Overview: Bias to risk assets over the past day and thus far today as Asian and European stocks, commodities up on news including:
· An easing of tensions after South Korea began military exercises and N. Korea withheld threatened military response
· China’ Vice Premier saying China supports the EU and IMF efforts to stabilize the EU and EUR in the face of the EU’s sovereign debt and banking crisis. This helps ease anxiety about the EU crisis, which continues to be the primary bearish force weighing on markets. China is believed to have increased the proportion of its foreign currency reserves into the EUR over the past years, and clearly has a strong stake in EU economic stability both as an exporter and large holder of Euros.
However we note a divergence from this trend in the forex markets, where the 2 of the top 3 safe haven currencies are among the biggest gainers over the past 24 hours.
STOCKS: US Mixed: On Monday the major US indices showed a mix of modest gains or losses in thin pre- holiday trade that lacked any market moving news.
US Bonds: Down- 10 Year Treasury Notes fell again Monday, raising the 10-year yield to 3.3490%. Bond prices have been falling early November. For an explanation of why that’s been happening and why it is likely to continue, see our special report just out: Why Bond Yields Rising And Ramifications For Forex Stocks Commodities: A Quick Review
Asia Stock Outlook: Up – Virtually all major indices closing higher on bargain hunting spurred by easing Korea tensions and China’s supportive comments for the EU and EUR helping to ease concern over the EU crisis, which remains the primary bearish force weighing on risk assets.
European Stock Outlook: Up – European bourses opened solidly higher and staying that way on a combination of good news on Korea and China support for the EU noted above, and low volume holiday trade possibly exaggerating the moves higher. Materials stocks benefitting from higher commodity prices.
Commodities Outlook Monday To Midday GMT Tuesday: Commodities Overall Following Risk Appetite Higher Since The Start Of The Week
Gold, silver: Up – Futures continuing higher since Friday, carving out a short term base after the down trend since the start of December as ongoing concerns about the EU debt crisis spur EUR hedging into precious metals.
Crude oil: Up – Futures continuing to climb, gaining about 5% since Friday with most of those gains coming yesterday on colder weather and continued evidence of firming demand and shrinking inventories.
Grains & Softs: Futures all up since Friday, making particularly strong moves higher over the past 24 hours and continuing today: Soybeans +1.2%, coffee +3.7%, sugar +5.4%, cotton +6.4%
FOREX Daily Outlook Monday To Midday GMT Tuesday: Bias to safety currencies despite rising stocks and commodities as EU and Korea concerns appear to be worrying forex traders more than those of stocks and commodities. Strongest gainers over the past 24 hours: CHF, USD NZD, AUD. Weakest: CAD, EUR, GBP.
US Dollar Daily Outlook: Up vs. EUR and the commodity dollars, down vs.JPY, GBP, CHF over the past 24 hours. Thus far Tuesday the USD is losing ground vs. all on rising risk appetite from easing Korean tensions following the start of S. Korean military exercises without the threatened N. Korean military response, and EU/EUR supportive comments from China that help ease EU crisis concerns.
Euro Daily Outlook: Down vs. all except up vs. the CAD over the past day, attempting some recovery vs. the USD. Breaking news: Moody’s putting Portugal’s A1 bond rating on review for downgrade. It’s unclear if this news will move the EUR.
On one hand its old news, Portugal is widely believed to be next in line for an unavoidable bailout.
On the other hand it does add to the gloom over the EUR after similar warnings to Spain and Belgium last week, in addition to recent downgrades to Ireland and Hungary and weak bond auctions for Spain, Portugal, and Germany.
There have been widespread but unconfirmed rumors of a possible credit downgrade for France. After Germany, France has THE largest exposure to debt of Greece, Ireland, Portugal, and Spain. As with most other PIIGS creditors, France’s exposure to Spain is larger than that of all the other 3 combined.
Andrew Wilkenson notes here: “Already the rating implied by trading in the insurance market for French bondholders is seven notches below its actual rating and so just three notches above junk status.
See December 13 - 17 Best Of The Web For EU, US, China, Global Debt Crises for more on the EU Crisis.
Yen Daily Outlook: Down vs. all except up vs. the EUR, GBP and CAD on a combination of rising risk appetite and softer recent economic data including falling y/y department store sales. No pro-JPY news is expected from tomorrow’s BoJ rate statement.
British Pound Daily Outlook: Up vs. the CAD and EUR, down vs. the USD,CHF, JPY, AUD, NZD. The Pound is getting some support after the CBI trade group announced that it believed the BoE would begin incrementally raising rates in mid 2011 from the current 0.5% to an ultimate target of 2.75% as stubbornly high inflation would force the BoE to act despite the negative effects an increase would have on growth.
Australian Dollar Daily Outlook: Up vs. all except down vs. the CHF, USD,NZD over the past 24 hours, benefitting from the general rally in risk assets this week as a lack of market moving news is allowing for a continued drift higher in keeping with the uptrend in risk assets over the past months.
New Zealand Dollar Daily Outlook: Up vs. all except down vs. the USD, CHF. Like the AUD benefitting from the overall risk rally, but unlike the AUD the NZD has had no dovish remarks from its central bank, allowing the kiwi to do a bit better.
Canadian Dollar Daily Outlook: Down vs./ all over the past day. We find this surprising. While lower than expected wholesale prices lower expectations for rate increases and rising oil prices appear to have been priced in already, oil has moved well recently and it’s been a risk on day that should benefit the CAD.
Swiss Franc Daily Outlook: Up vs. all over the past 24 hours despite the overall risk-on theme, suggesting there is more fear in the forex than in other asset markets, as the CHF remains the safe haven currency with the best underlying fundamentals in the face of a worsening EU crisis.
The CHF has again soared to fresh record highs vs. the Euro
DISCLOSURE & DISCLAIMER: AUTHOR SHORT EUR FOR PERSONAL PORTFOLIO, 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