal budget. Ultimately, the heavily-financial weighted index remains pegged to performance in financials, a group that, up until the past few months, had rallied immensely since March.

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

Stocks in Asia/Pacific Mixed on Sluggish Trade

Asia Session Key Developments

• Hong Kong Index Closes at its Lowest Level Since October
• New Zealand’s Visitor Arrivals Accelerates to 5-year High

Stocks in Asia/Pacific Mixed on Sluggish Trade

Asian stocks fell for a third consecutive day on Monday, led by concerns amongst Hong Kong – listed property developers and insures will do more to curb real – estate speculation, with china looking to slow growth in M2 money supply to 18%, in addition to keeping new loans below 8 trillion yuan.  Meanwhile, New Zealand’s visitor arrivals surged to a 5-year high, adding signs that consumer demand for housing may hasten the economy’s recovery from a recession. Moreover, Japan’s exports tumbled for a 14^th consecutive month in November, while the all industry activity index for October advanced for a fourth time in the past five months. In Japan, Finance Minister Hirohisa Fujii indicated that the government will be able to compile next year’s budget by the end of the week, with the spending plan planning on being improved.

Nikkei 225                          10,183.47

The Japanese equity markets advanced on Monday, halting a two-day decline, leading the Nikkei 225 to climb 41.42 points (0.41%) and close at 10,183.47. Eight of the ten components pushed higher on the day, with oil & gas gaining 2.59% to lead the rise, while utilities gave back .74%. Shares of Arc Land Sakamoto surged 4.3% as the home center operator booked a net income of 2.6 billion yen for 9 months ended Nov. 20^th, while Gunze, Japan’s third-largest maker of touch screens, rose 2.2% as the company plans to triple capacity of the film covering the panels at its Taiwan venture in 2years. At the same time, JCR Pharmaceuticals soared 11% due to plans by GlaxoSmithKline to purchase 12.6% of the pharmaceutical company, while Misumi Group tipped over 2% as the company said November sales fell by 12.4%, which is 8.8% more than the company projected.

Hang Seng                        21,175.88

Hong Kong shares closed lower on Monday for the fifth successive day, leading the Hang Seng Index to plunge 227.78 points (1.08%) and end the trade at 20,948.10, marking the index’s lowest level since October as seven of the nine components traded lower on the day. Shares of Television Broadcasts, the operator of Hong Kong’s dominant broadcaster, pushed 0.8% higher as Gold Sachs Group raised its share – price forecast on the company to 26%, while, IND & Commercial Bank of China tipped .09% lower as Securities Times reported Chinese banks may need to raise 500 billion yuan next year. Meanwhile, Hang Lung Properties fell 3.19% amid speculation that Hong Kong may tighten rules on how show apartments are displayed for new developments. On the other hand, China Mobile declined 1.75% as Fitch Ratings stated North Asia telecom regulatory risk is highest in South Korea.

S&P/ASX 200 Index           4,635.10

Stocks in Australia slumped on Monday for a second straight day, leading the S&P/ASX 200 to give back 15.40 points (0.33%) and close at 4,635.10. Seven of the ten components traded lower on the day, with telecommunications pushing 3.76% lower, while basic materials advanced 0.68% to taper the decline. Shares of Newcrest Mining, Australia’s largest gold producer, added 1.8% on the back of higher gold prices as investors buy the precious metal to hedge against the dollar, while BHP Billiton, the world’s largest mining company rose 0.9% amid higher copper prices. At the same time,  Nufarm plunged 4.9% as talks with China’s Sinochem Corp. proposed takeover of the company come to a halt on price detail as reported by the Australian Financial review, while Qantas Airways leapt 5.1% subsequent to Australia’s largest airline forecasted first-half pretax profit to be between A$50 million and A$150 million.

Written by: Michael Wright, CFDTrading Research
Questions? Comments? Send them to mwright@fxcm.com

Crude Surges through Technical Restraints as Iran Seizes Control of Iraqi Oil Well

North American Commodity Update

Commodities – Energy

Crude Surges through Technical Restraints as Iran Seizes Control of Iraqi Oil Well

Crude Oil (LS NYMEX) -  $73.16  //  $0.51 //  0.70%

Though it would let up as the US session wore on; crude put in for an aggressive rally Friday as news that Iranian forces had taken control of an Iraqi oil well. The dispute began in the morning hours in the Middle East when Iranian military forces seized control, and according to the Iraqi border guard general Zafer Nazmi, positioned tanks around a well in the al-Fakah region. The immediate reaction to this news was violent as traders smelled the potential for an international incidence; but the slow progress of diplomacy as well as the approach of the weekend (not to mention pre-holiday) liquidity drain has tempered bullish expectations. Taking some of the heat off this event, boarder disputes between Iraq and Iran are not unusual. However, the young democracy in Iraq along with the ongoing international spat with Iran over its nuclear ambitions leverages the impact of this particular episode. Late in the US session, Iraq’s National Security Council said that its neighbor had violated its boarder and demanded the forces to “withdraw from well 4 and lower the Iranian flag from over the well tower immediately.” This can – and likely will – be defused quickly and without further trouble; but it should nonetheless be monitored carefully.

Outside of the leveraged speculative interests following the Iraqi oil well situation, the oil market was finding fundamental strength from the scheduled and exogenous factors. Temperatures have dropped well below normal for much of the US; and inclimate weather is forecasted to sweep through the eastern half of nation and hold there for approximately two weeks. This will help bolster expectations of demand for distillates and crude oil indirectly. Further supporting the outlook for consumption trends, macro economic data this morning revealed  sentiment among German business leaders hit its highest level since January of 2008. A heavy round of event risk is scheduled for release next week (despite it being truncated); and bearings on global growth and worldwide risk appetite can be reshaped. For speculative interests, traders will have to watch the weekly Department of Energy inventory figures following this past week’s 3.689 million barrel drop that pulled total supplies to its lowest level since the period ending January 9th. Reduced liquidity could very well leverage volatility – an explosive situation should there be a significant change. Other events worth marking are the OPEC meeting on the 22nd as well as the futures contract rollover on Monday.

Commodities – Metals

Gold Struggles to Reverse its Losses from Thursday

Spot Gold  -  $1,110.20  //  $11.30 //  1.03%

Gold advanced through Friday’s session; but progress would be limited compared to Thursday’s aggressive plunge. Underlying risk trends were primarily responsible for the commodities bearings as the metal followed the same path as equities as the day progressed. In the early European session, bullish interests had bolstered stock benchmarks; but selling pressure soon took over. Through the US session, risk appetite was relatively stable throughout the day. Looking ahead to next week, speculative interests will be leveraged for the commodity as liquidity form banks and other large capital pools is withdrawn for the holiday period. For background fundamentals, the market is looking at rising inflation and revived growth but little probability of near-term rate hikes. This, along with lingering speculation of central bank interest, is the primary bullish driver for gold heading into the end of the year. However, the most influential drivers for this market are the correlation to the dollar and trends in risk appetite. The greenback has taken to a meaningful advance that is looking less like a bounce and more like a true reversal by each day. At the same time, underlying risk appetite has yet to truly collapse. If there is a breakdown in key asset classes (like the Dow), it would likely further leverage the US currency and weigh on speculative positions behind this commodity.

Spot Silver  -  $17.26 //  $0.12 //  0.69%

Silver was little moved through the final 24 hours of the trading week. With holiday conditions expected through the rest of the year and other key risk-derived assets showing stability, there was little to rile silver to a meaningful move. Interestingly enough, the metal has formed a clear range base at $17 per ounce; marking a clear breaking point should bears swamp the market next week. Looking at the market flows behind price action, the one-week average of aggregate volume and open interest for the futures market have dropped to their lowest levels in three months.

Discuss gold and oil trading with other traders in the DailyFX Forum

Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

Stocks in Asia/Pacific Plunge as China Introduces Down-Payment Requirements; Bank of Japan Holds Key Rate at 0.10%

Asia Session Key Developments

• Bank of Japan Pledges to Mitigate the Risks for Deflation
• China Sets Down-Payment Requirement to Temper Speculation
• Japan Nationwide Department Store Sales Tumbles for 21^st Month

Asian stocks pushed lower on Friday, with banks leading the decline as the Basel Committee on Banking Supervision announced that banks globally have to increase the quality of capital they hold by the end of 2010, while the unexpected rise in U.S. jobless claims weighed on the outlook for global growth. Nevertheless, the Bank of Japan kept the key overnight loan rate at 0.10%, with officials announcing that the economy is picking up, while stating that they will not tolerate inflation at or below 0%, causing the yen to depreciate further against major currencies on speculation that the central bank will keep borrowing costs at the record-low over the following year. At the same time, BOJ Governor Masaaki Shirakawa said that some people misunderstood that the central bank tolerated deflation, while adding the board will keep a very accommodative policy. Furthermore, policy makers in China set a down-payment requirement for land purchases to at least 50% of the total value in an effort to limit speculation in the housing market, while Fitch Ratings held a cautious outlook for banks within the region as the group expects their capital strengthen to be more “strained” going forward. Meanwhile, Japan’s nationwide department store sales fell 11.8% to mark the 21^st consecutive monthly decline, and the data reinforces a weakened outlook for the domestic economy as households face a weakening labor market paired with tightening credit conditions.

Nikkei 225                          10,142.05

The Japanese equity markets slipped on Friday for a second straight day, leading the Nikkei 225 to shed 21.75 points (0.21%) and close at 10,142.05. Seven of the ten components traded lower on the day, with consumer services tumbling 0.87% to lead the decline, while oil & gas pushed 1.06% higher during the session. Shares of Mitsui O.S.K. Lines advanced 1.48% as the firm talked down speculation of issuing additional shares to finance its business, while Sumitomo Mitsui Financial Group pushed 4.86% lower as after Basel Committee on Banking Supervision stated global banks should increase capital quality by the end of 2012. Meanwhile, Mizuho Securities fell 2.37% as the brokerage company may appeal a court ruling ordering the Tokyo stock Exchange to pay the company 10.7 billion yen in damages related to a 2005 stock order, while Seven & I Holdings dived 3.28% on the back of Tokyo sales slumping 11.9% in November.

Hang Seng                        21,175.88

Hong Kong shares closed lower on Friday for the fourth consecutive day as investors turned skeptical of the global recovery, leading the Hang Seng Index to slump 171.75 points (0.80%) and end the trade at 21,175.88 as five of the nine components traded lower on the day. Shares of Hang Lung Properties dived 3.25% as China’s government set the down-payment requirement for land purchases to at least 50% of the total price, while China Resources Enterprise retreated 3.79% subsequent to the company stating that Esprit Holdings agreed to buy out their textile venture for HK$3.88 billion. At the same time, Industrial & Commercial Bank of China shed 1.74% as Fitch Ratings expects to see “strained” capital strength amongst the nation’s top lenders, while Aluminum Corp of China slumped 3.02% on the back of lower commodity prices.

S&P/ASX 200 Index           4,650.50

Stocks in Australia slumped on Friday, leading the S&P/ASX 200 to give back 19.80 points (0.42%) and close at 4,650.50. Four of the ten components traded lower on the day, with telecommunications pushing 2.72% lower, while technology advanced 2.13% to taper the decline. Shares of BHP Billiton, the world’s largest mining company slip 1.96% on the back of lower copper prices, while Newcrest Mining, Australia’s largest gold producer plunged 3.04% as the gold prices plummeted 3.4%yesterday to mark the biggest decline since December 4^th. Meanwhile, Foster’s Group, Australia’s biggest beer and winemaker fell 1.78% as the company stated gains in the nation’s currency will cut earnings as it battles falling demand in the U.S., while Telstra tipped over 3.38% amid the company cutting its forecast for sales in the 2010 financial year due to tough conditions in Hong Kong’s mobile phone services.

Notable Asian Session Event Risk / Economic Releases

Gold to Follow Silver Lower, Oil Looks to Dollar For Direction

Commodities – Energy

Crude Oil Looks to US Dollar to Set Direction

Crude Oil (WTI)       $73.40       +$0.75       +1.03%
Oil prices bounced from support at $71.46 and are now set to re-test the previous swing high at $73.55. A break above this juncture opens the door for a test of the psychological barrier at $74. The Baker-Hughes measure operational US oil rigs is the only item on the calendar, leaving prices to trade along the trajectory of the US Dollar heading into the week-end.

Commodities – Metals

Silver to Resume Decline, Gold to Follow

Gold       $1105.70       +$6.80       +0.62%
Gold prices took out minor double bottom support at $1111.55 with the bears now in position to challenge the next hurdle at a major rising trend line established from the lows in August (now at $1091.98). A break below would mark a significant trend reversal, with the initial support emerging at $1070.80. The US economic calendar is empty, but prices remain closely correlated with the outlook Federal Reserve monetary policy (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), leaving markets to digest the upward revision in the priced-in yield forecast into the week-end.

Silver       $17.26       +$0.13       +0.76%
Unlike leading gold, silver looks to have already made its major bearish breakout. Last week, prices broke below major rising trend line support from the swing low in mid-July and prices are now showing a very formidable Bearish Engulfing candlestick pattern having re-tested this trend line on the upside. A break below initial support at $17.15 opens the door for a move into the $16.13-16.70 congestion region. Significant support becomes harder to come by after this juncture, with a break lower exposing $15.05. In a similar fashion to gold, however, the 2010 fed funds futures spread is the key fundamental relationship behind price action.

U.S. Stocks Drop Following Weak Sessions in Asia, Europe

U.S. Session Key Developments

•    Gold Prices Fall Below $1100
•    Investors Disappointed By UK Retail Sales, US Jobs Data
•    Citigroup Sells Over 5 Billion Shares Today at Discount

US equity markets posted their biggest losses in three weeks, following stocks in Asia and Europe into the red.  European investors were disappointed by news that UK retail sales unexpectedly fell 0.3 percent in November and the Credit Suisse ZEW Expectations Survey fell to 54.0.  This contributed to a sell-off in the FTSE 100, CAC 40, and DAX indexes which each lost over 1 percent.  Just prior to the U.S. opening, initial jobless claims and continuing claims were both reported as higher than expected, driving the Dow 70 points lower upon its open.  Later in the morning, leading indicators actually beat expectations, but failed to rally the major U.S. indices.  In addition to stocks, commodities took a big hit as gold and silver fell nearly 2 percent each.  Gold futures fell below $1100 an ounce, contributing to a 1.2 percent drop in the broad Dow Jones-UBS Commodity Index.  Overall, investors sought safety and capital preservation, preferring the U.S. dollar and Treasury assets to higher-yielding currencies, stocks, and commodities.  The U.S. Treasury 10-year and 30-year yields fell at least 10 basis points each during trading today as demand for safe assets pushed prices higher.

DJIA 30                      10,308.26                   -132.86               -1.27%
The Dow Jones Industrial Average fell over 1 percent today, its third consecutive decline and biggest drop since November 27.  Its basic materials and financial sectors showed weakness due to falling commodity prices and Citigroup’s disappointing stock sale today.  Alcoa, the aluminum giant, dropped 2.7 percent to $14.50 while banking giant JPMorgan Chase dropped over 2 percent.

S&P 500                     1,096.10                           -13.08                 -1.18%
The broader S&P500 index fell for a third consecutive session, led by a 2.3 percent fall in its basic-materials sector due to a pullback in commodity prices.  Freeport McMoran, a leading gold and copper miner, shed 4.4 percent, while U.S. Steel and Chevron dropped nearly 2 percent a piece.  Citigroup also weighed on the broader market, falling 7.3 percent after a weak equity sale showed a lack of investor demand for the shares.  Citigroup ended up selling over 5 billion shares at a price of $3.15 per share, well below its market share price at the time.

NASDAQ                     2,180.05                        -26.86                  -1.22%
The NASDAQ closed lower as its financial, consumer, and technology sectors fell over 1 percent each.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

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