Overview: Bias to risk assets as Asian and EU markets follow the higher US close Friday on expected new US stimulus coming soon that is believed will provide a boost for growth and stocks at least during the period in which the stimulus is dispersed. See our weekly review articles for details behind prior and coming week market drivers. Key events in include Fed and ECB speeches, US retail and CPI reports, US Q3 big name earnings.
STOCKS: US: Up – Stocks scored modest gains Friday, paradoxically the poor US monthly jobs report was seen as good news because it raises expectations for the extent and speed of new US stimulus spending which markets believe should provide at least a temporary boost for US growth and stocks. Given that the gradual rise of US stocks over the past month has been primarily due to expectations for more QE, we wonder if there will be a selloff when/if new stimulus is announced on a ‘sell the news’ move. US Q3 earnings have yet to be a factor either way. Among the major names, 2 beat expectations, one is in line, two missed. The pace picks up this week with more big names like Intel and JPMorganChase
US Bonds: Up- Benchmark 10 Year Note holds steady Friday and was actually up on the week along with stocks, continuing to defy normal behavior of moving opposite stocks. Benchmark yields fell over the week from 2.4% to 2.3810%. The basic reason is that the same force is driving both stocks and US bonds-expected new QE that not only gives growth and stocks a boost it also involves Fed purchases of …US bonds! This move comes despite the weakness of the USD, in which these bonds are priced. We also suspect that bond markets see greater risk of pullback in risk assets than stock market traders.
Asia Stock Outlook: Up – Except for the Nikkei’s lower close, most Asian bourses closing higher, and both Shanghai and Hong Kong’s strongly higher, as a follow up from the higher US close Friday on expected new US stimulus coming soon.
European Stock Outlook: Up–Nearly all major indices rallying higher following the higher close in the US and Asia on expected new US stimulus.
Commodities Outlook Friday To Midday Monday GMT: All higher as expected new US stimulus continues to pound the USD and support USD hedges like hard assets. Softs get help from poor whether hurting corn certain grain harvests like corn in the US and wheat in Russia.
Crude Oil Daily Outlook: Up- See commodity overview above.
Gold Daily Outlook: Up: See commodity overview above.
Softs: See commodity overview above.
FOREX Daily Outlook Friday To Midday Monday GMT: Bias to risk fx with some exceptions. Strongest: EUR, CAD, JPY in that order, weakest: USD, NZD, AUD in that order. Anticipated QE II from Fed and risk appetite rising today explains both the USD’s weakness and thus the EUR’s strength.
US Dollar Daily Outlook: Down vs. all on combination of strong risk appetite, expected QE II. Poor US monthly jobs figure adds both fundamental and speculative pressure to the USD, though by any technical measure it is becoming very oversold, making markets vulnerable to any change in expectations or simply a ‘sell the news’ move when/if QE II is finally announced.
Euro Daily Outlook: Up vs. USD, CHF, GBP, NZD, down vs. the JPY, flat vs. the AUD, CAD
Yen Daily Outlook: Up vs. all except for the CAD, reflecting perhaps greater risk aversion beneath the surface that is being obscured by US stimulus hopes
British Pound Daily Outlook: Up the USD and CHF and all commodity dollars, down vs. the EUR, CHF
Australian Dollar Daily Outlook: Up vs. the USD, NZD, down vs. the EUR, CHF, GBP, JPY, flat vs. the CAD
New Zealand Dollar Daily Outlook: Up vs. the USD, GBP, down vs. all others
Canadian Dollar Daily Outlook: Up vs. the USD, GBP, NZD, CHF, JPY, flat vs. the AUD down vs. the EUR
Swiss Franc Daily Outlook: Down vs. the GBP, EUR, JPY, CAD up vs. the USD, AUD, NZD
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