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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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  • PRIOR WEEK’S MARKET MOVERS: FAITH, HOPE & CHARITY 1 comment
    Sep 17, 2011 3:53 PM | about stocks: 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, FRC, DB, SAN, BNO, ENI

    Part 1: Prior Week Market Movers & Their Lessons For the Coming Week

     

    The following is a weekly strategy guide for traders and investors, covering prior week’s market movers and their lessons for the coming week for traders of all major asset classes via both traditional instruments and binary options. Perfect for those seeking a summary of prior week market movers & their lessons for the coming week and beyond, & a look at likely coming week market movers.

     

     

     

    As if to honor the Eastern Orthodox Church observance of the feast of these saints on September 17th, these virtues were also the prime movers of global markets last week. I’m serious. Lord knows long term fundamentals didn’t seem to have much noticeable influence.

     

     

    First, some background.

     

    Of course I’m referring to the EU crisis, as that remains the overwhelming market focus. True, the US faces a budget fight that could degenerate into a repeat of last July’s debt ceiling debacle that lead to a Standard and Poors’ credit downgrade, but that’s a whole two weeks away, relatively far off compared to the Greek default and EU contagion threat.

     

    There was lots of dramatic news and rumor flying about. The early week was dominated by the new consensus, even in the mass financial media, that a Greek default is a matter of time, with all the implied market crisis risk as that event drags down other GIIPS nations and EU banking, neither of which are able to access credit markets on contagion fear.

     

    Yet stocks and growth related commodities rose throughout the early week even despite repeated reports (for example here, here, here, and here) over the past weeks that a Greek default was imminent and EU banking crisis. Additional highlights included:

     

     

     

     

    Faith, Hope & Charity To The Rescue

     

    Indeed the fundamental outlook remains every big a dire. However, a combination of faith, hope, and charity concerning the EU once again gave markets reason to believe a global financial crisis of 2008 proportions had at least been deferred long enough to have a tradable rally and buy risk assets at near term support (for example the 1100-1150 zone on the S&P 500 index).

     

    Faith

     

    That the Troika would forgive Greek failures to meet bailout commitments, based on a Wall Street Journal report.

     

    That, based on the history of the past years, the Troika would find a way to again at least defer a financial crisis in order to buy time to shore up banks before Greece defaults (as a variety of actions suggest, including this past Thursday’s Fed lead coordinated central bank intervention).

     

    Hope

     

    For Troika Forgiveness

     

    After Greek, French and German Prime Ministers held a conference call and issued a statement that they were "convinced that the future of Greece is in the euro-zone." However it was widely noted that the generic statement did not confirm approval of the next tranche of the Greek bailout, which the IMF could oppose. In fact, we learned on Friday that the Euro-zone finance ministers’ meeting yielded a decision to defer a decision on whether to give Greece its next tranche of rescue loans until October, setting up another round of “will they – won’t they” drama. If the past is any guide, we’ll see a some Greek displays of new reforms, stern warnings from Germany to show how they’ll tolerate no further games, and yet another capitulation to Greece in order to buy more time and avoid a crisis. Hey, betting that way has worked thus far.

     

    For Chinese Aid

     

    There were reports that China would buy unwanted Italian bonds. As with the above Troika funds, this hope too was dashed, at least for now, as the Sugar Daddy plays hardball. Chinese leader Wen Jiabao dampened hopes, but EU markets ignored the disappointment. That might not be wise, given that China has distinct incentives as an export economy to see the EU splinter, both as a means of hurting export competitors in the EU and aiding Chinese exports via boosting the USD and making China’s goods cheaper in that key market. See here for details

     

    Charity

     

    In the end, this indeed came through in the form of a big Federal Reserve lead central bank intervention in which the Fed, ECB, BoJ, and BoE announced they’d conduct “three U.S. dollar liquidity-providing operations” to ensure the EU banks remained liquid and solvent, at least as long as there are no GIIPS bond defaults. True this is a solution only to an immediate liquidity problem of many EU banks, and does not address the solvency issues they’d face in the event of a Greek or other GIIPS block default.

     

    Again, the consensus is that at minimum Greece defaults within the coming months, possibly other sovereign states and very likely banks with heavy direct or indirect exposure. The risks of a global crisis soar with each additional sovereign or major bank default.

     

    Still, this was good enough to keep markets rallying on the belief that a crisis had been deferred for enough time for a tradable rally.

    Data, What Data?

     

    Economic releases were mostly bad but, as markets rallied all week, irrelevant. It was all EU fear, also hope, faith and charity.

    Ramifications & Conclusion

     

    Overall, we just see the usual �pe�npF With the rising CPI figures released this week – headline CPI rising to 3.8% y/y from the prior 3.6% and the core reading climbing to 2.0% from the prior 1.8% – it is highly unlikely that the Fed will announce QE3. The market is largely expecting the next move to be a shift in the duration of the Fed’s current holdings which would be less bearish for the USD than outright asset purchases.

     

     

     

    The so-called ‘Operation Twist’) would see a flatter yield curve with the short end of the yield curve moving higher while longer dated yields move lower. Should this scenario play out, we would expect to see little impact on the dollar. A dovish policy statement is likely to see the dollar correct lower but the USD bias is higher while the dollar index remains above the top of the daily ichimoku cloud which is seen around 75.00.

     

    The most visible impact in the FX markets may be seen in USD/JPY because the pair has been highly correlated to yields. A rise in short term Treasury yields would be supportive of USD/JPY and may see the pair advance.  Japanese officials have been vocal about the strength of the yen and its negative impact on economic activity with the markets on alert for intervention. In our view, we anticipate the BOJ to stay on the sidelines ahead of the Fed decision.

     

    Brewing US Budget Fight

     

    As noted in part 1, the US faces yet another potentially damaging budget fight as it needs either a budget or extension measure to keep the Federal government in operation. The debt ceiling battle eroded Washington’s credibility to deal with its debt issues in an responsible manner badly enough to lose its AAA rating. The approaching battle could both scare markets and further erode the USD’s value.

    Top Calendar Events Next Week

     

    Monday: none

     

    Tuesday:  AUD monetary policy meeting, EUR German ZEW economic sentiment USD building permits, Fed Begins 2 day extended policy meeting.

     

    Wednesday: GBP MPC meeting minutes, public sector net borrowing, CAD CPI, USD existing home sales, FOMC statement

     

    Thursday: CNY: HSBC Flash Mfg PMI, CAD retail sales, EUR series of French and German flash Mfg and Service PMIs USD weekly job first time claims

     

     Friday: IMF Meetings, Trichet Speaks

     

     

    DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING DECISIONS LIES SOLELY WITH THE READER. IF WE REALLY KNEW WHAT WOULD HAPPEN, WE WOULDN’T BE TELLING YOU FOR FREE, NOW WOULD WE?

    TO VIEW THE REST OF THIS ARTICLE PLEASE VISIT http://globalmarkets.anyoption.com AND FIND ARTICLE BY SAME NAME UNDER THE WEEKLY TAB

     

    DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING DECISIONS LIES SOLELY WITH THE READER. IF WE REALLY KNEW WHAT WOULD HAPPEN, WE WOULDN’T BE TELLING YOU FOR FREE, NOW WOULD WE?

     

     


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  • esvm
    , contributor
    Comments (6) | Send Message
     
    I think you are conflating the Greek government and the Greek people. If the rumors are true, it is the government not the people which artificially inflated the deficit in 2009. I ask you-- Would you chose to follow the orders of such a government? Would you accept job loss, cuts to wages and cuts to pensions (I am not sure about the numbers, but I have heard up to 30% wages and pension cuts and, as I understand it, up to 60% pension cuts in the near future) because the government insisted on paying creditors rather than defaulting and taking care of the people's basic needs? And now there is this rumor suggesting in the need for austerity was based on a lie. If anything, I do not think the Greeks have protested enough. The government should have fallen yesterday.
    18 Sep 2011, 10:40 AM Reply Like
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