February 2010

U.S. Equities Gain On Euro Guarantee, Jobs Data

U.S. Session Key Developments

•    European Leaders Pledge To Aid Greece
•    Initial Jobless Claims Decline To Lowest Level In Five Weeks

Wall Street got a lift from across the Atlantic today as European Union leaders took a step towards reassuring investors who are worried of a global sovereign debt contagion.  Led by German Chancellor Angela Merkel, the EU called for closer monitoring of the Greek economy but stopped short of offering concrete steps to help Greece handle a debt load exceeding annual GDP.  Though Greece represents only 2.7 percent of the euro bloc’s $13 trillion economy, the risk that debt concerns in Greece could spread to other countries has destabilized markets worldwide.  With Moody’s Investor Service announcing last week that America’s AAA rating will come under pressure unless something is done about expanding deficits, even the safest economy is not beyond concern.  In fact, the US was sixth in a recently published International Monetary Fund report that estimated the adjustments developed countries will have to make to restore fiscal stability over the decade ahead.  Right ahead of the US were Ireland, Spain, and Greece.  Though today’s EU announcement provided some relief, the lack of any details should make that relief very short lived.  Already, the single currency has dropped 0.4 percent against the greenback as investors believe that any bailout would provide only a short-term fix.  The dollar was weaker against other currencies today, providing support for commodities to rise.  The CRB Commodity Index closed 1.3 percent higher as commodities across the board gained.  Crude rose over one percent as heavy snowfall across the US East Coast should bolster demand for the liquid.  In the precious metals space, gold and silver were also each over two percent higher.  On the jobs front, initial claims for the week of February 6^th decreased more than expected creating additional support for US markets.

DJIA 30                      10,144.19                    +105.81                       +1.05%
Only two components of the Dow Jones Industrial Average were lower, sending the index to its highest level in a week.  Caterpillar Inc. was the biggest advancer, rising 5.64 percent, as good news out of China and higher commodity prices imply higher demand for industrial equipment.  Alcoa Inc. was 3.19 percent higher on higher commodity prices as well.  3M Co. was 2.10 percent higher after the company’s shares were upgraded to ‘Outperform’ at Bernstein.

S&P 500                     1,078.47                      +10.34                         +0.97%
Basic Materials and Energy stocks led all ten industry sectors of the Standard and Poor’s 500 index higher on the day.  Basic materials stocks rose 2.06 percent and energy stocks rose 1.54 percent as metals and oil climbed in New York trading.  Financials, led by banks, were the worst performing sector after UK Prime Minister Gordon Brown announced that the world’s leading economies were close to agreeing on a bank tax.

NASDAQ                   2,177.41                      +29.54                         +1.38%
The tech-heavy Nasdaq Composite was the best performer of the major US Indices.  Tech stocks were higher by 1.32 percent as Apple Inc. and Google Inc. gained 1.73 and 0.38 percent respectively.  Apple announced today that it could start selling TV shows in the iTunes store for $1, half their current price.  They expect that the price change could increase volume by as much as five times.  Meanwhile Google announced a proposal to build fiber-optic networks for as many as 500,000 people to provide with them with internet speeds up to 100 times faster than what they currently have.  The move would allow Google to circumvent internet providers like AT&T, Verizon, and Comcast, giving Google control over how data is delivered to customers.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com

European Equities Mixed Today as Plans For Greece Bailout Remain Unclear

Europe Session Key Developments

•    European Union Officials Discuss Budget Concerns in Brussels Today
•    Switzerland Consumer Prices Rise More Than Expected in January
•    Euro Resumes Decline Against Dollar as Greece Plans Remain Unclear

European stocks were mixed today as rhetoric from the European Union meeting in Brussels was unclear regarding its agreement to solve the Greek debt situation.  EU leaders have asked for a descriptive plan from Greece on how the country intends to reduce its debt-to-GDP ratio, but no concrete bailout plan has been announced.  The general consensus from analysts is that a bailout will happen in the near-future, to protect the Euro region and maintain the stability of its currency.  ECB President Jean-Claude Trichet said today that he welcomes the commitment of EU leaders to take the necessary actions to protect financial stability in the region.  President Trichet, along with German Chancellor Angela Merkel and Greek Prime Minister George Papandreou, has called for a close watch of the Greek economy and promised “determined” action to heed off the worst crisis for the euro currency in its eleven-year history.  Despite the commentary, investors showed a great deal of skepticism over today’s Greece agreement, sending four of the five major European equity indices lower on the trading day.  In addition, the euro currency continued its decline against the U.S. dollar, falling against the greenback for a sixth time in the last seven trading days.  The sixteen-nation common currency has dropped over 5 percent against the Dollar this year.  As for the economic docket, German wholesale prices rose 1.3 percent in January and Swiss CPI was slightly higher for the month, but neither had much impact on equities.  Looking ahead to tomorrow, however, economic data should have a major impact on market sentiment as fourth quarter GDP data is released for Germany, France, Italy, and the general Euro-Zone.

FTSE 100                        5161.48                     +29.49                     +0.57%
The FTSE 100 posted the only gain among the major European indices, led by gains in commodities and industrials.  Commodity producers gained on rising energy costs, as crude oil has increased to $75 a barrel this week.  Rio Tinto, one of the world’s largest mining companies, gained 2 percent on rising oil prices and a reinstatement of the firm’s dividend.  Rolls-Royce led industrials higher, gaining over 6 percent after reporting annual profit that beat analyst estimates and an announced payout to investors after winning more defense contracts.  Also pushing the index higher was Sports Direct International, the largest U.K. sporting-goods retailer, which gained nearly 8 percent on positive sales reports.

CAC 40                            3616.75                     -18.86                     -0.52%
Trading in Paris led to a slight decline on the trading day as technology stocks fell over 4.2 percent.  Overall, over two stocks fell for each that gained on the CAC.  Alcatel-Lucent was the worst performing stock on the index, falling 11 percent after posting its third successive full-year loss.  The global telecommunications company also cut its profit-margin target for 2010.  Renault posted the second-biggest decline on the index, dropping over 5 percent, after the French car maker announced that it posted a net loss of $4.2 billion in 2009.

DAX                                 5503.93                     -32.44                     -0.59%
The German index posted its first decline this week as eight of the ten DAX sectors closed lower on the day.  Financial shares posted a 1 percent decline on the day as the country’s largest bank, Deutsche Bank, dropped over 2 percent and Deutsche Postbank fell over 1 percent.  German banks have significant exposure to Greece, Spain, and Portugal, and investors remain skeptical that the regional debt problems have a viable solution.  Furthering the decline in German stocks was the automobiles sector, led by a 2 percent decline for Daimler and Volkswagen.

IBEX 35                          10281.70                    -173.30                   -1.66%
Trading in Spain led to the largest decline among the major European indices, as financials plunged over 2.2 percent on concerns over the country’s debt problems and lacking economic recovery.  The National Institute of Statistics announced today that the country’s GDP fell 3.1 percent in the fourth quarter on an annual basis and slowed 0.1 percent on a quarterly basis.  Construction firms were hit especially hard today on spending concerns, as FCC and Ferrovial each fell over 2 percent.

FTSE MIB                       21076.45                   -165.18                   -0.78%
Italy’s FTSE MIB posted the second-largest decline among major European indices, declining nearly a full percent on the day.  The most actively traded stocks to the upside included the country’s largest oil company, Eni, which added nearly 1 percent on rising oil prices, and Saipem, which gained 3 percent after analysts upgraded their recommendations on the stock.  On the losing end of trading today was Parmalat, as the dairy company fell over 2 percent after being cut at BNP Paribas from “neutral” to “underperform.”  Analysts at the bank said to avoid the stock before its February 25^th earnings release.  Also declining today was Intesa Sanpaolo, falling 3 percent after announcing plans to shut down its investment-banking unit in Athens.

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

Oil Climbs Back Above $75 as Greece Crisis Fears Subside, DoE Inventory Figures Approach

North American Commodity Update

Commodities – Energy

Oil Climbs Back Above $75 as Greece Crisis Fears Subside, DoE Inventory Figures Approach

Crude Oil (LS NYMEX) -  $75.40  //  $0.88 //  1.20%

A few prominent fundamental threats would pass Thursday with relatively little fanfare. While the uncertainty surrounding these individual events was ultimately a source of risk premium for the crude prices, the market’s rally this week has yet to flag. Looking at the active futures contract trading on the NYMEX, oil prices have advanced for four consecutive days. So far, this run has notable pulled the commodity up from multi-month lows, surpassed the former $72.50-support level and now bulls are holding the market above the closely-watched $75 figure. The primary fundamental driver for the day was the same theme that has controlled underlying risk appetite for nearly two weeks now: the development of the Greek debt crisis / bailout. After meeting in Brussels, the European Union came to an accord to provide aid to the suffering economy. However, officials have not yet decided on what kind of assistance they will provide. Naturally, if the market deems the steps fall short or are otherwise too narrow; the broad fear in risk appetite could once again return. Initially, speculators were discouraged by this uncertainty, but the capital markets would eventually recover lost ground and climb back above critical levels.

Risk appetite among the commodity set will maintain its overbearing influence when sentiment is once again on the move. However, in the meantime, other fundamental issues will leach into price action in the meantime. After the Greek announcement today, there were two other notable resolutions to particularly bullish aspects for price action over the past week. The blizzard that crippled the Northeastern United States has passed and left a considerable accumulation of snow in its path. Gauging the weather’s severity and its potential impact on demand was a practice in speculation; but now the market will wait until inventory reports confirm just how significant its influence was. Another looming hazard that has cleared was Iran’s announcement at the celebration of the 31st anniversary of the Islamic Revolution that the nation was now a nuclear power. While this will no doubt draw greater sanctions from worried international groups, the fact that the announcement was less confrontational was noteworthy. Moving to hard supply and demand statistics, the International Energy Agency followed the US Energy Department in raising its global oil consumption forecasts for 2010 up 1.8 percent over 2009’s average to 86.4 million barrels per day. For those keeping track of the gap between output and consumption, the gap is still extraordinarily high. On this front, the Department of Energy will report the delayed weekly inventory figures. The American Petroleum Institute’s report of a 7.2 million barrel jump in crude holdings (to an October high) will weigh heavily against DoE expectations for a mere 1.6 million barrel increase.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

Gold and Silver Rally as Risk Appetite Recovers, the Dollar Tumbles

Spot Gold  -  $1,093.44   //  $21.34 //  1.99%

There was one concern for gold bugs Thursday: Greece and the destabilizing effects it has had on the worldwide investor confidence. After rumors surfaced that the European Union and Germany were considering a rescue, risk appetite perked in anticipation of details to this supposed bailout. After a meeting of EU leaders in Brussels Thursday morning, the group purportedly reached an accord; but the particulars of the rescue were once again deferred. Temporarily satisfied with the concept that European neighbors would act to stabilize the struggling nation, speculators will still have to weigh in on the expected success of whatever measures will be adopted. Nonetheless, it is interesting to note the support this general guarantee has provided sentiment – suggesting this episode is more a crisis of confidence than a crisis of financial stability. For gold, the bounce in risk appetite would be further leveraged by the safe haven US Dollar’s retracement on the day. Furthermore, considering the relatively restricted losses the commodity suffered during the height of risk aversion; the precious metal may have also seen its safe haven aspect garner a little more interest. That will be something to watch out for when the details of the bailout do emerge.

Spot Silver  -  $15.63 //  $0.42 //  2.76%

With the cumulative effects of a rebound in risk appetite and subsequent dip from the US dollar, silver would see its biggest one-day advance since January 4th. However, despite the meaningful progress the metal made on the day, its overall range would not deviate from the average of the week. A restrained rising trend channel has developed since silver tested a five-month low last Friday. The market requires a clear drive in sentiment to produce its own trend. Will we see this before the week ends?

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

Asian/Pacific Equity Markets Rally as Growth Prospects Improve

Asia Session Key Developments

• Hong Kong New Yuan Loans Top Forecast
• Australian Employers Add the Most Workers in Three Years

Stocks in Asia/Pacific rallied on Thursday as the economic docket reinforced an improved outlook for the region, while the Japanese equity market was closed in observance of National Foundation Day. In Australia, employment increased 52.7K in January after rising a revised 37.5K in the previous month, led by a 36.9K rise in part-time jobs, while the annual rate of unemployment slipped to 5.3% from 5.5% in December. At the same time, a separate report showed consumer inflation expectations in the isle-nation weakened to an annualized pace of 3.2% in February from 3.5% in the previous month, and the Reserve Bank of Australia may hold a neutral policy stance over the coming months as they aim to encourage a sustainable recovery. In Hong Kong, consumer prices unexpectedly fell to an annualized pace of 1.5% in January from 1.9% in the previous month, while new loans jumped to 1390.0B Yuan during the same period, which exceeded expectations for a rise to 1375.0B Yuan.

Nikkei 225                          9,963.99

Closed in observance of National Foundation Day

Hang Seng                        20,290.69

Hong Kong shares pushed higher for a third consecutive day on Thursday, leading the benchmark equity index to add 368.47 points (1.85%) and close at 20,290.69 as all nine components advanced on the day. Shares of China Unicom, the country’s second-largest mobile-phone company leapt 5.06% amid Nomura Holdings raising the company’s stock rating from “neutral” to “buy,” while Henderson Land Development gained 3.46% as the company, along with Sun Hung Kai Properties, announced that they will offer about 3,200 new homes in the city after the Lunar New Year holiday. Meanwhile, China Petroleum & Chemical climbed 2.22% on the back of higher energy prices, while Hong Kong & China Gas Co tipped 0.24% higher as UBS upgraded the company’s stock rating from “sell” to “neutral.”

S&P/ASX 200 Index           4,513.40

Stocks in Australia rallied for a second straight day on Thursday, leading the S&P/ASX 200 to add 40.90 points (0.91%) and close at 4,554.30. Seven out of the ten components pushed higher on the day, with oil & gas leading the way, rising 2.68%, while telecommunications slipped 4.54% to taper the advance. Shares of BHP Billiton jumped 1.18% on the back of higher energy prices, while James Hardie Industries leapt 2.35% after reporting operating profit of $29.8 million for the third quarter. At the same time, Telstra, Australia’s largest phone enterprise plunged 5.01% subsequent to the company announcing a 3.3% drop in first-half earnings, while Commonwealth Bank of Australia, the nation’s biggest lender rose 2.26% as the country’s employers added the most workers in three years in January.

Notable Asian Session Event Risk / Economic Releases

Oil, Gold to Follow Risk Trends on EU Summit Outcome

Commodities – Energy

Crude Oil Prices to Follow Risk Trends on EU Summit Outcome

Crude Oil (WTI)       $74.92       +$0.40       +0.54%
Prices have continued to advance along with overall risk sentiment after an article in yesterday’s Wall Street Journal suggested Germany was preparing to lead an EU effort to offer Greece loan guarantees to help quell jittery financial markets fearing a sovereign default within the Euro Zone. Policymakers are set to begin a summit on the matter at 9:15 GMT in Brussels, with an outcome to be announced at a press conference at 15:45 GMT. On balance, some sort of bailout is probable. From its inception, the European Union was always an arrangement grounded in geopolitical expediency rather than sound economics. This means that, tough talk about fiscal discipline notwithstanding, the EU does not see it as politically acceptable to allow an economic failure that would compromise the structural integrity of the regional bloc. Risky assets (including crude) are likely to see a boost after if a rescue package is confirmed, with significant resistance now seen just below the $76 figure. However, sentiment began to sour long before the Greek issue jumped into the forefront, suggesting that any resolution to the southern European country’s debt woes will be a temporary reprieve before risk aversion returns in earnest. In the interim, expectations of a lower print on weekly US jobless claims figures may also prove supportive.

Commodities – Metals

Gold, Silver to Extend Correction Higher on Firm Risk Appetite

Gold       $1080.08       +$7.98       +0.74%
As with oil, the EU summit in Brussels and its implications for risk appetite will shape near-term price action as the correlation between gold and the MSCI World Stock Index continues to read at a very significant 0.91. A break past $1086.05 will expose resistance at the top of a falling channel established from the swing high in January, now just at the $1100.00 figure. US jobless claims are set to decline ahead of the EU announcement, which may add further fuel to help propel the bullish correction further.

Silver       $15.45       +$0.16       +1.01%
Prices continue to tread water above the $15.00 figure. Silver’s correlation with the MSCI World Stock Index is even stronger than that of gold, registering at 0.99. This means the EU summit and US jobless claims are the items to watch here as well. US stock index futures are trading 0.7% higher ahead of the opening bell, bolstering the case for a near-term upswing.

Winter Storms and Bolstered Demand Forecasts offset Speculative Interests in Crude

North American Commodity Update

Commodities – Energy

Winter Storms and Bolstered Demand Forecasts offset Speculative Interests in Crude

Crude Oil (LS NYMEX) – $74.48 // $0.74 // 1.00%

Through other asset classes were little changed on the day, crude proved to have a considerable supply of bullish pressure behind it Wednesday with an advance that would carry the commodity up to the closely watched $75 level. However, the path to this resistance point was certainly not linear. In fact, oil prices would show a dramatic bear and bull swing through the active pit trading hours of the US session. Picking apart the many fundamental catalysts for the day, risk appetite lost much of the pull it would evoke yesterday. Following yesterday’s rumors that Greece would find financial aid from either Germany or the European Union, the market has gone quiet to await the release of any plans that are put forth. Regional leader are expected to gather for a summit tomorrow; and market participants no doubt expect details for whatever approach they may agree on sometime in the middle or late hours of the European session. No doubt, a package that includes loans would be considered a meaningful support; but the more likely outcome of loan guarantees may not suffice. Fears that that the group could fall short bolstered the US dollar (a safe haven) through the early New York session; and crude would suffer in turn.

Outside the influence of pure risk appetite trends, oil traders would find plenty of news on their plate to digest. The winter storm that meteorological services have predicted for the US East Coast for days would finally descend on the major cities. With an expected snowfall of 20 inches, business and transportation hubs from New York to Philadelphia to Washington DC would grind to a halt. Considering this region of the United States accounts for approximately 80 percent of the entire nation’s heating oil consumption, this event clearly has its bullish implications. Then again, the fact that it has significantly reduced business output in the region also has its impact on demand. Speaking of demand, the US Energy Department would release its Short-Term Energy Outlook. Forecasts for global oil consumption were lifted from 85.18 million barrels per day to 85.3 million barrels through 2010 while the average price through the year was lowered from $79.83 to $79.78. On the other hand, the more highly anticipated report from the DoE (the weekly inventory figures) was delayed until Friday due to the inclement weather shutting Washington DC down for the day. Nonetheless, anticipation for this report has increased recently due to the API’s report of a 7.2 million barrel increase in crude stockpiles in its own reading. This substantial increase pushed overall inventories to 337.6 million barrels – the highest level since October. Another developing threat for the energy market are the tensions building between Iran and the international community. The US took the step of freezing the assets of four companies that have ties to Iran’s Islamic Revolutionary Guard Corp.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

Momentum Eludes Gold Again as Market Sentiment Settles and the Dollar Advances

Spot Gold – $1,072.00 // -$6.10 // -0.57%

Though gold has been able to climb back above $1,075 (a level that proved difficult to breach as a level of support through December and January), the metal has established little in the way of momentum to establish a sense of conviction behind an otherwise high level of volatility. Yesterday, the commodity was unable to capitalize on the sharp rebound in risk appetite and drop in the US dollar; and today, a stabilization in investor sentiment wouldn’t offer the traders a second chance to correct this unusual break. Through the European and US hours, news that the European Union was scheduled to convene in Brussels tomorrow to discuss the assistance the region should extend Greece led investors to forestall major investments or divestments. However, the rumor mill would run despite a lack of tangible data. According to unnamed sources, the EU is likely to extend loan guarantees to the financial strapped economy while Germany is contemplating options that could offer something more. While loan guarantees should be all that is needed to reestablish confidence in Greece’s efforts to work down its deficits; a general sense of risk aversion could negate the positive implications such a move would entail. This doubt would bolster the safe haven greenback and thereby weigh on the market’s favored dollar-hedges – including gold. Additional support would come to the single currency by way of Fed Chairman Bernanke’s commentary to the House Financial Service Committee. Though the central banker said he saw little room for tightening monetary policy in the near future, he suggested the discount rate could be lifted “before long.” To speculators, this is a hawkish step and an additional step to fight inflation.

Spot Silver – $15.12 // -$0.25 // -1.60%

Silver would put in for a higher high and higher low Thursday; but the commodity would nonetheless suffer from restrained momentum and a general lack of direction. Yesterday’s advance (the first for the commodity in the past five days) proved temporary as speculation over an imminent bailout for Greece has turned into ‘wait-and-see’ scenario. Considering the broader markets have afforded the EU meeting tomorrow so much attention, there is little doubt that it has the potential to command volatility and trend for silver and most other risk-sensitive asset.

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

U.S. Equities Dip Slightly on Bernanke Plan, Greece Concern

U.S. Session Key Developments

•    Fed Chairman Bernanke Discusses Central Bank Exit Strategy
•    U.S. Trade Deficit Surprisingly Widens in the Month of December
•    Dollar Gains Against European Counterparts on Greece Concerns

U.S. stocks traded lower for the second time this week on concerns over Greek sovereign debt and commentary from the Federal Reserve regarding an exit strategy from the central bank’s unprecedented stimulus measures.  The Dow Jones Industrial Average fell over 70 points in the first hour of trading, but managed to gain back most of the early losses and close above 10,000.  Initially, stocks faltered in the early going after Chairman Ben Bernanke stated that the Federal Reserve may raise the discount rate “before long” as part of the “normalization” of Fed lending functions.  The markets perceived this commentary as a further example of policy tightening, along with the proposed termination of asset purchasing programs at the end of March.  The Fed Chairman, however, maintained his stance that low rates are warranted “for an extended period” and that a modest rise in the discount rate should not be viewed as a change in the outlook for monetary policy.  Although this commentary put downward pressure on stocks, the U.S. equity markets quickly rallied back on bullish sentiment out of Europe thanks to further discussions regarding a Greece bailout.  French and German officials stated that the countries were ready to come to the aid of Greece and hoped that other EU nations would step up and do the same.  Tomorrow, European Union leaders will meet in Brussels to discuss regional issues and will likely press Greece to provide a detailed overview of spending cuts going forward.  In other news, the U.S. announced that its trade deficit surprisingly widened in the month of December to $40.2 billion.  The reading was actually a positive signal for economic growth, as imports rose 4.8 percent and exports increased 3.3 percent to the highest level since 2008.

DJIA 30                     10,038.38                      -20.26                       -0.20%
The Dow Jones Industrial Average fell for the second time this week as twenty of the thirty index stocks closed in the red.  DuPont was the worst performing stock on the index, dropping over 1.5 percent despite saying that agricultural sales and margins would be higher in 2010.  Aluminum maker Alcoa, as well as energy producers Chevron and Exxon, dropped just under 1 percent each on concerns over global demand for commodities going forward.

S&P 500                       1,068.13                          -2.39                         -0.22%
The S&P dropped slightly today as every index sector closed lower with the exception of financial stocks.  Basic materials was the worst performing sector today, led by 3 percent losses for US Steel Corp and Allegheny on falling metal prices.  Coal producer Massey Energy fell nearly 3 percent after the stock was downgraded from “overweight” to “neutral” by analysts at JPMorgan Chase.  Financials was the lone sector that gained today as Bank of America, Wells Fargo, and JPMorgan Chase rallied over 1 percent.

NASDAQ                      2,147.87                         -3.00                         -0.14%
The tech-heavy Nasdaq posted a small decline today as technology stocks fell over 0.1 percent today.  Oracle and Yahoo! were the worst performing major technology stocks, declining just under 2 percent each.  Dell was one of the few tech stocks to close higher, adding 1.9 percent, after being raised to “buy” from “neutral” by analysts at Bank of America.

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

Stocks in Asia Advance as EU Aims to Bailout Greece, Commodity Prices Push Higher

Asia Session Key Developments

• Australia’s Home Loans Pushed Lower for the Third Successive Month
• Japan’s Machine Tool Orders Rise the Most in Nine Years from Record Low

Stocks in Asia/Pacific pushed higher on Wednesday subsequent to European officials announcing that they may help Greece grapple its budget deficit. In Japan, machine tool orders in December rose the most in nine years from a record low, with the reading climbing 20.1% after advancing 8.0% the month prior, while the domestic corporation goods price index added 0.3% to mark the highest reading since July 2009. At the same time, home loans in Australia pushed lower for a third consecutive month, while the value of loans extended its two month decline.  Meanwhile, China’s imports climbed for a third straight month in January, signaling increasing strength in domestic demand, which pushed the trade surplus down to $14.17B from $18.43B in the previous month.

Nikkei 225                          9,963.99

The Japanese equity markets halted the previous day’s decline, leading the Nikkei 225 to add 31.09 points (0.315) and close at 9,963.99. Six out of the ten components pushed higher on the day, with technology rising 1.47%, while telecommunications slid 1.10% to taper the advance. Shares Tokyo Electron rallied 3.93% after the firm posted its first operating profit in five-quarters on the back of improving demands, while Japan Tobacco, the world’s third-largest publicly traded cigarette maker rallied 5.64% after the company raised its full-year profit forecast 13% amid higher overseas sales. At the same time, Nissan Motor advanced 1.64% subsequent to the company predicting a return profit this fiscal year, scrapping an earlier loss estimate, while Pioneer slipped 3.15% as the firm plans to sell stocks to raise 33.5B yen.

Hang Seng                        19,922.22

Hong Kong shares rallied for a second day, leading the benchmark equity index to gain 131.94 points (0.67%) and close at 19,922.22. Six out of the nine components pushed higher on the day, with technology leading the way, pushing 2.90% higher, while consumer goods slid 3.26%. Shares of Aluminum Corporation of China rose 1.50% on the back of rising metal prices, while Henderson Land Development pushed 0.32% higher as the company said that its target for contracted sales for Hong Kong this year will be similar to 2009’s. Meanwhile, Li & Fung retreated 3.26% following an unexpected drop in China’s trade surplus, while MTR Corp advanced 1.51% after Deutsche Bank raised its outlook for the firm to “buy” from “hold.”

S&P/ASX 200 Index           4,513.40

Stocks in Australia pared yesterday’s decline, leading the S&P/ASX 200 to rally 8.30points (0.18%) and close at 4,513.40. Eight out of the ten components traded higher on the day, with technology soaring 3.65%, and was followed by a 1.17% rise in industrials. Shares of Rio Tinto Group, the world’s third-largest mining company added 1.42% as copper futures for March delivery rallied 2.5%, while Karoon Gas soared 12.11% as Wellington Management, its largest shareholder, increased its stake in the Australian energy explorer to 11.9%. At the same time, BHP Billiton tipped 0.08% higher subsequent to the company announcing that first-half profit more than doubled, while Murchison Metals leapt 6.83% on the back of higher metal prices.

Notable Asian Session Event Risk / Economic Releases

U.S. Equities Rally On Hopes For Greece Bailout

U.S. Session Key Developments

•    Talks of a Greece Bailout Eases Investor Concerns
•    Wholesale Inventories Unexpectedly Decline in December
•    Commodities Rally As U.S. Dollar Weakens Considerably

U.S. stocks rallied considerably today, pushing the Dow back above 10,000, as European Union leaders discussed a possible bailout of Greece.  The Greek budget deficit has become a major concern of investors in the past few weeks, driving credit-default swaps on Greek sovereign debt to record highs and pushing stocks lower across the globe.  In today’s trading, however, investors regained confidence in the global recovery and bid up risky assets around the world.  Stocks in Europe closed marginally higher, while crude oil rose above $74 intraday for the first time since Thursday.  Gold and silver futures also rallied, 1 percent and 2.3 percent respectively, as the U.S. Dollar Index posted its largest single-day drop since November.  Before today’s plunge, the greenback’s major index had rallied over 8 percent in the last ten weeks.  As for the economic docket, the Commerce Department reported that inventories at U.S. wholesalers fell 0.8 percent in December, amid expectations for a 0.5 percent gain.  This was taken as a positive for stocks, as falling inventory showed that companies are not keeping pace with growing consumer demand and have room to increase production.  Overall, the U.S. recovery may still have momentum as seen by rising wholesale sales in the last nine months and more than 76 percent of reporting S&P companies beating earnings estimates for the fourth quarter.

DJIA 30                     10,058.64                      +150.25                       +1.52%
The Dow Jones Industrial was the leading major U.S. index, rising over 1.5 percent on strength in basic materials and industrials.  All but three of the Dow’s thirty stocks posted gains on the session, led by a 5.4 percent gain in Caterpillar.  The world’s leading manufacturer of construction and mining equipment was upgraded to “overweight” from “underweight” by Morgan Stanley, and rallied on rising commodity prices and improved sentiment.  Basic materials shares were led today by energy giant Exxon Mobil, which gained over 1 percent on rallying crude oil prices and an API report tomorrow that may show decreased inventories last week.

S&P 500                     1,070.52                         +13.78                         +1.30%
Commodity stocks led the S&P higher today for only the second time in the last five trading sessions.  Higher prices for crude oil and precious metals helped push shares of Freeport-McMoRan, Newmont Mining, and ConocoPhillips at least 2 percent higher on the session.  Financial shares also closed higher, reversing an early day slump, as EU leaders discussed the potential Greece bailout.  JPMorgan Chase and Wells Fargo each gained over 2 percent, driving financial shares higher by 1 percent overall.

NASDAQ                    2,150.87                      +24.82                         +1.17%
The tech-heavy Nasdaq was the worst performing major U.S. index, gaining just over 1 percent today.  Baidu helped spur a rally in technology stocks, gaining over 10 percent, after announcing that its forecast sales would top estimates.  Rival search engine Google, gained 0.5 percent on news that a social-networking feature is being added to its Gmail e-mail feature.  Heavily-weighted Cisco and Oracle each added over 1.6 percent on the day.

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

Oil Supported by a Sharp Rebound in Risk Appetite on Speculation of a Greek Bailout

North American Commodity Update
Commodities – Energy

Oil Supported by a Sharp Rebound in Risk Appetite on Speculation of a Greek Bailout

Crude Oil (LS NYMEX) -  $73.87  //  $1.98 //  2.75%

A clear sign that risk appetite is still the dominant fundamental driver for crude traders, oil futures trading on the NYMEX exchange rallied mid-day in the New York trading session along with many other risk-sensitive securities on heightened speculation that Greece would be bailout by either the EU or Germany. Mimicking volatility in stocks and currencies, the active crude futures contract rallied as much as 3.5 percent and handily overtook the closely watched $72.50 level. Now, the market is hovering between the aforementioned pivot and the $75 figure that has similarly offered trouble for trend progression in the past. Where the market goes from here is almost certainly a question that will be decided by the resiliency of investor sentiment. The advance for the commodity today would come amid extraordinarily high levels of correlation between the different asset classes. This is an important distinction to make; because assigning responsibility for today’s oil advance to rumors surrounding a bailout for Greece would otherwise be too oblique to make sense. In the past month, the shift away from assets that depend on capital gains and volatility to financial safe havens has found a symbol of uncertainty in this single nation’s fiscal struggle. Naturally, evidence that suggests conditions will improve for Greece, will temper risk premium associated specifically with this isolated situation. However, that does not fundamentally alter the true source of market risk or even the broader perception of stability. Only time will tell whether optimism will truly recover or falter in its recent, temporary rebound.

From risk appetite to true supply/demand fundamentals, the pressure for a temporary rebound in crude is building up. Much of the Northeastern US is under a severe winter storm warning with significant snow accumulations expected for New York, Washington DC, Philadelphia and other major cities. Considering this region accounts for fourth-fifths of total natural gas demand in the United States; this storm will have no small impact on speculative interests. Speaking of speculative concerns, China Investment Corporation (the country’s sovereign wealth fund) reportedly invested in the US Oil Fund by buying 2 million shares of the ETF that represented 3.48 percent of the outstanding interest. Another story to monitor is the international focus on Iran. State-run media reported efforts to enrich uranium for research purposes had begun despite the threat of greater sanctions. As OPEC’s second largest oil producer, international relations with Iran are important. For the immediate future, traders will look to the US Energy Department’s numbers. The weekly inventories are scheduled for release tomorrow; but it is not clear whether the figures will be reported due to inclement weather conditions shutting the government down in Washington DC. The same goes for the Short-Term Energy Outlook whose release was deferred today.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

A Recovery in Sentiment and Drop in the Dollar Support Gold and Silver Prices

Spot Gold  -  $1,075.71   //  $13.86 //  1.30%

Rumor and speculation that officials would soon announce a bailout plan for Greece would spread quickly across the market. For gold, the commodity’s own status as a speculative asset would as well as its role as a dollar hedge would help the market eke out a meaningful advance on the day. However, it is notable that this specific metal’s reaction would be relatively limited compared to other benchmarks like the Dow Jones Industrial Average and the US dollar. At the height of risk appetite for the day, gold would advance only 1.9 percent – a far more limited move than the plunge last week. What does this mean? Perhaps it is a sign that fiscal stability for Greece is not the ultimate concern for global investors. Beyond this single economy, other EU members like Portugal, Spain, Ireland and Italy could be in next in line to face the critical eye of the skeptical market participant. On the other hand, this tempered response could be a factor of gold’s own value to the market. Aside from its use as a speculative asset, the precious metal is also considered an inflation hedge and relative safe haven. As for its dollar connections, today’s advance in sentiment weighed the benchmark currency down from eight-month highs. However, the greenback is finding fundamental strength on its own; and the concept of buying on the ‘cheap’ in anticipation of a broader market recovery is more difficult to justify for the still expensive commodity. Measuring the specific influence of risk appetite, the dollar and inflation will be important to defining trend going forward.

Spot Silver  -  $15.45 //  $0.45 //  3.00%

Just as surely as it would amplify silver’s losses, the commodity’s leveraged exposure to risk appetite and the US dollar would lead the metal to a more aggressive rally than its more expensive counterpart. The currency would suffer its biggest daily loss against its primary counterpart (the euro) Tuesday; and silver would respond in kind with its biggest rally since January 4th. From a traders’ perspective, the metal has a considerable way to go before reaching $16 once again. On the other hand, there are clear levels for other asset classes that could like a jumping point for underlying sentiment.

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

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