Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Week Ahead May 10th – 14th Stocks, Commodities, Forex: Market Crash Quick View



 
Summary
 
See Coming Week Market Drivers May 2nd-7th: EU Crashes Markets and Ramifications for full details on causes for the crash and their meaning for the coming week
Key Market Movers This Week
 
  1. Fear Trumps All Else -EU Debt Crisis & Contagion Fear Related Credit Market Developments
 
  1. China Cooling
 
  1. UK Political Situation Clarifying
 
  1. Key Economic Calendar Events:
 
The Big Trend Depends On The EU Steps To Restart Interbank Lending
 
Barring major EU steps to ease liquidity and concerns about risks to European banks from a lack of interbank lending (on uncertainty about which banks are overexposed to a Greek or other PIIGS block bond default), more downside is ahead.
At best markets might manage to stabilize in the near term. If not, we expect more downside this week, and in any case see March 2009 lows as a likely target in the coming months until credit markets show signs of stability.
That means USD, JPY denominated AAA bonds and cash remain the safest near term bets.
If the EU does manage serious new QE steps to prevent bank failures in the wake of possible PIIGS bonds defaults, markets would bounce. So should the Euro, despite the new money printing, as a devalued Euro is still better than an extinct Euro.
Introduction
 
What a difference a week makes.
At the open Monday, most equity and other risk asset markets remained close to 52 week highs, despite serious fundamental and technical red flags.  See Coming Week Market Drivers May 2nd-7th: EU Crashes Markets and Ramifications for details on these.
As of this Friday’s close, despite the best monthly US jobs report in years (lesser reports last year were able to send markets rallying):
  • Most risk assets have suffered their steepest losses in well over a year, and are now testing the normally very strong support of their 200 day moving averages.
  • Daily and weekly charts of most major equities indices, oil, and risk currencies (vs. the USD and JPY) show the same amazing story:
    • Friday closing prices violating uptrend lines stretching back to March 2009.
    • The worst weekly losses since March 2009
 
Stocks
 
The bellwether S&P 500 index finished the week down 8.7%, its worst loss in well over a year, reminiscent of the last market collapses in the late 2008 and early 2009. Overall stocks were down about 6% on the week.
See Coming Week Market Drivers May 2nd-7th: EU Crashes Markets and Ramifications for full details on causes and their meaning for what to watch this week.
Commodities
 
Down hard this week along with other risk assets. The big exception was gold, up 2.54% to $1210/oz, nearing its $1227 high, reflecting its safe-haven status when there is concern about the value of fiat currency. That tends to occur when markets are either optimistic about growth (suggests inflation) or very pessimistic (fearing financial collapse and/or money printing – also bad for financial assets).
Forex
 
Note: Given the current EU debt crisis inspired market panic’s drowning out of all news, key events omitted for each forex pair, as most events irrelevant while deep fear dominates markets (likely this week)
US Dollar Weekly Outlook: Rising on Both Safe-Haven and Fundamental Appeal
 
US Dollar Bias: Bullish
- Market panic feeds demand for non-European safe haven assets like the USD, and that fear overwhelms all other concerns
- Best monthly jobs reports in years raise expectations for US rate increases, especially as ECB, BoJ, BoE remain relatively more dovish
-  Retail Sales this coming Friday could confirm superior US fundamentals relative to most other currencies
-  Extreme longs in USD make it vulnerable to pullback, but overall trend higher likely until EU debt crisis eases
Euro Weekly Outlook: Survival In Doubt Barring Major EU Policy Reversal, More QE
 
Euro Bias: Bearish
- EU debt crisis begins to exert its long anticipated potential to crash global markets on fears of global sovereign default and banking failure contagion
- The EU failure to deal with threat of member defaults and credit market seizure puts its future in doubt
- EURUSD so oversold near term prone to reaction bounce on any positive news, but any news short of major EU QE and/or  steps to liquefy banking system at best to bring temporary bounce.
- Paradoxically, major QE and money printing could boost EUR, as a devalued Euro better than extinct Euro
Japanese Yen Weekly Outlook: Strength As Safe Haven Could Renew Speculation For BoJ Intervention
 
Japanese Yen Bias: Bullish as long as risk aversion reigns, bearish if markets calm
- Dollar and Yen rally as markets flee to safe haven fx that is not as linked to the EUR as the CHF
- Yen safe haven status generates demand despite BoJ dovishness,
- Japan’s highest debt to GDP not a near term concern as long as domestic demand stays strong, but longer term declining domestic savings rates as population ages make Japan a future debt disaster like Greece
British Pound Weekly Outlook: Moving With Markets, But Bounce Likely When Political Picture Clarifies
 
British Pound Bias: Neutral – likely to bounce as leadership situation clarifies, or stagnate/drop if it doesn’t
- Producer prices rise to annualized rate to 5.7%
- Mortgage Approvals Improved from 46.9K to 48.9K
- U.K. manufacturing rise to the highest level since 1994
- While panic rules, Pound likely to advance vs. riskier fx and CHF, fall vs. safer fx
Swiss Franc Weekly Outlook: Advances on Euro as SNB Avoids Fighting Panic For Now, But Likely To Intervene, Keep CHF close to EUR
 
Swiss Franc Bias: Bearish once markets calm, bullish while panic forces SNB to suspend intervention policy
- SNB generally avoids intervening when markets in panic, but traders can expect it to intervene later
- Eventual SNB intervention threat to cap CHF safe-haven gains vs. the USD and JPY
Canadian Dollar Weekly Outlook:  Moving With Oil, Stocks
 
Canadian Dollar Bias: Bearish while panic remains, due for bounce when it eases
- Canadian Dollar’s strong fundamentals outweighed as it is hurt by risk aversion
- CFTC Commitment of Traders data show CAD bullishness still strong, short term bearish for the CAD if those start to unwind in prolonged risk aversion period
- Pressed by its connection to plunging oil, stocks, also China slowdown in commodity demand
Australian Dollar Weekly Outlook: Dropping on Risk Aversion, Exhausted Rate Increase Potential
 
Australian Dollar Bias: Bearish
- RBA turns neutral after 6th rate increase to 4.5%
- Quarterly Monetary Policy statement from RBA warns Greek crisis could cut global growth
- AUDUSD plunges sharply with broad US dollar rally, but could get short term bounce on risk-positive news
-  Index swaps price in bigger rate increases for the NZD, CAD, and USD as AUD increases done for now
-  AUD one of most vulnerable currencies to China slowdown
New Zealand Dollar Weekly Outlook: Risk Aversion Vs. Rate Increase Expectations
 
Fundamental Forecast for New Zealand Dollar: Neutral- expected rate increases soften blow of risk aversion
 - New Zealand unemployment rate drops to 6.0% from 7.1%, the largest decline recorded
- Average hourly earnings up 0.3% in Q1
DISCLOSURE: No Positions 
Summary
 
See Coming Week Market Drivers May 2nd-7th: EU Crashes Markets and Ramifications for full details on causes for the crash and their meaning for the coming week
 
 
Key Market Movers This Week
 
  1. Fear Trumps All Else -EU Debt Crisis & Contagion Fear Related Credit Market Developments
 
  1. China Cooling
 
  1. UK Political Situation Clarifying
 
  1. Key Economic Calendar Events:
 
The Big Trend Depends On The EU Steps To Restart Interbank Lending
 
Barring major EU steps to ease liquidity and concerns about risks to European banks from a lack of interbank lending (on uncertainty about which banks are overexposed to a Greek or other PIIGS block bond default), more downside is ahead.
 
At best markets might manage to stabilize in the near term. If not, we expect more downside this week, and in any case see March 2009 lows as a likely target in the coming months until credit markets show signs of stability.
 
That means USD, JPY denominated AAA bonds and cash remain the safest near term bets.
 
If the EU does manage serious new QE steps to prevent bank failures in the wake of possible PIIGS bonds defaults, markets would bounce. So should the Euro, despite the new money printing, as a devalued Euro is still better than an extinct Euro.
 
Introduction
 
What a difference a week makes.
 
At the open Monday, most equity and other risk asset markets remained close to 52 week highs, despite serious fundamental and technical red flags.  See Coming Week Market Drivers May 2nd-7th: EU Crashes Markets and Ramifications for details on these.
 
As of this Friday’s close, despite the best monthly US jobs report in years (lesser reports last year were able to send markets rallying):
 
  • Most risk assets have suffered their steepest losses in well over a year, and are now testing the normally very strong support of their 200 day moving averages.
  • Daily and weekly charts of most major equities indices, oil, and risk currencies (vs. the USD and JPY) show the same amazing story:
    • Friday closing prices violating uptrend lines stretching back to March 2009.
    • The worst weekly losses since March 2009
 
Stocks
 
The bellwether S&P 500 index finished the week down 8.7%, its worst loss in well over a year, reminiscent of the last market collapses in the late 2008 and early 2009. Overall stocks were down about 6% on the week.
See Coming Week Market Drivers May 2nd-7th: EU Crashes Markets and Ramifications for full details on causes and their meaning for what to watch this week.
 
Commodities
 
Down hard this week along with other risk assets. The big exception was gold, up 2.54% to $1210/oz, nearing its $1227 high, reflecting its safe-haven status when there is concern about the value of fiat currency. That tends to occur when markets are either optimistic about growth (suggests inflation) or very pessimistic (fearing financial collapse and/or money printing – also bad for financial assets).
 
Forex
 
Note: Given the current EU debt crisis inspired market panic’s drowning out of all news, key events omitted for each forex pair, as most events irrelevant while deep fear dominates markets (likely this week)
 
US Dollar Weekly Outlook: Rising on Both Safe-Haven and Fundamental Appeal
 
US Dollar Bias: Bullish
 
- Market panic feeds demand for non-European safe haven assets like the USD, and that fear overwhelms all other concerns
- Best monthly jobs reports in years raise expectations for US rate increases, especially as ECB, BoJ, BoE remain relatively more dovish
-  Retail Sales this coming Friday could confirm superior US fundamentals relative to most other currencies
-  Extreme longs in USD make it vulnerable to pullback, but overall trend higher likely until EU debt crisis eases
 
 
Euro Weekly Outlook: Survival In Doubt Barring Major EU Policy Reversal, More QE
 
Euro Bias: Bearish
 
- EU debt crisis begins to exert its long anticipated potential to crash global markets on fears of global sovereign default and banking failure contagion
- The EU failure to deal with threat of member defaults and credit market seizure puts its future in doubt
- EURUSD so oversold near term prone to reaction bounce on any positive news, but any news short of major EU QE and/or  steps to liquefy banking system at best to bring temporary bounce.
- Paradoxically, major QE and money printing could boost EUR, as a devalued Euro better than extinct Euro
 
 
 
Japanese Yen Weekly Outlook: Strength As Safe Haven Could Renew Speculation For BoJ Intervention
 
Japanese Yen Bias: Bullish as long as risk aversion reigns, bearish if markets calm
 
- Dollar and Yen rally as markets flee to safe haven fx that is not as linked to the EUR as the CHF
- Yen safe haven status generates demand despite BoJ dovishness,
- Japan’s highest debt to GDP not a near term concern as long as domestic demand stays strong, but longer term declining domestic savings rates as population ages make Japan a future debt disaster like Greece
 
 
British Pound Weekly Outlook: Moving With Markets, But Bounce Likely When Political Picture Clarifies
 
 
British Pound Bias: Neutral – likely to bounce as leadership situation clarifies, or stagnate/drop if it doesn’t
 
- Producer prices rise to annualized rate to 5.7%
- Mortgage Approvals Improved from 46.9K to 48.9K
- U.K. manufacturing rise to the highest level since 1994
- While panic rules, Pound likely to advance vs. riskier fx and CHF, fall vs. safer fx
 
 
Swiss Franc Weekly Outlook: Advances on Euro as SNB Avoids Fighting Panic For Now, But Likely To Intervene, Keep CHF close to EUR
 
Swiss Franc Bias: Bearish once markets calm, bullish while panic forces SNB to suspend intervention policy
 
- SNB generally avoids intervening when markets in panic, but traders can expect it to intervene later
- Eventual SNB intervention threat to cap CHF safe-haven gains vs. the USD and JPY
 
 
Canadian Dollar Weekly Outlook:  Moving With Oil, Stocks
 
 
Canadian Dollar Bias: Bearish while panic remains, due for bounce when it eases
- Canadian Dollar’s strong fundamentals outweighed as it is hurt by risk aversion
- CFTC Commitment of Traders data show CAD bullishness still strong, short term bearish for the CAD if those start to unwind in prolonged risk aversion period
- Pressed by its connection to plunging oil, stocks, also China slowdown in commodity demand
 
 
Australian Dollar Weekly Outlook: Dropping on Risk Aversion, Exhausted Rate Increase Potential
 
Australian Dollar Bias: Bearish
 
- RBA turns neutral after 6th rate increase to 4.5%
- Quarterly Monetary Policy statement from RBA warns Greek crisis could cut global growth
- AUDUSD plunges sharply with broad US dollar rally, but could get short term bounce on risk-positive news
-  Index swaps price in bigger rate increases for the NZD, CAD, and USD as AUD increases done for now
-  AUD one of most vulnerable currencies to China slowdown
 
 
 
New Zealand Dollar Weekly Outlook: Risk Aversion Vs. Rate Increase Expectations
 
 
Fundamental Forecast for New Zealand Dollar: Neutral- expected rate increases soften blow of risk aversion
 - New Zealand unemployment rate drops to 6.0% from 7.1%, the largest decline recorded
- Average hourly earnings up 0.3% in Q1
 
 
DISCLOSURE: No Positions