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Overview: Bias to risk assets. No major news so we assume markets continue to feel optimism from overall positive tone of Q3 earnings, likely coming stimulus in US, UK, Japan. Major likely market movers this week include another batch of big name earnings reports, though typically the effects of earnings season start to fade after the second week.
That would appear likely now, with 83% of firms reporting beating estimates and the overall tone already upbeat. Continued USD weakness, with positive effects for risk assets is likely after the failure of the G20 meeting to provide any effective means of halting the ongoing competitive currency devaluations. That means the US and UK are free to proceed with expected stimulus, which would account for the weakness in these currencies today.
See Must Know Prior And Coming Week Likely Market Drivers for full details on likely market movers for the week ahead. Beware the wildcards we mention in this report that could surprise markets, which are increasingly vulnerable at their 5 month highs.
STOCKS: US: Up – Major US indices close modesly higher Friday, capping a volatile week in which sharp losses Tuesday were followed by slow, steady recovery the rest of the week, as Q3 earnings reports were overall positive.
On Monday and Tuesday, the bank foreclosure crisis was the dominant market mover. Stocks were higher Monday as prior week fears of massive bank liability were brushed off by Citigroup and Bank of America, both of which downplayed their exposure and announced coming resumption of foreclosures. Citigroup noted in its conference call for its Q3 earnings that buyers of its MBSs (Mortgage Backed Securities) were satisfied with Citi’s handling of the title and foreclosure process and were not seeking to return their securities.
Tuesday saw a complete reversal of sentiment after a consortium including PIMCO and the NY Fed announced it was seeking to return $47 bln in MBSs to Bank of America, reviving the market’s worst fears for the banks. Shares plunged worldwide on the news. Markets were already in retreat after China announced it was raising rates and revaluing the Yuan 0.25%, which markets interpreted as a negative for Chinese and thus global growth.
Markets staged a slow, steady recovery over the remainder of the week mostly due to overall positive earnings, however many commentators noted that earnings estimates were set low to allow for easy beating, particularly in the case of Apple (NASDAQ:AAPL). Some bullish data from Germany and China, both of which showed signs of overall solid growth.
Big name announcements this week include:
Friday: Newell Rubbermaid (NYSE:NWL) and Nasdaq (NDAQ)
US Bonds: Up- US bonds closed Friday lower yields up from 2.4750% to 2.563%, reflecting the rise in risk appetite.
Asia Stock Outlook: Up – Although the Nikkei closed modestly lower, all other major Asian bourses finished solidly higher on optimism about US, Asian earnings.
European Stock Outlook: Up–European shares are opened and stayed higher following up on Asia’s close, led by materials stocks which were bolstered by prospects of a weaker USD after the G20 meeting over the weekend failed to produce results that might have stemmed USD weakness.
Commodities Outlook Friday To Midday Monday GMT: All higher on a combination of rising stocks and sinking USD in the wake of the G20 meetings failure to produce an agreement to reduce currency tensions which have fed the USD’s selloff. A weaker USD supports commodity prices which are in Dollars.
FOREX Daily Outlook Friday To Midday Monday GMT: Bias to risk forex with few exceptions. AUD, NZD, CAD, EUR strongest in that order, USD, CHF, GBP weakest. JPY showing surprising strength for a ‘risk on’ day as Yen bulls test resistance.
see full article for details on each currency
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