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GLOBAL OUTLOOK 10/30 Full Version: Will GDP Surprise Spark New Rally?

NB: When analysis is missing here find it at http://worldmarketsguide.blogspot.com

SUMMARY –NB SEE WEEKLY OUTLOOK FOR MORE ON ALL OF THE BELOW INSTRUMENTS

-           Stocks: Thursday: Asia down, Europe, US up, Thursday morning Asia up, Europe down

-           FX:  Higher equities, bias  against safety currencies [JPY, USD, CHF in order of safety appeal] in favor of risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk appetite appeal], USD dropping against most majors

-           Main events today: GBP: Nationwide HPI m/m(-), JPY: BoJ Press Confr (+), CAD: GDP, USD: Personal spending, Chicago PMI earnings: Friday 10/30: Calpine (NYSE:CAL) , Chevron (NYSE:CVX), Dominion Res. (NYSE:D), Weyerhaeuser (NYSE:WY)

-     Big Theme: Will +GDP surprise change sentiment, or will the pullback resume? Quiet news Friday suggests range bound trading or mild profit taking into the weekend, especially in light of the busy news week ahead. A significant move in stocks in either direction could clarify whether risk appetite has returned.

STOCKS

US: A better-than-expected third quarter GDP reading helped the stock market snap back from its worst loss in weeks, but it wasn't enough to prevent stocks from heading into Friday with a week-to-date loss in excess of 1%.

 

Despite some wavering in the first few minutes of trade, stocks put together a steady ascent that took all 10 major sectors higher. The broad-based gains stemmed from news that third quarter GDP surged to an annualized growth rate of 3.5%. GDP was expected to increase 3.2% after contracting 0.7% in the second quarter.

 

The stronger-than-expected growth overshadowed news that initial jobless claims for the week ending Oct. 24 totaled 530,000, which is more than the 525,000 initial claims that were widely expected and still uncomfortably high.

 

Financial issues garnered the most support of the major sectors. The sector surged 4.3%, which is its best single-session percentage gain in three months. Life and health insurers (+7.6%) and multiline insurers (+6.7%) saw some of the strongest gains following a positive earnings surprise from Lincoln Financial (LNC 25.34, +3.09) and an upgrade of Genworth Financial (GNW 10.18, +1.49).

 

Materials stocks also fared well. The sector climbed 3.2% as broader market support and commodities and basic materials prices were propped up by a drooping U.S. dollar, which sank 0.6% against a basket of major foreign currencies in its first down session in one week.

 

Traders pushed oil prices up 3.1% to $79.89 per barrel, which helped the energy sector to a 2.4% gain. Exxon Mobil (XOM 73.96, +0.12) eked out a gain, but was generally a drag on the sector after it missed the consensus earnings estimate.

 

Fellow Dow component Procter & Gamble (PG 59.54, +2.31) posted a positive earnings surprise, as did its competitor Colgate-Palmolive (CL 78.94, +1.26). Though their results were strong, the consumer staples sector underperformed the broader market.

 

Telecom lagged for the entire session and even spent the first half trading with a loss as integrated telcos (-0.1%) offset strength in Motorola (MOT 8.74, +0.78), which posted better-than-expected third quarter earnings and issued an upside fourth quarter forecast.

 

With participants pushing many defensive-oriented issues aside in favor of riskier holdings, Treasuries also came under pressure. That took the benchmark 10-year Note down some 20 ticks, which lifted its yield back toward 3.5%. Treasuries caught additional attention as results from a $31 billion auction of 7-year Treasuries drew a slightly stronger-than-expected bid-to-cover ratio of 2.65.

 

Advancing Sectors: Financials (+4.3%), Materials (+3.2%), Consumer Discretionary (+2.7%), Energy (+2.4%), Industrials (+2.0%), Tech (+1.9%), Consumer Staples (+1.8%), Health Care (+1.0%), Utilities (+0.9%), Telecom (+0.6%)

Declining Sectors: (None)DJ30 +199.89 NASDAQ +37.94 NQ100 +1.7% R2K +2.5% SP400 +2.2% SP500 +23.48 NASDAQ Adv/Vol/Dec 1877/2.33 bln/788 NYSE Adv/Vol/Dec 2502/1.45 bln/546

 

Asia: stocks up 2 %, bounce back in early Friday trade following Wall Street's bounce on good Q3 GDP which appeared to reassure markets about the recovery's staying power, and take focus off of risk asset valuation doubts. South Korea's Samsung Electronics a bellwether for Asian technology companies and the world's top maker of memory chips and LCD screens, reported its best-ever quarterly profit and forecast a strong 2010. ICBC boost indexes  Traders said the slide in shares and higher-yielding currencies the previous day was caused in part by hedge funds pulling out funds from winning bets this year as many are closing their books for the year next month.

 

Europe: Oct. 28 (Bloomberg) -- European shares fell in early trade Friday after a strong rally Thursday on better than expected US GDP supported the global recovery story. It will be more difficult for markets to rally further now," said Bernard McAlinden, investment strategist at NCB Stockbrokers. "You're not going to get the same positive surprises in economic news. The U.S. GDP was good news on the day, but the markets will remain worried about stimulus withdrawal."

 

GLOBAL

MARKETS

 

 

 

 

 

ASIA- DOWN

N225I -1.83%

HS -2.28 %

SSEC -2.34%

FTSTI -0.59%

AORD -2.39 %

EUROPE UP

FTSE  -+1.13%

DAX +1.66%

CAC +1.23%

 

US- UP

S&P +2.25%

DJIA  +2.05%

NASDAQ +1.84%

 

 

THIS MORNING

 

 

 

 

ASIA UP

 

 

 

 

N225I +1.45%

HS +2.43 %

SSEC +1.20%

FTSTI +1.03%

AORD +1.57 %

EUROPE: DOWN

 

 

 

 

FTSE -0.02%

DAX -0.07%

CAC  -0.33%

 

 

                 

 

COMMODITIES: Gained Thursday as the GDP surprise fed risk appetite and drove down the USD. Small pullback in early Friday trade

 

Oil: Oil prices bounced up from below $78 and hovered above $80 a barrel Friday in Asia after the U.S. economy snapped four straight quarters of contraction, suggesting demand for crude will improve.

Gold:  In US trade Wednesday, Gold prices settled pit trade 0.5% lower at $1030.50 per ounce, below their 2008 high of $1033.90 per ounce. Although gold price has been in consolidation for 2 weeks, net speculation long positions remained close to all-time high level. It's likely for the correction to take place for some more time and gold may need to correct further to 1026 to remove the positioning risk.

CURRENCIES: Bias Thursday against safety currencies with rising stocks as US Q3 GDP news bolsters risk appetite, though that move is reversing across the risk asset spectrum in early Friday trade. Unclear if this is just pre-weekend profit taking or continuation of downtrend in risk assets. Thursday's risk fx rally is reversing mildly in early Friday trade.

 

USD: The dollar was steady early Friday after having lost ground the previous day on the 2% rise in US stocks and hefty gains in higher-yielding currencies. The dollar index, a gauge of its performance against a basket of six leading currencies, was flat at 75.884. The euro drifted up 0.1 percent to $1.4845 <EUR=>, while the dollar dipped 0.2 percent to 91.30 yen. The Fed's reaction to the data will be important catalysts for risk-seeking. We maintain our 1m EURUSD forecast at 1.45.

 

EUR- The euro drifted up 0.1 percent to $1.4845 in early Friday Asia trade. The ECB's Weber gave pro-exit strategy comments, but said his comments should not be taken as a signal for current ECB monetary policy. German unemployment for October came in better than expected at 8.1% with the unemployment change at -26k. Eurozone confidence measures all showed improvement.

 

JPY -  the dollar dipped 0.2 percent to 91.30 yen despite higher stocks, as Bullish BoJ statements about removing some stimulus, and improving Japanese unemployment figures helped fuel a mild rally against the USD. USD/JPY drifted below the 91.00 handle on the more hawkish tone of the BOJ policy statement, but for now appears to be range bound  between 90.00-92.00.

 

GBP  GBPUSD rallied sharply on rising risk sentiment in the wake of good Q3 US GDP results. Data releases were a mixed bag as mortgage approvals (56.2k) and M4 headline (revised up to +0.8%m/m) had solid outturns. However, the BoE's recent favorite measure of money, M4 excl intermediate OFC, came in at a weak -0.9% m/m. But from a policy perspective, the data is consistent with our economist's long held view that the MPC will expand the size of the QE programme by at least another 25 billion at its November meeting next week. We remain negative on sterling ahead of the BoE meeting on November 5.  

 

AUD: Aussie slips on profit-taking after sharp rebound. Still holding near its 14 month high against the USD at around $0.9150

 

NZD: rallied Thursday along with other risk currencies after the US GDP result, pulling back again Friday morning.

 

CAD: retraced Wednesday losses against the USD Thursday following the US Q3 GDP-fed rise in risk appetite. Retreating early Friday.

 

CHF: rallied against the USD Thursday ,slightly reversing the move in early Friday trading.

NOK: Norges Bank (CB of Norway) becomes first EZ central bank to raise interest rates, doing so by 25 basis points in line w/ expectations. Norges Bank expects to raise rates to around 2.75% by the end of 2010, though others expect they could go as high as 4%.

 

CONCLUSIONS: New Trading Ideas: If stocks stay steady or resume their decline, then continue to watch for USD rallies against the EUR and commodity currencies, also the GBP/USD for more pullbacks on a sustained break below 1.6300.

 

We do not recommend taking further positions until we see how the market digests US GDP. Risk assets rallied Thursday but are reversing somewhat in early Friday trade. Unclear if this is simple profit taking or continuation of the recent downtrend in risk assets on continued concerns about valuations and the coming NFP report next week. Quiet news day Friday suggests quiet range bound trading or profit taking. Prior recommendations go back into effect if Friday trade shows continuation of the downtrend. If the rally continues in a decisive manner despite the quiet news day and ever present temptation to book profits on Friday, then the rally may yet continue into next week. Otherwise, we stand aside and await clarification.

 

 

Longer Term, Trading Opportunities:  Longer term trends favors higher yielding and commodity currencies, but that could change fast if equities pull back, no trend continues forever. Thus:                1. be prepared to play a pullback in risk assets and get ready to sell stock indexes, commodities, and risk currencies, buying USD, JPY. 2. Trade the near term horizontal trading ranges that should hold until major news causes a change in risk appetite. 3. Those continuing to take long positions in risk assets should consider tight sell stops, though gold and crude may be approaching new breakouts.   Crude oil may be beginning pullback Always use sell stop orders.

 

 

 

 

 

 

OTHER HEADLINES

 

 Yankees tie World Series, Lifting Wall Street Sentiment

 

(Bloomberg)

Bank of Japan to End Corporate Debt Purchases as Recovery Gains Traction

 

Asian Stocks Rise as Earnings, Japan Jobless Data, Stoke Growth Optimism

New York Eclipses London as Best Financial Center in Global Bloomberg Poll

Oil Poised for Biggest Monthly Gain Since May on Optimism Over U.S. Demand

Alcatel-Lucent Third-Quarter Loss Widens More Than Estimates on Sales Drop

 

(Seekingalpha.com)

 

 

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DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS POSITIONS IN ABOVE INSTRUMENTS.