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Daily Outlook Cheat Sheet 12/14: Dubai Bailout Lifts Markets, Pressuring USD ?



Stocks: Prior Day: Asia, Europe, US up, on + US consumer spending, confidence, business inventories, Monday: Asia up Europe up. DUBAI BAILOUT SUGGESTS BIAS TO RISK ASSETS BOUNCING OFF LONG TERM SUPPORT
-           FX: Higher equities, bias against safety currencies [JPY, USD, CHF in order of safety appeal] vs. risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk appetite appeal], except for the USD, continues up vs. all majors Friday
-           Main events: FRIDAY:CNY Industr. Prod.+, Trade Bal -, GBP:PPI Input m/m -, USD: Core Retail Sales, Retail Sales ++, m/m, Prelim UoM Consumer Sentiment+, Business Inventories, MONDAY: ALL: Dubai Bond payment deadline+, JPY: Tankan Mfg, Non-Mfg Index+, GBP Rightmove HPI m/m, CHF PPI m/m, EUR Industrial Prod. m/m, TUES: AUD Monetary Policy Meeting Minutes, GBP CPI y/y EUR: German ZEW Econ. Sentiment, EZ ZEW Econ. Sentiment USD PPi m/m, Empire State Mfg Index, TIC Long Term Purchases
-     Big Theme: New Sovereign Debt Concerns from Dubai & PIGS Continue But Risk Asset Pullback is reversing, USD Rally continued Friday TRADERS SHOULD HAVE TRADING PLANS READY FOR MOVES IN EITHER DIRECTION, NUMEROUS GOOD REASONS TO TRADE SEE RECOMMENDED TRADES BELOW
US: Dubai Saved from Default for Now Early Monday GMT Abu Dhabi lends Dubai $10B. It will use $4.1B to repay Nakheel's Islamic bond maturing today, and the rest to finance Dubai World's obligations through the end of April. This was a huge looming threat over markets and could well boost risk asset markets.       What volatility there was came mostly on a big drop at the open Tuesday and a higher open on Thursday. And with one big down move followed by one big up move, U.S. equity markets ended the week flat. S&P 500 0% , NASDAQ -0.2%, DJIA +0.8%, RUSSEL 2000 -0.4%. That makes four consecutive weeks now that the market has basically moved sideways, trading in a consolidation pattern. Great US consumer confidence and spending data confirmed last Friday's jobs data, sending both stocks and the US higher (because this news boosted expectations for both stocks AND USD interest rates)
Asia: SINGAPORE (Reuters) - Asian stocks rebounded on Monday after Dubai said it had received $10 billion from Abu Dhabi to repay debt, which pushed down the yen but boosted the euro and emerging Asian currencies as risk appetite improved.
Europe:  Dubai bailout expected to lift European shares Monday, which had closed higher Friday for a second straight day boosted by mining shares and US data that showed excellent improvement in consumer spending and sentiment, confirming the equally blow-away jobs numbers from the prior week. Monday: Awaiting word on whether Dubai World is able to make payments due $ 3.52 Billion in bonds by state-owned (but not backed) developer Nahkeel
N225I +2.48%
HS +0.93%
SSEC -0.21%
FTSTI +0.37%
AORD +0.62 %
FTSE +0.38%
DAX +0.83%
CAC +1.23%
S&P +0.37%
DJIA +0.63
NASDAQ -0.03%
N225I -0.02%
HS +1.26%
SSEC +1.60%
FTSTI +0.37%
AORD +0.36 %
FTSE +0.99%
DAX +0.91%
CAC +0.98%
Oil:  Oil fell around $1 to below $69 a barrel on Monday, extending declines into a ninth day on continued worries over high inventories and a stronger dollar. Recovering to $69.60 as Asia trade closes, may move higher on Dubai bailout euphoria.
Gold:    Monday:Moving higher to around $1126 with other risk assets on Dubai bailout news. Gold for February recovered last Friday as USD pared gains. Settling at 1119.9, the benchmark contract reduced the weekly decline to -4.2%. Price above 1000 looks to be a good bargain to accumulate gold.
CURRENCIES: Friday USD higher with other risk assets vs all majors after strong US data, EZ & Dubai debt fears. Early Monday Dubai bailout likely to boost risk currencies, GBP, pressure safe-havens. SEE WEEKLY OUTLOOK FOR DETAILED ANALYSIS AND FORECAST ON ALL BELOW CURRENCIES
USD: Giving up some gains to the EUR, JPY, gaining against GBP, flat against AUD, NZD, CAD early Monday. Up Friday against all majors as blow-away data on consumer confidence and spending confirmed the equally impressive job figures from December 4th and provided strong reasons to upgrade US interest rate increase expectations and belief in US recovery.
EUR: Down vs. the safe havens USD, JPY, CHF, up vs GBP, AUD in early Monday. Friday, early Monday as great US data and EUR debt worries keep the EURUSD moving down.
JPY: Gaining against most majors in early Monday trade despite Dubai news. Friday: Dropped back against all higher risk FX including the USD Friday (?), facing double dip recession. Potential for double dip recession, Yen oversupply to pressure the JPY
GBP: Down vs. the USD, up vs EUR early Monday. Down vs. the USD Friday. Surprisingly weak Monday considering UK banks are the major beneficiary of the Dubai bailout.
AUD: Down or flat against most majors in early Friday trade
NZD: Down or flat against most majors in early Friday trade
CAD: Up Friday vs USD on risk appetite improvement in stocks despite continued oil drop, helped by positive data. In tight range for past weeks
CHF: Gaining vs the EUR, USD early Monday still in multi-week downtrend against the EUR, as SNB intervention has the intended effect.
CONCLUSIONS: S&P 500, back near 12 mo highs of 1112 after great consumer data Friday, and has also regained the middle of its rising channel, suggesting more upside coming for risk assets if it can hold above 1100. It's been in a horizontal trading range of 1090-1112 since early Nov. later Liquidity and low rates support stocks and other risk assets as cash seeks a parking spot, but questions on valuations and still poor fundamentals weigh against stocks, and have many believing the rally is in trouble and that a bearish double or triple top is forming. Dubai again reminds markets of real risk of sovereign debt default from Greece and others. However, recent good jobs and spending figures in the US, along with continued China growth, suggests valuations may not be so overdone, upping the chance that the S&P may be able to avoid a major pullback for now. See Trading Opportunities section below. Traders should consider going with the current trend but be ready for pullbacks. See below for specific opportunities with the S&P 500, CRUDE, GOLD, EURUSD, NZDUSD, and AUDUSD, & GBPUSD.
Trading Opportunities: Near term has reversed sentiment back towards risk assets, though as yet this remains more of a stabilizing than robust move back upwards. Always use sell stop orders. See recommended trades below
Specific Trades: Unchanged since prior report Thursday. Next move likely on US retail figures at 1:30 GMT. Flight to safety has stopped for now, slight reversal back to risk assets, thus a good time for traders awaiting resumption of long positions in risk assets and higher yielding currencies to consider opening positions. Note however, that sovereign debt remains very much a concern, with Dubai in possible default as of Dec. 14th
S&P 500 & Risk Assets In General: Per the S&P 500, likely continuing higher for now as we get Dubai bailout and confirmation of improving US recovery. Implication: consider taking new positions in risk assets as detailed below.
The overall bullish picture of risk assets as per the S&P 500: The S&P 500 back near 12 mo highs of 1112 after great consumer data Friday, and has also regained the middle of its rising channel, suggesting more upside coming for risk assets if it can hold above 1100. It's been in a horizontal trading range of 1090-1112 since early November. We need to see if it can make a sustained break above 1100, Dubai bailout news, along with good jobs and spending data may do the trick. Liquidity and low rates support stocks and other risk assets as cash seeks a parking spot, but questions on valuations and still poor fundamentals weigh against stocks, and have many believing the rally is in trouble and that a bearish double or triple top is forming. Dubai again reminds markets of real risk of sovereign debt default from Greece and others. However, recent good jobs and spending figures in the US, along with continued China growth, suggests valuations may not be so overdone, upping the chance that the S&P may be able to avoid a major pullback for now.
Because the S&P 500 is so representative of overall risk sentiment, and thus the "One Chart to Rule Them All", this indecisive picture suggest traders should make long or short moves when the S&P hits support levels at around the1091 (23.6% Fib retracement +20 day MA + some price support from mid-October + rising trend line) and at 1080 (38.2% Fib retracement + rising channel line + lower Bollinger Band + 50 day MA) or a decisive break over 1100. Given the fear reflected in the S&P, traders should be very cautious opening long positions in ANY risk assets at this time, and employ tight trailing stops or monitor positions closely on existing open long risk asset positions. They should also have some short positions planned, complete with initial and confirming indicators, and planned entry/ exit points.
S&P 500 Daily Chart as of Dec 1 08:47 GMT (01 Dec 14) AVAFX CHART
GOLD: Dropped Friday as USD strength overrode the positive impact of growing risk appetite and inflation risk, suggesting gold still has more anti dollar speculation. Many believe it will find support around $1000, barring a major panic event or positive surprise. Recovering its rising trend line in early Monday trade.
Trade Suggestion: It may be a good time to go long given that it is at very strong support in the near term around $1125, at which level there is support from the lower Bollinger Band, rising trend line, and 50% Fibonacci retracement
At this point, gold is moving opposite the dollar, so watch the EURUSD and S&P 500 for indications of gold's near term moves. Also watch the S&P 500 and other major stock indexes to see if risk appetite gets a lift from the Dubai bailout. If so, that suggests upward movement for gold.
Gold Daily Chart (03 Dec 14) AVAFX CHART
Gold's meteoric rise meant it had no time to build up any nearby support levels, which made it ripe for shorting should anything interfere with the forces pushing it up. Friday's NFP did that by suggesting a bottoming in the USD, and gold was very much an anti-USD play that many believed could be overbought in the near term despite its long term bullish potential. Predictably, the fall was hard and fast, allowing only alert traders to catch it thus far. 1150 (also the 38.2% Fibonacci retracement level) has proven to be some support 3 times in the past 2 weeks. Gold is stabilizing as of this writing around $1125. No real support besides the above Fibonacci retracements, (which thus far tend to provide at least some temporary pause in down moves) until about 1080, where both a Fib and upward trend line converge, though we suspect the $1000 level (also has a 61.8% Fib retracement level) should provide some support.
Gold is likely to move this week opposite the USD. If the USD moves higher, gold could test the above support levels, though we repeat the below argument that gold's rally has long term legs. The trick will be to identify the next good entry point.
The Long Term Bullish Gold Argument: Makes sense as long as the USD Doesn't Make a Sustained Move Higher.
As noted in our Global Markets Outlook 11/23-11/27, the belief that there are large buyers like central banks seeking to buy gold may have caused a new fundamental upward shift in price based on this perceived demand. While gold was not immune from the Dubai induced panic late last week, it has recovered those losses already, and is close to recovering its steep upward trend line. This relative strength suggest that if markets truly calm down, gold could resume its climb, even if global equity markets remain pressured by the weight of the extended rally, valuation concerns, and year-end tax selling.
There's a growing belief in a new fundamental factor -- that underlying demand for gold has increased due to central bank buying. After the Reserve Bank of India, the Bank of Mauritius bought 2 metric tons of gold from the IMF at market price on November 11. Compared with India's 200 metric tons, Mauritius' purchase was insignificant. However, same as the deal with India, the implications radiate far beyond the size of the deal itself.
Earlier this year, the IMF announced its plan to sell a total of 403.3 metric tons of gold to bolster its finances. The news weighed on market sentiment as investors worried about at how much and to whom the gold would be sold. Now, more than half of the planned amount has been sold to official sectors at market prices, sentiment appears to have shifted from concern over overhanging supply to disappearing supply as large exporter central banks and sovereign wealth funds seek to convert depreciating dollar holdings into gold. Right or wrong, that is the sentiment at this time, and it's been strong enough to send gold soaring while crude and stocks have been stalling out. Impressive relative strength that has won many believers and convinced markets that any pullback will not be pronounced or long.
•           In April, China, the biggest gold producer in the world, increased reserves by +76% to 154 metric tons since 2003. The market anticipates China will be another big buyer of IMF's gold.
•           Since the beginning of 2009, gold price has rallied almost +30%. Also, after breaching 2008-high at 1033.9, the yellow metal's rise has accelerated, jumping more than 100 dollars in a month. The long-term uptrend is not likely to end soon.
•           Apart from government buying, new private gold funds should give a further boost to robust investment demands. John Paulson announced his plan to launch a new gold fund next year with as much as $250M of his money. Large gold ETFs or funds usually have holdings that are comparable to central banks. For instance, SPDR Gold Shares, the world's largest gold ETF, is the world's 5th largest bullion owner just below France and above China.
In short, it's not just increasing gold demand, but demand from big buyers.
In coming weeks, gold price should continue to be very much directed by USD's movement. However, the inverse relationship between gold and the dollar should not be taken for granted. For instance, in the 90s, the yellow metal's supply was so abundant that its price plummeted. In 2005, gold price surged due to tightness in the market. Therefore, some analysts hold that gold price may continue to rise given the reduction in gold production and increase in central bank demand, despite a possible rebound in USD early next year. Famed NYU Economics Professor Nuriel Roubini, credited for calling the current crisis years ago, believes the run in gold is an unsustainable bubble, while famed commodity trader Jim Rodgers holds gold is going much higher. As long as the central bank/sovereign wealth/momentum story holds up, Rogers looks correct.
Crude Oil: As another anti-dollar play continued crashing through supports despite the Wednesday-early Thursday respite in the USD rally and risk asset decline, thus dropped further on the good US spending data and USD strengthening. Crashed $74-$72 support, not seen since mid-October, and which had the additional support of the rising trend line since July. As of early Thursday is just below  $71, next likely support around the 76.4% Fib retracement at just below $70. Attempting to stabilize near $70 around there in early Monday trade.
NB: Crude has been among the weaker risk assets over the past month despite the USD's weakness. A crude peaked week before stocks did, and has been behaving relatively weaker than stocks. For example, yesterday's action showed that stocks were still able to retain some of their gains when momentum reversed, but crude could not, and closed lower. Not surprising, since crude tends to exaggerate the S&P 500's trends for better and for worse. Range bound for the near term, will likely follow stocks higher to its upper range near $82 if stocks can rally, but poor fundamentals and an extended rally for both oil and the S&P 500 that it tracks suggest more downside risk at this time. USD strength has clearly exacerbated this trend, as has the stalling out of the S&P 500 and other risk assets at current resistance levels.
Certainly seems unwise to consider new longs until oil stabilizes, likely around the $73-$60 range, if not lower. An additional outcome of the Dubai crisis may be increased production as the UAE may need to produce more oil in order if it decides to fund a bailout or related assistance to stabilize the Dubai situation.  Watch the S&P 500 to lead oil.
Watch the EUR/USD chart for USD movements, and the S&P 500 chart for overall risk sentiment.
WTI Crude Oil Daily Chart (04 Dec 14) AVAFX CHART
EURUSD: As the prime counterpart of the USD, is crashing through support levels as recent EZ debt downgrades now add to sovereign debt worries and weaken the EUR, while USD fundamentals are steadily improving with great jobs reports, and now blow away spending data this past Friday. Dubai bailout news early Monday should ease debt fears, support risk appetite, and thus possibly cool the USD rally to the EUR's benefit . As of early Monday the 76.4% Fib retracement level is still holding, though it buckled Friday, Dubai appears to be helping risk appetite in general. Watch the S&P for overall risk appetite, and the EURUSD for a quick gauge of the USD to judge if oil is ready to stabilize.
NZDUSD: As suggested recently, strong support around 0.7100, made a good entry point for those playing the long side, with the halt in the USD rally.
Trade suggestions: The NZD held up very well against the USD's rally Friday, suggesting it might move higher more easily than others if the Dubai bailout sparks a rally in risk currencies. .As of early Monday, it is continuing to consolidate,
Watch the S&P 500 and EURUSD to gauge risk appetite and USD strength. Much will depend on how markets react to the Dubai bailout.
NZDUSD Daily Chart (06 Dec 14)
Upper line of the declining channel resistance broke Wednesday as part of the USD rally and drop in oil and stocks, despite good economic news from Canada.
Trading Idea: Friday's great consumer spending data confirmed the fundamental recovery starting in the US and boosted the USD, to the continuing detriment of oil prices, which are a key driver of the CAD. Still plenty of room to play the long side if the USD rally continues. Watch the S&P for overall risk appetite (more generally bad for the USD unless the news also supports US job and spending growth and thus interest rate increases) and the EUR/USD for overall dollar strength
As we've noted before, the CAD is perhaps the most vulnerable of the commodity dollars to a USD rise because it lacks the yield appeal of the NZD and AUD.
07 Dec. 14
10 Reasons the Equity Rally Is Over
 The Destruction of the Dollar: It's Nearly Inevitable
Currencies on the Move