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GLOBAL Stocks Bonds Commodities Forex Wrap Midday GMT December 28: Markets Down On Chinese Xmas Present

Overview: With a dormant economic calendar, snowstorms throughout much of Europe and the US, and a many traders away on a holiday shortened week, trade remains mostly quiet, and range-bound with 2 glaring exceptions: Asian stocks still reeling from the bearish implications of the Saturday China rate hike, which portends more Chinese tightening until inflation and growth cool. China had avoided rate hikes but this latest one appears to telegraph that harder monetary tightening and slower growth will be needed to prevent inflation. Cotton also continues to plunge.
STOCKS: US: Mixed/Flat - Major US indices close just above or below their starting point on very low volume as snow and holidays kept traders away. Considering that Shanghai fell 1.9% and the major European indices had lost over 1% in reaction to the Saturday China rate hike, the US indices showed resilience.
The increase was seen as both a negative for growth and sign that there are more tightening measures to come as China had tried to avoid rate hikes but now appears concerned that stronger measures are needed to combat inflation.
With such quiet trade, it’s time to look ahead to 2011. See our special report: Summary 2011 Outlook And Selections For Prosperity And Protection. For our outlook on the week see: Key Market Movers Dec 27 - 31: Will Low Liquidity, Stimulus, Render News Irrelevant Yet Again?
US Bonds: Down- 10 Year Treasury Notes rose on bearish reaction to the China rate hike, lowering the yield from over 3.4% to 3.3510% Monday. Prices continuing to rise thus far Tuesday though somewhat off their highs.
Asia Stock Outlook: Down –Most major Asian stock markets closed lower, particularly those of Japan, China, and India in continued reaction to the China rate hike as both a negative for growth and sign that there are more tightening measures to come. The move however may be exaggerated by the very low volume worldwide.
European Stock Outlook: Up/flat – With UK markets closed for the second straight day, snowstorms and a holiday shortened week, most indices fractionally higher on low volume, no news.
Commodities Outlook Monday To Midday GMT Tuesday: Commodities Overall Following Risk Appetite Flat Over The Past 24 Hours, But Multiday Up Trends All Intact.
Gold, silver: Up: Both moving higher for the second straight day, at the top of their 2 week trading ranges supported by Asian buying and a softening US Dollar.
Crude oil: Up – Futures holding steady after falling moderately Monday in the wake of the China rate hike, which was bearish for such risk assets, particularly those at multi-year highs and sensitive to China growth like crude.
Copper: Flat – holding yesterday’s gains
Grains & Softs: Mostly moderately higher, except for cotton which continues to move lower, down over 8% in the past 4 sessions after making an equally rapid climb in the prior 4 sessions.
FOREX Daily Outlook Monday To Midday GMT Tuesday: Oddly slight bias to risk fx despite the flat/lower moves in stocks and mixed picture in commodities. Strongest gainers over the past 24 hours: CHF, EUR, AUD (though the JPY is #3 strongest thus far Tuesday) Weakest: USD, GBP, JPY. Overall a drifting meaningless market drifting into holiday mode. Snow, quiet news allows traders to forget China tightening and EU troubles
US Dollar Daily Outlook: Down vs. all as quiet news days, especially regarding the EUR, allow the EUR to bounce, with concomitant USD weakness
Euro Daily Outlook: Up vs. the USD, GBP, JPY and commodity dollars, down vs. the CHF. Strong as quiet news days and focus on China rate hike take attention away from the EU, allow for a reaction rally after steady declines. All the problems remain, and we tend to see EUR rallies as selling opportunities, especially around the 1.3300 zone.
Yen Daily Outlook: Down vs. the CHF and EUR (though regaining yesterday’s losses vs. the EUR thus far today), and commodity dollars (but recovering against them thus far today), up vs. the USD, GBP
British Pound Daily Outlook: Up vs. the USD, down vs. all others for the 4th straight day.
Australian Dollar Daily Outlook: Down vs. the CHF and EUR up vs. all others. Helped by rising copper, not feeling negative effects of China rate hike at this time, though many believe Australia will suffer if China slows.
New Zealand Dollar Daily Outlook: Up vs. all except down vs. EUR, CHF, and AUD. Tracking the AUD, no other reason.
Canadian Dollar Daily Outlook: Up vs. the USD, JPY, GBP, down vs. the EUR, AUD NZD
Swiss Franc Daily Outlook: Up vs. all