The 3 Key Market Drivers Week of January 17-21, Bullish vs. Bearish Forces, & Trading Ramifications
For full details of these see: Key Market Drivers January 17-21, Trading Ramifications, EU Spring Meltdown?
It’s at our new site: www.globalmarketsguide.com
Here’s a summary.LAST WEEK JANUARY 10-14BULLISH EASING OF SHORT TERM EU ANXIETY OVERRIDES BEARISH CHINA TIGHTENING NEWS
Concern that spiking PIIGS bond rates threatened failed bond auctions for Portugal and Spain was clearly THE dominant market driver this week for all asset classes, so much so that the relatively successful Portuguese and Spanish bond auctions, despite known ECB purchasing to support the bond sales, was enough to overcome continued threats of slowdown in China, the world’s primary growth engine, from further tightening moves and more coming.
The calming came from:
- Relatively successful Portuguese and Spanish bond sales, even though markets knew the ECB was buying much of the debt
- Reports that EU officials are in serious discussions to create practical long term solutions that could even ease concerns about Spain
- ECB Head Trichet’s hawkish comments suggesting short term rate increases are possible in the coming year despite the widespread economic weakness outside of Germany and France.
- Japan pledges to buy 20% of bonds needed to finance and Ireland rescue
The overall higher close for risk assets like the S&P 500, our favorite risk barometer, was aided by stellar earnings reports from tech sector leader Intel (NASDAQ:INTC), financial sector bellwether JPMorgan-Chase (NYSE:JPM), and promises by Japan and China to help support the EU’s PIIGS bond purchases. The ECB’s Trichet’s mention of inflation concerns, which in turn heightened the chance for ECB rate increases, provided some temporary movement but on reflection few take such comments seriously, as most of the EU would not view rising rates favorably given the widespread weakness outside of Germany and France.
Still, currencies follow interest rate differentials, so even this semi-serious additional hawkishness helped the EUR rise vs. the USD.NEXT WEEK JANUARY 17-21 SAME DRIVERS LIKELY TO DOMINATEEU CRISIS NEWS AND SENTIMENT REMAINS THE KEY MARKET DRIVER
While US earnings and Chinese data have the potential to move markets if/when the EU is quiet, it’s still the EU sovereign debt and banking crisis (the EU banks hold the sovereign debt) that has the most potential to crash markets and thus the most potential to move them up or down depending on whether the crisis appears to be easing or worsening.
ECOFIN MEETING POTENTIALLY CRUCIAL-THOUGH HISTORY SUGGESTS OTHERWISE
The regular monthly meeting of EU finance ministers Tuesday January 18th has the most potential to be the primary fundamental catalyst to send the EUR higher or lower, depending on whether markets see progress or just the usual lost opportunity to do so. Comments from German Fin. Min. Schaeuble on Friday restating Germany’s opposition to so-called Euro-bonds, the most practical long-term resolution to the debt crisis, suggest a higher likelihood for disappointment, so we continue to await a break higher for the EURUSD into the 1.3600 zone +/- 50 pips as an opportunity to establish new shorts for an expected medium-term decline back to at least recent lows.
However through the entire EU crisis, these meetings have usually not produced market moving news.
THE GERMAN ZEW REPORT TUESDAY, CPI THURSDAY, AND IFO FRIDAY
These might have impact if they prove disappointing, for Germany is expected to be the bright spot in the EU, so the potential lies in the power to disappoint.
As discussed below, bearish factors outweigh bullish ones for the EU and EUR in the medium term. There are simply too many potential trouble spots in the coming months.US Q4 EARNINGS AND CHINA DATAScheduled Calendar Events Besides EarningsBig Themes By Region/Country
US: Q4 Earnings season enters its second week, the traditional peak of its market moving influence as this usually sets the positive or negative tone.
Asia: China’s growth vs. inflation data. The official numbers could easily drive markets if the EU is quiet and they surprise, or simply reinforce the bullish or bearish theme from US earnings. Note, however that official inflation and growth data are highly suspect, as noted in Key Market Drivers January 17-21, Trading Ramifications, EU Spring Meltdown?
EU: Ecofin meeting may have some impact though it usually doesn’t. Continue to monitor PIIGS bond rates and new auctionsHighlights By Region/Country In Chronological Order
It’s not a potent calendar, but here’s what there is. Highlights in boldface
Monday – Markets closed for Martin Luther King Holiday
Tuesday – Jan. Empire Manufacturing, Nov. Total Net TIC Flows, Jan. NAHB Housing Market Index, Weekly ABC Consumer Confidence
Wednesday – Dec. Housing Starts & Building Permits
Thursday – Weekly Initial Jobless & Continuing Claims, Dec. Existing Home Sales, Dec. Leading Indicators, Jan. Philadelphia Fed, Weekly DOE U.S. Crude Oil Inventories
Monday – EU Finance Ministers Meet in Brussels
Tuesday – EU-27 Finance Ministers Meet in Brussels, German Jan. ZEW Survey, EU Jan. ZEW Survey
Wednesday – Nov. Euro-Zone Current Account, EU Nov. Construction Output
Thursday – German Producer Prices, Jan. Euro-Zone Consumer Confidence
Friday – French Jan. Own-Company Production Outlook, French Jan. Business Confidence Indicator, German Jan. IFO
Monday – Jan. Rightmove House Prices
Tuesday – Dec. Nationwide Consumer Confidence, Dec. RICS House Price Balance, Nov. DCLG UK House Prices, Dec. CPI, Dec. Retail Price Index
Wednesday – Dec. Claimant Count Rate & Jobless Claims Change
Thursday – Jan. CBI Business Optimism, Jan. CBI Trends Total Orders
Friday – Dec. Retail Sales
Monday – Dec. Consumer Confidence
Tuesday – Nov. Industrial Production, Nov. Capacity Utilization, Dec. Nationwide Dept. Sales, Dec. Tokyo Dept. Store Sales, Dec. Machine Tool Orders
Wednesday – Nov. Tertiary Industry Index
Thursday – Nov. Coincident & Leading Index
Friday – Nov. All Industry Activity Index, Cabinet Office Monthly Economic Report
Monday – Nov. Int’l Securities Transactions
Tuesday – BoC Interest Rate Announcement
Wednesday – Nov. Manufacturing Sales, BoC Publishes Monetary Policy Report
Thursday – Dec. Leading Indicators, Nov. Wholesale Sales
Friday – Nov. Retail Sales
Australia & New Zealand
Monday – NZ Dec. REINZ Housing Price Index & Sales, NZ Dec. Food Prices, AU Dec. TD Securities Inflation
Wednesday – AU Jan. Westpac Consumer Confidence, AU Jan. DEWR Skilled Vacancies
Thursday – NZ Dec. Business PMI, NZ 4Q Consumer Prices, AU Jan. Consumer Inflation Expectation, NZ Jan. ANZ Consumer Confidence Index
Friday – NZ Nov. Retail Sales, AU 4Q Import/Export price index
Tuesday – Dec. Actual FDI
Thursday – 4Q Real GDP, Dec. CPI, PPI, Industrial Production & Retail Sales, Dec. Fixed Assets Inv.
Friday – President Hu Jintao’s State Visit to United States
For a full listing of calendar events, their relative importance, previous and forecasted results, see www.forexfactory.com >> calendar tab.
DISCLOSURE & DISCLAIMER: AUTHOR SHORT THE 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