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Asian Stock Markets Advance on Enhanced Earnings, Rising Commodity Prices

Asia Session Key Developments

• Hong Kong Stocks Post Biggest Monthly Gain Since October
• Japan’s National CPI Extends 11-Month Decline
• Australia’s Private Sector Credit Rises for the Third Straight Month

Stocks in Asia/Pacific advanced on Friday amid higher commodity prices, with the Australian market benefitting from better-than-expected earnings results. Meanwhile, the economic docket in Japan showed national consumer prices extended its 11-month decline, with the annualize rate slipping 1.3% from the previous year, while manufactures increase production at the fastest pace since May as outputs jumped 2.5% in January to top forecasts for a 1.0% rise. However, sales by large retailers in the region tumbled 5.6% during the same period amid expectations for a 4.6% decline, while motor vehicle production surged at an annual pace of 30.7% after advancing 8.6% in December. At the same time, Australia private sector credit rose for the third straight month in January, with the index increasing 0.4% after rising 0.3% in the previous month.

Nikkei 225                          10,126.03

Stocks in Japan strengthened on Friday, paring yesterday’s decline, leading the Nikkei 225 to advance 24.07 points (0.24%) and close at 10,126.03. Seven out of the ten components traded higher on the day, with oil & gas adding 1.52%, while utilities tumbled 0.65%. Shares of Mazda Motor rallied 4.00% after the Japan Automobile Manufacturers Association said output for the country’s 12 vehicle makers rose 31% from a year earlier, while Aeon rose 2.93% amid Goldman Sachs Group upgrading the company’s stock rating from “neutral” to “buy.” At the same time, NEC, Japan’s largest maker of personal computers pushed 2.49% higher as the company announced a 3-year plan to raise its net income to 100 billion yen, while Nippon Light Metal increased 4.08% on the back of higher metal prices.

Hang Seng                        20,608.70

The Hong Kong equity market pushed higher on Friday, with stocks posting its biggest monthly gain since October, leading the benchmark equity market index to gain 209.13 points (1.03%) and close at 20,608.70 as all nine components rallied on the day. Shares of China Petroleum & Chemical advanced 4.10% on the back of higher energy prices, while Cathay Pacific Airways gained 2.12% as the company, along with Air China signed a an agreement in Beijing establishing a jointly owned, Shanghai-based cargo airline. In addition, China Unicom jumped 7.63% after Deutsche Bank raised its share price forecast for the firm and raised the rating to “buy” from “hold,” while China Mobile added 0.20% as Guotai Junan Securities reported that the company or its state-owned parent may buy 20% of Shanghai Pudong Development Bank for about 40 billion yuan.

S&P/ASX 200 Index           4,637.70

Shares in Australia halted yesterday’s decline, leading the S&P/ASX 200 to rally 43.60 points (0.95%) and close at 4,637.70. Six out of the ten components pushed higher on the day, with utilities leading the way, adding 2.46%, while telecommunications shed 0.99% to taper the advance. Shares of Newcrest Mining, Australia’s largest gold producer tipped 1.92% higher as gold futures in New York gained for the first time this week, while Crown, Australia’s largest casino owner climbed 2.17% as the company posted first-half profit . Moreover, Perpetual gained 2.77% after Credit Suisse raised the company’s stock rating from “underperform” to “neutral,” while Woolworths, Australia’s largest retailer soared 5.46% as the firm plans to buy back A$400M of stock outstanding.

Notable Asian Session Event Risk / Economic Releases

U.S. Equities Retreat For Second Day on Weak Confidence Data

U.S. Session Key Developments

•    Consumer Confidence Falls to 10-Month Low
•    Commodities Sell-Off, Dollar Gains
•    Fed Chairman Bernanke to Deliver Report on Economy Tomorrow and Thursday

U.S. stocks retreated today on weak consumer confidence data and falling commodity prices.  The S&P fell for a second consecutive day to its lowest closing level since February 12.  Investors turned bearish after the Conference Board announced its confidence index fell in February from 55.0 to 46.0, its lowest reading in ten months.  The weak confidence data shows that economists do not believe the U.S. economy is out of the woods yet and the recovery will struggle to overcome major hurdles that still remain.  Weak consumer spending and high unemployment are the most obvious concerns going forward, and San Francisco Federal Reserve President Janet Yellen said yesterday that she does not see the employment situation improving much this year.  Further weakening sentiment today was the S&P/Case-Shiller housing index that showed home prices fell annually for a third consecutive month in December to their lowest levels since July.  The data led to widespread risk aversion that filtered through commodities as well as stocks.  Crude oil fell 1.8 percent to $78.86, while gold and silver prices fell 0.8 percent and 2 percent, respectively.  Looking ahead, all eyes will be on Fed Chairman Ben Bernanke’s testimony before House and Senate panels both tomorrow and Thursday.  This is his semi-annual report to Congress regarding the state of the economy as well as monetary policy.

DJIA 30                     10,282.41                      -100.97                       -0.97%
The Dow Jones Industrial Average posted a near 1 percent decline as twenty-seven of the thirty index stocks closed lower on the day.  General weakness in commodity prices hurt the basic materials and industrial sectors, as aluminum giant Alcoa dropped 2.5 percent and equipment maker Caterpillar fell 2.3 percent.  A drop in crude oil futures below $79 pushed shares of energy giants Chevron and Exxon Mobil down 1.2 percent and 0.7 percent, respectively.  One of the few bright spots on the Dow was Home Depot, which posted a 1.4 percent gain to lead the index after announcing better-than-expected earnings and its first dividend increase since 2006.  Kraft Foods also posted a modest gain today of 0.6 percent after analysts at Credit Suisse gave the stock an ‘overweight’ rating.

S&P 500                     1,094.60                         -13.41                         -1.21%
The broad-based S&P declined over 1 percent on weakness in commodities and the financial sector.  Shares in financial firms traded lower after the FDIC announced that bank failures are continuing their torrid pace, with one of every 11 banks at risk of failure as of the fourth quarter.  The sector fell nearly 2 percent on the FDIC announcement, as well as a news briefing from White House spokesman Robert Gibbs where he said that the Obama administration continued to back the Volcker banking plan in its current form.  According to the proposed regulation, banks would no longer be allowed to use proprietary trading operations, hedge funds, or private equity funds in ways that are unrelated to directly serving their customers.  Citigroup fell 3 percent on the news, while JPMorgan Chase, Wells Fargo, and Morgan Stanley dropped at least 2 percent each.

NASDAQ                     2,213.44                         -28.59                         -1.28%
The tech-heavy Nasdaq was the worst performer of the major U.S. stock indices as technology shares fell over 1.5 percent.  The twenty largest tech companies on the index all posted losses today, led by declines in Applied Materials and Marvell.  The semiconductor firms fell 3.5 percent and 2.5 percent, respectively, despite a generally favorable report on the sector released yesterday by analysts at UBS.  The world’s largest chipmaker, Intel Corp., faltered over 2 percent after announcing that the company, alongside venture-capital companies, will invest $3.5 billion in the U.S. technology sector over the next two years to facilitate domestic job growth.

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

European Equities Halt Five-Day Rally, Euro Continues Slide Against Dollar

Europe Session Key Developments

•    European Leaders Discuss Bailout for Greece
•    Swiss Money Supply Increases 5 Percent in January
•    Euro Continues Slide Against U.S. Dollar

Following their strongest week since July, European stocks consolidated today as all five major indices closed lower.  The DJ Stoxx 600 Index, a broad measure of European equities, slipped 0.3 percent after gaining nearly 4 percent last week.  Problems in Greece returned to the minds of investors after the country’s prime minister, George Papandreou, insisted yesterday that his administration was not seeking a bailout.  Greek central bank Governor George Provopoulos stated today he is confident that the Greek government will reign in the euro region’s largest deficit and will meet its “very ambitious” reduction goals.  Market participants took little solace from the announcement, however, as concerns linger regarding the sustainability of the euro currency.  In addition to Greece, the European nations of Spain, Portugal, Ireland, and Italy are seen as threats to the stability of the euro area.  The region’s currency fell against the U.S. Dollar for a third time in the last four days and has now dropped over 5 percent against the greenback for the year.  As for the economic docket, the only data today was a 5.6 percent increase in the Swiss money supply in January, an event that had little to no impact on price action.  Looking towards trading tomorrow, the only significant economic releases that could impact the market are consumer prices from Italy and France, IFO data from Germany, and housing loans data from the U.K.

FTSE 100                         5352.07                     -6.10                     -0.11%
British stocks fell for only the second time in the last eleven trading sessions due to weakness in health care as well as consumer goods and services.  Drug makers GlaxoSmithKline and AstraZeneca were large contributors to the decline in health stocks after U.S. President Barack Obama announced that he may increase fees on drug companies to raise revenues to extend health care benefits to the uninsured.  In addition, Glaxo shares were hit by concerns that the compay may face lawsuits over its Avandia diabetes treatment.  As for consumer goods, tobacco companies British American and Imperial fell 1.1 percent each, just one day after leading the sector.  Luxury apparel maker Burberry was the worst performer of the consumer products sector, falling 1.7 percent.  On the positive side, shares of Royal Bank of Scotland rallied 3.6 percent to lead financials, as investors await the bank’s fourth-quarter earnings announcement on Thursday.

CAC 40                             3756.70                     -12.84                     -0.34%
Despite strength in technology shares, French equities closed lower today as consumer services fell over 1.5 percent.  Losses in Carrefour and Accor pushed consumer shares lower and offset a strong 2.2 percent gain in CAC technology stocks.  Carrefour fell 2.4 percent after BNP Paribas cut the largest retailer in Europe from “outperform” to “neutral.”  Other shares hurt by downgrades or target price revisions were insurance firm Axa and liquor maker Pernod Ricard.  Axa was downgraded from “buy” to “hold” from analysts at Citigroup, while Pernod received a target price reduction from analysts at Goldman Sachs.

DAX                                   5688.44                        -33.61                     -0.59%
The German index snapped its longest winning streak this year as 21 of the 30 DAX stocks closed lower on the day.  Daimler was the worst performer on the index, dropping 2.7 percent after deciding to extend the contract of Chairman Dr. Dieter Zetsche despite the company posting a $3.4 billion loss for 2009.  Furthering declines in consumer goods and services was Hochtief, the largest construction company in Germany, which dropped 2.1 percent.  Deutsche Lufthansa fell over 1 percent as pilots began a strike today over job security.

IBEX 35                          10570.50                     -106.20                 -0.99%
Shares in Spain fell nearly a full percent today, as every IBEX sector closed lower on the day with the exception of basic materials.  Leading the decline for the index was consumer services, as Inditex and Telecinco dropped at least 1.8 percent each.  Furthering declines for the IBEX was weakness in technology and health care shares, which fell at least 1.6 percent each.  As for basic materials, Acerinox posted a 1.5 percent gain, while Arcelormittal gained just under 0.1 percent.

FTSE MIB                     21704.78                     -67.55                   -0.31%
Italy’s FTSE MIB posted a slight decline today for the first time in six sessions.  Trading in Milan led to the largest decline in two weeks for Italian publisher Gruppo Editoriale L’Espresso, which dropped nearly 3 percent.  Telecom Italia also posted a near-three percent decline, ending a four-day rally.  Unicredit, the largest bank in Italy, fell 1 percent after Intermonte Sim reduced its price target on the firm.

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

European Equities Cap Biggest Weekly Gain Since July

Europe Session Key Developments

•    French Data Generally Disappoints, Euro-Zone and German Data Show Improvement in Manufacturing
•    Commodities Trade Sideways After Fed Raises Discount Rate
•    Euro Gains Versus Greenback For Second Time This Week, Pound Falls To Nine-Month Low

Stocks in Europe extended their largest weekly gain since July as manufacturing data for Germany and the general euro zone beat expectations.  The Dow Jones Stoxx 600 Index, a broad measure of European equities, rose 0.5 percent to increase its weekly gain to 3.9 percent.  After initially trading lower on yesterday’s unexpected news of Fed tightening, European shares rallied collectively on strong economic data from Germany, Italy, and the general euro zone.  Germany announced that the country’s PMI manufacturing index unexpectedly rose from 53.7 to 57.1 in February, while industrial orders in Italy trumped expectations by rising 10.1 percent in 2009.  Furthering bullish sentiment was a report that the euro area’s PMI manufacturing index and PMI composite index beat expectations for December.  As for commodities, crude oil ticked slightly higher as it approached $80 a barrel, while metals surprisingly held at yesterday’s closing levels despite the unexpected hawkish maneuver of the Federal Reserve.  During after-hours yesterday, the Fed increased the discount rate for the first time in three years, but markets managed to shake off the tightening as Chairman Bernanke’s commentary maintained that the Federal Funds Rate would remain at historic lows for the time-being.  Yesterday, the greenback immediately spiked higher against its European counterparts after the Fed decision, but during today’s session the Euro managed to rally against the Dollar for only the second time this week, rising to $1.3613 at the time of this writing.  The sterling, however, continued its slide against the American currency, falling to a nine-month low on the session.  Overall, the U.S. Dollar Index rallied intraday above 81.30, and closed near a seven-month high.

FTSE 100                         5358.17                     +33.08                     +0.62%
British stocks posted their ninth gain in the last ten days, led by consumer goods which gained 1.7 percent.  At least two stocks gained for each that fell on the FTSE today, as better-than-expected retail sales over the twelve months ended in January boosted investor sentiment.  Unilever was the biggest gainer among consumer goods companies, adding 2.6 percent on the session, while tobacco firms British American and Imperial added over 2 percent each.  British American received a boost from analysts at Nomura, yesterday, who raised their price target on the company’s shares.  The only sector to close lower today was basic materials, hurt by a 1.8 percent decline for Anglo American after the mining company posted a 53 percent decline in net annual profit.

CAC 40                             3769.54                     +21.71                     +0.58%
French equities gained over 0.5 percent today, despite weak economic data for the country.  Investors managed to shrug off a drop in business confidence for February as well as worse-than-expected PMI numbers for the month.  The leading sectors today were technology, financials, and utilities, which each added at least 0.8 percent.  Vallourec, a tubular technology firm, posted the biggest gain on the CAC, adding over 2 percent on the day.  Following closely behind were Lagardere, Credit Agricole, and Vivendi, which each gained at least 2 percent on the session.  Overall, twenty-nine of the forty CAC stocks closed higher in the week’s final day of trading.

DAX                                   5722.05                        +41.64                     +0.73%
The German index extended its longest winning streak this year as strong manufacturing data increased risk appetite and lead stocks higher.  Consumer goods led the way with a 2 percent gain, while technology and consumer services shares added at least 1.3 percent each.  Automobile producers were the strongest group among the consumer goods sector as BMW gained 3.4 percent and Daimler added 2.5 percent.  Technology shares were led by a 1 percent gain for Infineon and SAP.

IBEX 35                          10676.70                     +102.50                 +0.97%
Shares in Spain added nearly a full percent today, led by a 3 percent gain in health care shares and a 2.4 percent rise in consumer services.  Bolsas Y Mercado was the strongest performer on the index, adding 3.8 percent, while Grifols closed right behind, up 3 percent.  Thirty-three of the thirty-five index stocks closed higher in the week’s final day of trading, with Gamesa and Acerinox being the only two exceptions.  Gamesa shares fell despite a decision to rehire 79 laid-off employees.

FTSE MIB                     21722.33                     +86.21                   +0.40%
Italy’s FTSE MIB posted the smallest gain among major European indicies, despite a strong industrial orders report.  The report showed that industrial orders unexpectedly rose 4.7 percent in December and 10.1 percent for the year.  Trading in Milan led to a strong showing for EEMS Italia, which gained 6 percent after Intermonte Sim reiterated a “buy” rating on the company.  Italian carmaker Fiat also posted a strong gain of 2.3 percent, after Cheuvreux said that Fiat’s profit targets are not out of reach despite weakness in the automobile sector.

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

European Equities Post Biggest Gain in Six Weeks

Europe Session Key Developments

•    Greek Bond Yields Dip Slightly After Greek Official Says Bailout Unnecessary
•    Crude Oil Posts Sixth Gain in Seven Days, Precious Metals Decline
•    Euro Resumes Bearish Trend Versus Greenback

Stocks in Europe posted their biggest gain in six weeks on renewed optimism over the Greece debt situation and better-than-expected economic data out of the U.S.  The DJ Stoxx 600 Index, a broad measure of European equities, posted its seventh gain in the past eight days.  Investors seemed cautiously optimistic that the debt problems in Greece would not threaten euro area stability after Greek Finance Minister George Papaconstantinou said yesterday that his country had “no actual need for” a bailout and was ahead of its deficit-reduction targets.  The 10-year yield on Greek bonds fell 2 basis points to 6.37 percent, reducing the excess risk premium required over equivalent German bonds by 1 basis point.  Overall, the yield on Greek bonds has increased 184 basis points this year on concern that the country would struggle to reduce the largest fiscal deficit in the euro zone.  As for the economic docket, the only major event out of Europe was U.K. unemployment, which investors managed to shrug off.  Instead, markets keyed on positive economic releases from the U.S. which showed that industrial production rose 09 percent in January and building permits beat expectations during the month.  Overall, European stocks remain 4.8 percent below this year’s high on January 19, but sentiment has clearly improved over the last week.

FTSE 100                         5276.64                     +32.58                     +0.62%
British stocks posted the smallest gain among major European indices after U.K. unemployment claims unexpectedly rose in December to the highest level since 1997.  The ILO unemployment rate for the last three months of 2009 held at 7.8 percent, as expected.  Despite the disappointing news, shares on the FTSE rallied for a third consecutive day and nine stocks gained for each that fell on the index.  Barclays gained 2.9 percent to lead banking shares higher, a day after announcing earnings that soundly beat analyst expectations.  RBS raised its recommendation on the company’s shares from “hold” to “buy” and Bank of America Merrill Lynch raised its price target.  RBS and Lloyds Banking Group gained 3.2 percent and 1.9 percent respectively, on anticipation of their earnings reports due out next week.  Further driving the FTSE today was Man Group, the largest publicly traded hedge fund, which added 5 percent on the day.  Some investors have speculated that the firm may receive a takeover bid from asset manager BlackRock.

CAC 40                             3725.21                     +56.17                     +1.53%
The French index added at least 50 points for a second consecutive session today, led by strength in financials, industrials, and technology shares.  Aerospace and defense leaders EADS was the biggest individual gainer on the index, adding 4.9 percent on news that the company’s seven government clients will pay additional costs for the A400M military plane.  Accor posted the second-largest gain, adding 4.2 percent on news that the hotel operator would increase its operable capacity by over 45 percent.  BNP Paribas, France’s largest bank, led financial shares higher after recording its fourth consecutive quarterly profit.  The bank’s shares rallied 3.9 percent after the company reported 1.37 billion euros of fourth quarter net income, above the 1.06 billion estimate of bank analysts.

DAX                                   5648.34                        +56.22                     +1.01%
The German index rallied for a third consecutive session as financials and industrials gained at least 1.4 percent each.  Deutsche Boerse, Europe’s largest exchange by market value, gained 3.7 percent to lead financials higher after the company announced a significantly smaller fourth quarter loss than analysts expected.  Deutsche Bank followed suit, adding 2.1 percent to its highest close in two weeks, after the German bank announced a sale of wealth manager BHF-Bank.  Industrial shares were led higher by mailing company Deutsche Post, which gained 2.3 percent, and Siemens, which rose 1.6 percent.  Siemens, a leader in electronics and electrical engineering, rallied on speculation that the company may acquire some components suppliers this year.

IBEX 35                          10498.60                     +104.70                 +1.01%
Shares in Spain added a full percent today, led by a 6 percent gain for Obrascon Huarte and a 4 percent increase in Grifols.  Shares of Obrascon Huarte, the Spanish building and infrastructure firm, had dropped in the four prior sesssions on weakness in the construction sector.  Grifols, a plasma firm, gained after its Australian peer CSL confirmed its full-year profit forecast.  Financial shares in Spain followed their global counterparts higher today, led by a 2.8 percent gain in Mapfre, and a 1.4 percent gain for Banco Santander.

FTSE MIB                     21650.81                     +361.61                   +1.70%
Italy’s FTSE MIB posted the biggest gain among major European indicies, rising nearly 2 percent on the day.  Trading in Milan led to a 4.6 percent gain for Fiat, after Italian Industry Minister Caludio Scajola said there are 14 offers for a company plant in Italy.  Intesa Sanpaolo gained over 4 percent on a potential unwinding of an investor agreement between Generali and Credit Agricole.  Fondiaria-Sai fell for a second straight day, dropping nearly 1 percent, after Banca Akros downgraded the insurance firm.

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

European Equities Close Lower on Weak GDP Data, Tightening in China

Europe Session Key Developments

•    China Unexpectedly Increases Bank Reserve Requirements
•    Fourth Quarter Growth Disappoints in Germany, Italy, Euro-Zone
•    Euro Falls Against U.S. Dollar For Third Day, Cable Drops

European stocks closed lower today after China unexpectedly increased bank reserve requirements and Euro-Zone growth fell short of expectations in the fourth quarter.  The announcement by the Chinese government forced banks to set aside more deposits as reserves for a second time in the last month.  The announcement came directly after the Hang Seng Index stopped trading and therefore did not impact Chinese stocks, which fell slightly on the trading day.  After the news of China pushed European equities lower during early trading, weak growth reports from the Euro region intensified the downward pressure.  Germany announced that growth stalled in the fourth quarter, as the country’s GDP failed to rise amid expectations for a 0.2 percent increase.  Later, Italy announced that its economy actually contracted 0.2 percent in the fourth quarter, while the European Union’s statistics office in Luxembourg announced that the Euro region economy rose a modest 0.1 percent as a whole.  The bearish news, coupled with investor concerns over fiscal problems in Greece, put pressure on the Euro currency for a third consecutive day.  The sixteen-nation currency fell for a seventh time in the last eight days against the Dollar and has now declined over 5 percent against the American currency.  The greenback’s strength was a clear indicator of continued bearish sentiment in the market today, and led to a sell-off in all risky asset classes.  Crude oil fell over 2 percent by the close of European markets, while gold and silver futures sold off nearly 1 percent each.

FTSE 100                        5142.45                     -19.03                     -0.37%
British stocks fell in the week’s final day of trading as industrials and financials dropped at least 1.2 percent each.  Nearly four stocks fell for each that gained on the FTSE as investors showed concern that the economic recovery may be stalling out after weak growth data from the euro region.  Lloyds fell 3.2 percent to lead financial shares lower, while Xstrata and Vendata Resources led the decline in commodity based stocks.  Mining stocks were hurt by falling commodity prices after China, the world’s largest copper consumer and second-largest oil user, moved to further curb lending.  Copper fell as far as 3.2 percent on the London Metal Exchange.

CAC 40                            3599.07                     -17.68                     -0.49%
Trading in Paris led to a near one-half percent decline as weakness in the broader Euro economy overshadowed better-than-expected French GDP growth in the fourth quarter.  Bank shares were led lower by at least a 2 percent drop in BNP Paribas, Societe Generale, and Credit Agricole.  Shares of BNP Paribas fell for a second day after the bank was downgraded by analysts at Deutsche Bank, while bank shares in general were hurt by tightening in China and concerns over stability in the euro zone.

DAX                                 5500.39                      -3.54                     -0.06%
The German index posted the smallest decline among the major European indices, as industrials, financials, automobiles, and technology shares fell over 1 percent each.  German economic growth stalled in the fourth quarter, disappointing investors who expected a 0.2 percent rise for the quarter.  The Dow Jones Stoxx 600 Automobiles & Parts Index was the worst performing among all 19 industry groups, falling over 2 percent on the session.  Daimler and BMW, the largest luxury carmakers in the world, fell over 1 percent each.

IBEX 35                          10224.90                     -56.80                   -0.55%
Trading in Spain led to the largest decline among the major European indices, as industrials and financials shares fell over 1 percent each on concerns over the country’s debt problems and slow economic recovery.  The National Institute of Statistics announced yesterday 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.  Employment also remains concerning as the Spanish jobless rate nears 20 percent.  Obrascon Huarte, the Spanish building and infrastructure firm, was the worst performer on the index as weakness in construction firms carried over from yesterday’s session.

FTSE MIB                       21035.91                    -40.54                   -0.19%
Italy’s FTSE MIB posted a slight decline today after the country announced that its economy unexpectedly contracted 0.2 percent in the fourth quarter.  The most actively traded stocks in Milan included banks Banco Popolare and UniCredit, which fell at least 1.6 percent each after China’s decision to curb the lending activities of its banks.  Cement-maker Buzzi Unicem fell 2.8 percent after being downgraded by Gruppo Banca Leonardo, while appliance-maker Indesit furthered declines after being downgraded at Equity Sim.

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

Oil Extends its Risk-Based Recovery with the Largest Single-Day Rally since November

North American Commodity Update

Commodities – Energy

Oil Extends its Risk-Based Recovery with the Largest Single-Day Rally since November

Crude Oil (LS NYMEX) -  $77.12  //  $2.69 //  3.61%

The recovery in yield appetite continued Tuesday, and the subsequent effects on the energy markets were pronounced. Feeding off the improvement in sentiment across other capital markets, crude oil easily cleared recent resistance around $75 in the biggest single-day rally for the commodity since November 16th. From a speculative perspective, this reversal was properly timed and finding the right level of momentum to potentially establish a meaningful trend. However, there is a notable lack in the volume that is supporting this budding reversal – an unusual situation if the market is indeed establishing a bullish footing. Looking at speculative interests outside the energy complex, the Dow Jones Industrial Average has marked a new weekly high and is now working to recover some of the lost ground in the three-day plunge beginning on January 20th. On the other side of the spectrum, the US dollar (the primary pricing instrument for oil) has corrected from six-month highs. Should investor sentiment maintain its influence over speculative markets, expect oil to keep its high positive correlation with stocks and negative correlation to the greenback.

As for fundamental considerations, the bullish influence of yesterday’s manufacturing data is still carrying the markets higher. However, with demand still significantly below the levels of just a year ago; it wouldn’t take much from supply-and-demand fundamentals to stall the market’s budding recovery. Today, the headlines for energy traders was somewhat mixed. The only market-moving piece of economic data crossing the wires was the US pending home sales report for December, which would subsequently fall in line with the consensus forecast. Long-term economic activity aside, demand in the US could be stoked by below-average temperatures for the East Coast predicted by the National Weather Service between February 7th and 11th. In contrast, the average price per gallon of gasoline reportedly fell for the 20th consecutive day. This gives us something to look forward to in tomorrow’s DoE inventory figures for the week ending January 29th. Crude and gasoline stores are expected to rise 400,000 and 1.4 million barrels respectively, while distillates are seen falling by 1.15 million barrels. Outside the US, OPEC Secretary General Abdalla El-Badri projected energy demand would not likely increase until the second half of the year. Furthermore, he said oil stocks were high at approximately 80 million barrels. His suggestion that investments would be hampered with crude prices below $70 per barrel means there is likely an unspoken level of support for the world’s largest energy producer.

Commodities – Metals

Gold Finds Strength in Sentiment, Dollar Weakness as Resistance Comes Into View

Spot Gold  -  $1,115.35   //  $9.85 //  0.89%

Though there are a few fundamental drivers supporting gold, the extended recovery in speculative interests is the lynchpin for the commodity’s strength these past few days. The metal put in for a second daily advance that would bring spot into the path of a tentative, descending trend developing from December’s record high. To prevent a possible bearish breakout within a week’s time, the market will have to overtake resistance and offset the breakout pressure in the wedge pattern that is currently forming. For fundamental drive, risk appetite is taking sole responsibility for gold’s bearing. The Dow put in for its biggest back-to-back rally these past two days since the two-day performance through October 6th. The impetus for this drive is sourced from the same catalyst that first weighed capital markets back on January 20th – cumulative speculative interest. Further leveraging the precious metal’s advance, the dollar would put in for its first consecutive daily declines in nearly three weeks. As one of the market’s favorite dollar-hedges, this is a considerable boon for gold bugs. For tangible fundamental drive, inflation expectations continue to buoy the value of gold. The iShares Treasury Inflation Protected Security Fund is hovering just below a two-month high. Adding to the global threat of price pressures, the RBA surprised the market by holding its benchmark lending rate at 3.75 percent and Chinese officials raised concerns over asset inflation by enforcing new rules on third mortgages. As policy officials maintain loose monetary policies to support the economic recovery, expect inflation risks to increase significantly over the coming months.

Spot Silver  -  $16.73 //  $0.06 //  0.36%

Despite the clear strength in underlying risk trends and a fading US dollar, silver would put in for a very modest advance through Tuesday’s session. Barely tipping into the green, the metal is struggling at $16.75 – a level that has historically caused troubled for momentum development. In this relatively reserved session, silver is showing a greater correlation to the dollar’s controlled decline and highlighting the fewer fundamental roles the asset plays in the financial markets compared to gold.

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Written by John Kicklighter, Strategist
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European Equities Decline Broadly for Third Day This Week

Europe Session Key Developments

•    Greek Debt Concerns Continue to Weigh on European Equities
•    European Confidence Indicators Generally Improve, German Unemployment Holds at 8.2%
•    Commodities Continue Slide, Dollar Gains Against European Currencies

Generally better-than-expected confidence readings for the Euro-Zone failed to buoy the region’s stock markets, which fell for a sixth time in the last seven trading days.  Losses took place across all sectors and pushed the broad Dow Jones STOXX 600 Index to its lowest close since December 10.  In the early going, European shares appeared to be headed higher after the European Commission released its latest confidence readings.  The data showed that the index of executive and consumer sentiment improved for a tenth month to 95.7, beating economists’ 92.3 expectation.  Shares failed to hold, however, as investor uncertainty returned due to the Greece debt problems and weaker-than-expected durable goods orders in the U.S.  Greek Prime Minister George Papandreou claimed today that the nation never asked for financial assistance from other EU countries and had no need for such aid; however, the country’s bonds and credit-default swaps suggest investors do not believe the rhetoric.  Greek  bonds have declined over 10 percent in the last three months, while credit-default swaps tied to the country are trading at similar levels to Dubai in December.  Furthering the decline in European stocks was an announcement from the U.S. that durable goods orders rose 0.3% in December, far short of the 2.0 percent expected for the month.  Overall, risk aversion was evident across the globe, as investors sold off stocks and commodity holdings in favor of bonds and U.S. dollars.  The greenback gained against both the Euro and British Pound during the session.

FTSE 100                      5145.74                   -71.73                    -1.37%
British stocks fell for the sixth time in seven days as the Basic Materials and Health Care sectors each declined over 2.6 percent.  BHP Billiton and Rio Tinto each fell over 2 percent as commodity prices continued to show weakness across the board.  Health care shares were led lower by AstraZeneca, after the drugmaker announced that its fourth-quarter earnings per share fell short of analyst estimates.  Overall, the FTSE has dropped nearly 5 percent this year due to a revival of investor uncertainty regarding global growth.

CAC 40                           3688.79                   -71.01                    -1.89%
Trading in Paris today resulted in a near 2 percent decline as falling commodity prices hurt the Basic Materials and Oil & Gas companies.  Only six of the forty CAC stocks avoided the bearish trading that pushed every French sector into the red.  Commodity companies were the worst performers on the index due to macro concerns regarding curbed lending in China and a potential slowdown in growth as a result.  Steel producer ArcelorMittal dropped over 3 percent during trading and Vallourec S.A. fell nearly 3 percent.

DAX                                 5540.33                   -102.87                -1.82%
German stocks declined for a second session on weakness in Telecommunications and Industrials.  The DAX fell to its lowest level in nearly three months as nine stocks fell for each that gained on the index.  Siemens AG, the largest engineering firm in Europe, fell about 3 percent to lead the decline in industrial shares.  The lone telecom stock on the index, Deutsche Telekom, fell 2.6 percent.  The best performer on the index was Infineon, which gained over 2 percent after investors forced the chipmaker’s chairman-designate to guarantee an early exit from the post.

IBEX 35                       10829.30                   -212.90                 -1.93%
The Spanish index posted the biggest loss of the major European indices for a second consecutive day as information technology firm Indra Sistemas fell over 5 percent.  Only three of the thirty-two IBEX stocks managed to close above water today as investors remain concerned that the pace of Spain’s recovery is slowing.  Spain is likely headed for a second year of economic contraction and remains weighed down by debt problems not unlike those in Greece.  Spanish Finance Minster Elena Salgado announced today her intention to cut the budget deficit by two thirds by 2013.

FTSE MIB                     21603.13                  -394.46                 -1.79%
The Italian benchmark index fell over 1.7 percent today to mark its third losing day this week.  Luxury goods maker Tod’s fell over 8 percent today after posting gains in the prior three trading sessions this week.  Ansaldo STS also experienced its first losing day this week, declining over 2 percent after Intermonte Sim downgraded the shares to “outperform” from “buy”.

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

European Equities Falter to Lowest Close Since December

Europe Session Key Developments

•    Financial Sectors Across Europe Under Fire on Regulation Concerns
•    German Consumer Prices Fall More Than Expected in January
•    Commodities Continue Slide, Dollar Gains Against European Currencies

European stocks retreated for a second session this week, falling to levels not seen since mid-December.  Although there was no major event risk to depress sentiment, prior concerns regarding government regulations and upcoming central bank decisions drove stocks lower.  Just last week, U.S. President Barack Obama spooked investors by proposing new regulations on U.S. banks and Chinese leaders ordered some of their own big banks to curb lending for the rest of the month.  Today, French President Nicolas Sarkozy came out in support of Obama’s banking regulations and suggested further discussion by the G-20 regarding the proposal.  Overall, the government speak resulted in marketplace uncertainty and drove “riskier” assets such as stocks and commodities lower.  On the currencies front, the Euro and British Pound both fell against the greenback as the U.S. Dollar Index rose to its highest level since September.

FTSE 100                      5217.47                   -59.38               -1.13%
British stocks fell for the fifth time in six days, as the Financials sector and Commodities sector declined over 1.7 percent each.  The overall decline in British banking stocks could be largely attributed to investor fears that future regulatory measures will reduce industry profits.  On the commodities front, mining stocks and commodity producers continued their declines from last week due to falling prices for energy products and precious metals.  Tullow Oil dropped over 4 percent today after raising nearly 1 billion pounds in a share sale to fund exploration in Africa.

CAC 40                           3759.80                   -47.24              -1.24%
Trading in Paris today resulted in over a one percent drop despite positive economic data that showed a decrease in December jobseekers and better-than-expected consumer confidence in January.  A 2.1 percent decline in the technology sector dragged the index lower, as seven stocks fell for each that gained.  Tech stocks fell after STMicroelectronics posted a fourth quarter net loss.  Shares in the Geneva-based company fell over 4 percent on the day.

DAX                                 5643.20                   -25.73                -0.45%
German stocks were the best performers of Europe’s major indices, despite 25 of the 30 DAX stocks closing lower on the session.  Deutsche Bank and Commerzbank, Germany’s largest financial institutions, slipped at least 1 percent each on concerns over global banking regulations.  Morgan Stanley also declared that Deutsche Bank will probably reduce its dividend payments if regulations go forward.  Steelmakers ThyssenKrupp and Salzgitter declined alongside metal prices, while carmakers Bayerische Motoren Werke and Daimler on concerns over the economic recovery and future demand for automobiles.

IBEX 35                       11042.20                   -305.10                 -2.69%
The Spanish index fell by the largest amount since August, led by a near 5 percent plunge in banking stocks.  Banking giant BBVA fell over 6 percent after reporting a 94 percent drop in fourth-quarter net profit to 31 million euros for the period.  BBVA’s massive profit loss, due to increased provisions for bad loans, weighed on the entire banking sector including Banco Santander, which also dropped over 5 percent on the day.

FTSE MIB                     21977.59                  -410.12                 -1.83%
The Italian index fell nearly 2 percent today, its second loss thus far on the week.  Financial stocks were hit particularly hard after Morgan Stanley cut its dividend estimates for Intesa Sanpaolo SpA and UniCredit SpA.  Shares of Intesa and UniCredit fell 2.9 percent each.  Banco Popolare also fell significantly after Credit Suisse Group reiterated its “underperform” recommendation on the stock.

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

U.S. Equities Fall Sharply to Three-Week Lows

U.S. Session Key Developments

•    Commodities Decline For Second Day
•    Initial Jobless Claims Higher Than Expected
•    President Obama Outlines Bank Regulation

U.S. stocks fell for a second consecutive session today, erasing the Dow’s gain for 2010, on concern that heightened government regulation will dampen banking profits and economic growth going forward.  Investors turned bearish on stocks after U.S. President Obama announced his banking reform proposal that would no longer allow banks to run proprietary trading operations.  This announcement came on the heels of last week’s proposal to impose a a bank fee to help recover TARP losses and created more uncertainty in the sector going forward .  Also weighing on the minds of investors today were recent regulations out of China to cool down its rapidly-growing economy.  The Chinese Government recently increased the required reserves ratio for the country’s banks and discussed, along with other Asian central banks, the possibility of raising rates by September.  On the commodities front, crude oil fell victim to the global risk sell-off and fell 2.3 percent to $75.89, its lowest level since December 22.  Gold and silver also declined, losing 1.7 percent and 2.6 percent respectively.  The U.S. Dollar Index, on the other hand, rallied for the fourth consecutive day to 78.42, a level the index has not closed above since September 3.  The other key contributor to investor concern today was a Department of Labor release that showed initial jobless claims rose by 482,000 last week, more than the 440,000 rise expected.  This was yet another example that the U.S. economy is not out of the woods yet, and that high unemployment and a weakened consumer will continue to be a drag on the recovery.

DJIA 30                      10,389.88                   -213.27                -2.01%

The Dow Jones Industrial Average erased its 2010 gains today, falling over 2 percent as 28 of the 30 index stocks fell on the session.  JPMorgan Chase and Bank of America were two of the worst performers on the index, each slumping over 6 percent after President Obama’s proposal for bank regulation.  Overall, the Dow fell to its lowest level since December 12 and experienced its largest daily percentage decline since October 30.

S&P 500                         1,116.48                      -21.56                  -1.89%
The broader S&P 500 fell for a second straight session, led by a 4.8 percent decline in the Basic Materials sector.  Aluminum giant Alcoa fell over 6 percent on weakness in commodity prices, and copper and gold producer Freeport-McMoRan dropped over 8 percent after announcing it will produce less in 2010 than last year.  One bright spot of the index was trade execution firm Knight Capital Group, which rose over 7 percent after reporting that its earnings beat analyst estimates.

NASDAQ                       2,265.70                   -25.55                  -1.12%
The NASDAQ fell over 25 points today as technology stocks, which make up a significant portion of the index, dropped over 1 percent.  In the technology sector, thirteen of the largest fourteen stocks declined, led by Adobe and Microsoft which fell over 1.8 percent each.  The one exception was Google, which gained slightly after reporting fourth-quarter sales.

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

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