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Cliff Wachtel
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Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
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  • APRIL 11-15 KEY MARKET MOVERS: GREAT JAPANIC II, US EARNINGS, GLOBAL INFLATION DATA 0 comments
    Apr 9, 2011 10:24 PM | about stocks: AA, JPM, BAC, GOOG, QQQ, UUP, UDN, FXE, ERO, URR, ULE, EUO, DRR, FXA, FXB, FXC, FXD, FXF, FXEN, FXY, JYF, AUNZ, CYB, GLD, CNY, USO, DUG, USL, NBO, DBV, ICI, CEW, SLV, OIL, SPY, SDS, RSW, BXDC, SPXU, SH, DIA, EWC, EWA, TLT, XHB, ITM, IGOV, VGK, TBT, GSG, DBC, CORN, ICN, SZR, BZF, GRU, DAX-OLD, FRC, DB, SAN, BNO, ENI
     PRIOR WEEK PRIME MARKET DRIVERS

    If I had to sum up the key market drivers of the April 4-8 in one sentence: Inflation concerns were the common denominator that explains the unusual lack of correlation between financial markets we saw this past week:

    • Weakness in stocks, yet…
    • Strength in higher yielding risk currencies
    • Strength in commodities

    Typically, global stock indexes move in the same direction as other risk assets. Indeed, they often lead these other asset markets higher or lower simply because stocks are considered THE primary indicator of risk appetite.

    But not this past week of April 11-14. Why? Inflation fears.

    • Stocks Were Flat-To- Negative: Inflation is bad for stocks, and also caused rising rate hike hopes that boosted the EUR, GBP despite poor fundamentals.
    • Yet Commodities Were Strong: That explains the flat stock performance. Inflation concerns would also explain the strength of commodity prices (though loss of Japan nuclear power, MENA unrest helps energy also) insofar as longer term perceived weakness in both the USD and EUR (rate speculation aside, the EUR’s fundamentals are not good, given the PIIGS assorted debt crises) is inflationary.
    • Commodity Currencies And Those With Rising Rate Prospects Were Strong: Commodity based economies benefit from inflation insofar as it ups their nominal (non-inflation adjusted) export income. Also, the AUD, EUR, and GBP all benefitted from markets believing that rising inflation pressures will send their rates higher. Even the AUD, which was assumed to be mostly done with rate hikes, got a burst of hope for more with a great jobs report for March.

    Inflation fears where the only thing that tied all of the above together.

    COMING WEEK PRIME MARKET DRIVERSGREAT JAPANIC II: AFTERSHOCKS, GEOLOGICAL & ECONOMIC, THREATEN GLOBAL MARKETS

    While all of the ‘Big 3 Crises, ‘ the EU, MENA, and the Japan, have the proven potential to take down markets, the one that may be most likely to most move markets in the coming weeks may be Japan.

    In sum, Japan has the potential to inflict yet another blow to global liquidity and growth, which are already threatened by global trends towards rising interest rates, widespread austerity measures, struggling economies Particular concerns include:

    A Drop In Demand For US, EU, UK Sovereign Bonds & Ramifications

    Per Chris Martenson, author of The Crash Course, as the costs of the damage continue rising, both from radiation and production cuts, it’s possible that Japan, which has been a huge liquidity exporter to the US (i.e. massive US bond buyer) might soon become a net seller, with possibly dire consequences for the US. If demand for US bonds drops, that means higher US bond yields, US mortgage yields, and further damage to the key US banking and housing sectors.

    The same threat holds for other major sellers of sovereign bonds to Japan, like the EU and UK.

    Factory Output Cuts

    In addition to falling bond prices and thus rising borrowing costs, Japan’s woes will ripple through global manufacturing.

    TEPCO, the power provider for the region of Japan that produces 40% of Japanese GDP, has lost 20-40% of its power output. That in turn implies a variety of parts shortages that could last from weeks to many months, that cause production slowdowns and work stoppages for those worldwide depending on that output for raw materials, parts, and finished goods, from steel and silicon wafers to auto parts and consumer electronics. For example:

    • Citibank issued sell orders on a range of carmakers due to production cutbacks for lack of parts
    • AutoNation warned “production disruptions will significantly impact product availability from Japanese auto manufacturers in the second and third quarters of 2011.
    • Toyota’s Japan production remains limited, and it is shutting down all of its US plants due to parts shortages. The same holds for other major Japanese auto makers.
    • Sweden’s Volvo announced slowdowns to its truck production

    Remember, if a factory producing vehicles or other complex machines with 10,000 or more parts lacks just one of these, the whole factory goes silent, and so do the suppliers of those other 9, 999 parts.

    Both of the above should be felt within the coming weeks

    US EARNINGS Q1 SEASON

    If the 3 crises continue to leave markets undisturbed (huge if, but that’s been the case of late), then US 2011 Q1earnings could be the critical market mover next week, starting with the first rally major name reporting Monday April 11, Alcoa (NYSE:AA).

    Other top financial names expected to report next week, include names from the critical banking sector JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N). Remember that the banking sector has lead markets both in and out of the longer term trends since the Great Financial Crisis began in 2007. They are very important for gauging overall trends.

    Internet/tech leader Google Inc (GOOG.O) is also due to report.

    For full details consult any decent financial website for a full earnings schedule. For example tryYahoo finance for a full week in advance. Seekingalpha.com appears to provide them on for the current day and before, but does not offer a calendar of the week ahead’s earnings

    Traders need to watch not just the results, but equally important, the future guidance for coming quarters.

    The relatively few pre-announcements thus far have been encouraging, leading to the belief that surging commodity costs have yet to compress margins and impact corporate profits.

    The Q1 announcements come with stocks at a critical juncture. The S&P 500 (.SPX) has regained all of the losses suffered in the wake of the Japanese earthquake on March 11 but has been unable to decisively break above the 1,333.58 level, a technical resistance point representing double the 12-year low hit on March 9, 2009.

    The benchmark index was relatively flat for the week, down 0.3 percent, as the prospect of a government shutdown kept the rally at bay.

    Continued Drama On Us Budget, Prelude To Us Debt Ceiling Battle In May

    While potentially damaging, the threat of a Federal government shutdown of non-essential services has yet to scare markets.

    OTHER KEY ECONOMIC CALENDAR EVENTS

    Calendar Key Events: Most Deal With Inflation & Thus Prospects For Coming Rate Hikes In the US, UK, and also growth prospects in China

    Key Events in Boldface

    SUNDAY

    CHINA: Trade Balance Also Results Of Saturday EU Econfin Meeting Concerning Portugal’s Bailout

    TUESDAY

    UK: CPI -Could Feed Rate Hike Hopes If High

    EUROPE: German ZEW Economic Sentiment

    CAD: Trade Balance, BoC Rate Statement

    USD: Trade Balance

    WEDNESDAY

    US: Core Retail, Retail Sales – Will help confirm or refute the improving jobs situation in the US

    CAD: BOC Monetary Report

    AUD: RBA Gov Speaks

    THURSDAY

    USD:  PPI

    ALL: G7 Meetings

    FRIDAY

    China:  CPI, GDP, Fixed Asset Investment

    USD:  Core CPI, CPI TIC Long Term Purchases Preliminary UoM Consumer Sentiment

    For more on trading implications for all asset classes for both traditional spot market and binary options traders of all asses, see our other weekly trade strategy articles athttp://globalmarkets.anyoption.com

    DISCLOSURE & DISCLAIMER: AUTHOR SHORT EUR NO OTHER POSITIONS, THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY AND NOT TO BE CONSTRUED AS SPECIFIC TRADING ADVICE. RESPONSIBILITY FOR TRADE DECISIONS IS SOLELY WITH THE READER

     
     
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