Quiet News Week Ahead. Will that Mean Rally, Consolidation or Pullback?

Now What? Does a Quiet News Week Mean Further Rally, Consolidation, or Pullback?

GLOBAL EQUITIES

The S&P 500 gained during every session this week, with the bulk of the gain coming on Thursday following solid results from Cisco (CSCO) and a surge in nonfarm productivity. The much talked about stock market correction continues to fail to materialize with the S&P 500 just 2.9% from its 2009 highs and up 60% from its March low.

Amazingly, US large cap stocks chopped around, yet managed to close slightly higher despite much worse than expected overall US employment data which seriously undermines the current US recovery picture. The smaller cap indexes got away with only modest losses. Given the light news week ahead, it will be interesting to see how markets open after having had a weekend to digest all the news of last week.

Friday was all about the monthly jobs report. Key Points:

• They came in a bit worse than expected (-190K versus -175K expected) but investors could handle that, since positive revisions from prior months more than made up for this month’s shortfall.
• The unemployment aspect of the household survey came in at 10.2%, leapfrogging expectations of 9.9% and topping that 10% level that everyone feared could get here. That is the worst showing since 1983.
• The households survey (more indicative of small business jobs creation) shows small business and job creation is not happening-bad because this is where much of the initial job recovery can occur.
• After trending down, average weekly hours remains stagnant at 33 hours per week, suggesting plenty of excess capacity remains to be absorbed before new hiring begins, typically once the figure gets above 36 hours/week.

OIL & GOLD

Gold

Gold glittered last week as IMF’s gold sales to the Reserve Bank of India spurred speculations on gold purchases by other central banks. This optimism, accompanied by continuation of low rate policy in the Fed, ECB and BOE, sent the yellow metal above $1100. Low interest rate environment benefits gold as it reduces the opportunity cost for owning the metal.

Investors’ risk appetite diminished further after the US Labor Department reported unemployment rate soared to 26-year high at 10.2%.

Oil

WTI crude oil plunged to as low as 76.71 after US employment data disappointed the market last Friday. Given the struggles of the USD lately, this decline is mostly a matter of doubts about underlying demand vs. supply.

CURRENCIES

Compared to last week’s packed calendar, this week’s is much lighter, especially for the most widely traded currencies, the USD, EUR, GBP and JPY.

USD

Will A Delayed Reaction to US Employment Reports Spark the Long Awaited Pullback in Stocks and Other Risk Assets?

Summary

US Dollar Outlook: Bearish Long Term, Though Ripe For a Short Term Bounce

• US non-farm payrolls disappoints, unemployment rate at 26-year high of 10.2
• ISM Manufacturing Survey surprises at 55.7, reflecting continued improvement
• The Federal Reserve leaves rates unchanged, retains dovish wording that rates would remain “extremely low” for an “extended period.”
• USD’s decline appears lower than economic fundamentals and interest rate speculation would alone suggest. We suspect this gap between speculative and fundamental interest will close sooner than many expect as the dollar rises with the eventual pullback in stocks and other risk assets.
• The US unemployment reports Friday cast doubt on the meaning of the recent US GDP gains. With 70% of that GDP based on consumer spending, and consumers getting poorer and spending less, it’s clear that the Q3 figure was indeed due to unsustainable government spending than to a genuine recovery.

Key Events: Thursday Unemployment claims w/w, Friday Trade Balance, UoM Consumer Confidence.

EUR

Euro May Regain Fundamental Control with its Own With GDP Numbers

Summary

Euro Outlook: Bearish, Likely to Move Along With Stocks for Near Term

• Will Euro-zone GDP allow the EUR to move on its own merits?
• The ECB gives no guidance on rate hikes, but Trichet supports a stimulus reduction.
• The EUR/USD looks overextended from a fundamental, interest rate and technical perspective. Still, as long as risk appetite hangs on, so will the EUR.
• Conflict between up-trend for the EURUSD and reversal for the risk appetite driving it.

Key Events: Tuesday German ZEW Sentiment, Friday Euro zone Flash GDP.

JPY

Yen Awaits Risk Appetite Reversal

Summary

Yen Outlook: Bullish due to coming risk aversion and signs of expansion, but growth signs may give it a chance to benefit from risk appetite

• Japanese Finance Minister Fujii: fill the tax short-fall with more debt issuance
• The interest rate outlook grows more extreme for USDJPY, yet the yen is holding its strength
• Does short-term USDJPY chop obscure a possible coming reversal?

Key Events: Wednesday Core Machinery Orders.

GBP

No “Great Expectations” From Dickens’ Homeland & THAT Makes For Possible GBP Breakouts Versus the Euro, US Dollar

Summary

Pound Outlook: Neutral/Bullish Near Term

• Rallies on Bank of England monetary policy of “only” another £25 bln QE
• Pound likely to continue appreciating versus Euro, though EUR likely to see rates increase sooner

Key Events: Tuesday Trade Balance, Wed. Claimant Count, BoE Gov speaks, Inflation Report.

CHF

Swiss Franc May Rise with Risk Correction –Or Not

Summary

Swiss Franc Outlook: Bearish/Neutral

• Swiss Unemployment Rate at Highest in 11 Years
• Consumer Prices Drop For the Eighth Straight Month

Key Events: Thursday ZEW sentiment, SNB Board Member Jordan Speaks, Friday PPI m/m.

CAD

Options Markets Pricing in Risk of USD/CAD Rallies As Unemployment, and Possible Risk Aversion Could Boost the Pair

Summary

CAD Outlook: Bearish based on receding chance of rate increases, pullback expectations for oil, stocks.

• Canadian Unemployment unexpectedly rises
• Canadian Dollar outperforms on buoyant risk appetite

Key Events: Monday Housing Starts, Friday Trade Balance.

AUD

Australian dollaTrading on Risk Sentiment Alone Now That Rate Hikes Expected

Summary

AUD Outlook: Bearish

• Australian Lending Unexpectedly Shrinks, Threatening Recovery
• New Home Sales See First Drop Since May, Says HIA
• Inflation Hits Decade Low in Q3, Rate Hikes Still Expected
• Business Confidence Surged to Highest in 15 Years, Says NAB
• Producer Prices Drop Most on Record on Currency Gains
• With Bullish Expectations Priced In, Only Steady or Rising Risk Appetite Likely to Support the AUD, Leaving Risk to the Downside

Key Events: Monday Home Loans, Thursday Employment Change, Unemployment Rate

NZD

Bollard To World: We’re Not Australia

Summary

NZD Outlook: Bearish along with other risk currencies given the extended risk asset rally.

• New Zealand unemployment rate rose to a nine-year high of 6.5%
• New Zealand technical outlook points toward bearish potential

Key Events: Thursday Retail Sales

Comments

[chris coonan:]

It won't be quiet if the rumor is true, and Walmart is in a takeover bid for Target Stores....

Nov 09 08:45 AM

[YoYoMama:]

Can you please post a source for this "rumor"?


On Nov 09 08:45 AM chris coonan wrote:

> It won't be quiet if the rumor is true, and Walmart is in a takeover
> bid for Target Stores....

Nov 09 10:03 AM

[ebworthen:]

More stimulus (taxpayer money for banks at 0%), no penalties for bad behavior, dollar at new low, gold at new high, rate of employment decline and number of unemployed at record since depression...give me two shots of bourbon and 100 shares of Goldman Sachs!

The insanity continues, Bubble II continues on it's reflation, get a drink and dance the Charleston while you can, Timmy is at the punch bowl.

Nov 09 11:04 AM