The following is an abridged version. For full details see the FOREX, COMMODITIES, STOCKS OUTLOOK for today at http://fxmarketanalysis.wordpress.com
Stocks: Prior day: Asia, Europe, up US flat. Today: Asia down, Europe up . The nascent reaction bounce rally begun Friday is continuing in the face of longer term bearish technical and fundamental forces that remain in place. For details see our special report: Three Powerful Bearish Signs: S+P 500 Heading To Around 830, Short Risk Assets and for how far a rally could go, see: How Far Could Markets Rally And Implications.
- US Bonds: Little changed, the benchmark 10 year note down, yield up from 3.2750% to 3.3100%
- Commodities: Up Oil up on bounce off strong support, gold continues to hold in a tight trading range despite the EURUSD’s rise over the past 8 sessions.
- FX: Overall bias to safety currencies [JPY, USD, CHF in order of safety appeal] vs. risk currencies [AUD, NZD, CAD, EUR, GB in order of risk appetite appeal], mostly according to a currency’s place on the risk spectrum, but with some exceptions (see below). THIS APPEARS TO BE SHIFTING TO RISK FX BIAS ON EURO RISE ON SUCCESSFUL SPANISH BOND SALE
- Main events: MON: None TUES: AUD Monetary Policy Meeting Minutes JPY BoJ Press Confr. GBP CPI y/y, Inflation Report Hearings EUR German ZEW Econ. Sentiment USD TIC Long Term Purchases WED:GBP Claimant Count Change, BoE Gov. King Speaks, USD Building Permits, PPI m/m, Housing Starts, Capacity Utilization Rate, Industrial Production m/m, Fed Chairman Bernanke Speaks THUR: CHF Libor Rate, SNB Monetary Policy Assessment, Press Confr., GBP: Retail Sales m/m, USD CPI m/m, Unemployment Claims, Philly Fed Mfg Index ALERT Spanish bond auction-10 & 30-yr notes today-yields rising-if market again wants higher yields Spain needs EU aid 2 sell €25 bln due in July FRI: None
Big Theme: Risk Appetite Gone Again? The nascent rally still on, Risk assets are at major resistance (see: How Far Could Markets Rally And Implications, and we’ve had now our second report( also denied by Spain) that Spain is seeking EU aid. There is reason to believe the reports given Spain’s soaring bond yields and coming big bond sale in July. If the reports prove true markets are likely to plunge – Spain is far more serious problem given the size of its debt. Looks like this story is gaining momentum and will get official confirmation soon, see The Latest EU Debt Crisis: Now 3 Reports Spain Seeking Aid, Spain is MUCH bigger problem than Greece, Portugal, or Hungary with a much larger debt load that is widely held in French and German banks. We suspect reports of Spain needing aid will be confirmed no later than in the coming weeks, which should spark an new selloff in risk assets to at minimum another test of recent lows. Spain needs to sell about €25 bln of bonds to roll over existing debt, but to the extent rates rise they will wipe out other spending cuts as debt service expense rises. UPDATE: thus far today the bond sale is going well, though we have yet to clarify the ultimate yields and how much of the demand was from the ECB vs. actual market demand. The EUR is surging and risk appetite appears to be picking up fast.
US: Up – A flat session tight trading range session as market participants monitored the euro and digested a large batch of BP headlines and a the latest dose of economic data.
Trade initially followed action in the euro, which had come under pressure on widening yield spreads for Portuguese and Spanish debt. As we noted in The Latest EU Debt Crisis: Now 3 Reports Spain Seeking Aid there are mounting reports that the country is seeking financial aid, all thus far denied by Spain, meaning the news will be that much more potent when confirmed. The euro was down as much as 0.6% against the greenback and temporarily reversed that loss, but it still finished with a 0.2% loss at $1.23.
European Stock Outlook: Up – European shares opened lower Thursday, then turned higher around 9:30 am GMT and are attempting to bounce higher once again and keep a 6 day winning streak alive, as details of a BP settlement ease uncertainty surrounding it. THE KEY EU EVENT TO DAY IS THE SPANISH BOND AUCTION, as investors wait to see if markets will continue to demand record high yields for Spanish bonds. Spain needs to sell € 25 bln in bonds in July, so rising rates present a serious risk that Spain might be forced to seek below market rates from the EU/IMF. As of 8:50 GMT, Reuters reports demand has been good thus far, sending European stocks higher.
The question now is whether this as ‘real’ demand from the open market or a result of ECB purchases.
Italy Thus Far Unscathed By Its Big Bond Sale This Month: See Why Italy Is Quietly Getting Through This Month’s Big Bond Sale, and Spain Isn’t for details
Commodities Outlook Wednesday and early Thursday trade GMT: Little changed from yesterday, reflecting overall tight trading ranges in most markets. In the US Wednesday commodities the CRB Commodity Index still finished with a 0.3% gain. We suspect reports of Spain needing aid will be confirmed, which should spark a new selloff in risk assets to at minimum another test of recent lows.
Crude Oil Daily Outlook: Up- Oil futures little changed yesterday, still just under $77/bbl
Gold Daily Outlook: Down - Futures little changed from yesterday’s close, still around $1232.
FOREX Daily Outlook Tuesday and early Wednesday trade GMT: Bias to safety currencies, with exceptions NOTE: TRENDS SHIFTING AS WE GO TO POSTING AS SUCCESSFUL SPANISH BOND SALE SENDS EUR, RISK ASSETS HIGHER.
US Dollar Daily Outlook: Up vs. the, , GBP, down vs. the EUR AUD JPY, CHF, CAD flat vs. the NZD as USD plays its #2 risk aversion role while the CHF has a strong day as traders decide SNB won’t intervene and will let the CHF make up for lost ground when it was linked to the EUR. Weakening as the EUR gains as the Spain bond sale succeeds.
Euro Daily Outlook: Up vs. all except the NZD and CHF as Spanish bond sale appears successful.
Yen Daily Outlook: Up vs. all except for the surging EUR, CHF as the Yen benefits from what is clearly a risk aversion day thus far, though the CHF is benefitting from special news from the SNB that it isn’t worried about deflation, implying it will let the CHF rise and make up lost ground.
British Pound Daily Outlook: Down vs. all on a risk aversion day plus news of new banking regulations that are believed to be bad for the UK’s key financial sector. Key support at 1.4700 is breaking at the time of this writing.
The GBP has come under selling pressure on news of a new regulatory regime , currency traders are concerned that stricter oversight of UK capital markets could hobble the country’s vital financial sector. For the time being the pair appears to have found support around the 1.4700 level but London traders have yet to react fully to the news and the unit could see further selling as the day progresses.
Australian Dollar Daily Outlook: Down vs. all except the GBP on special GBP weakness noted above, otherwise behaving as expected on a risk averse day.
New Zealand Dollar Daily Outlook: Down vs. all except for the GBP, AUD,CHF, CAD
Canadian Dollar Daily Outlook: Down vs. vs. all except the AUD, CHF, GBP
Swiss Franc Daily Outlook: Up vs. all including the more highly ranked safe haven JPY and USD, as the SNB statement suggesting no SNB intervention is coming while there remains no deflation threat allows the CHF to make for lost gains as the #3 safe haven currency that it has missed since the start of the year when it was perceived to be tied to the declining Euro as the SNB sought to keep Swiss goods’ prices from rising in the Euro-zone, Switzerland’s main export market.
CONCLUSIONS & Big Picture: Today shaping up to be a risk asset rally. Beware, as noted above in The Latest EU Debt Crisis: Now 3 Reports Spain Seeking Aid it looks like trouble from Spain is about to become official. Also, also noted yesterday, risk assets face very stiff resistance and are likely to need more than just an absence of bad news to test higher. See our recent special reports, How Far Could Markets Rally And Implications, and Three Powerful Bearish Signs: S+P 500 Heading To Around 830, Short Risk Assets. Stocks are the key barometer for risk assets, with the S&P 500 the most indicative of overall risk asset trends. It is showing 3 major bearish signs of more downside to come for the coming months( long term down trend, death cross, average percent drop below major moving averages still suggests more decline). See the above links to out weekly outlook reports for more on likely market moving forces for the coming week and beyond. That markets would react to another Greek downgrade to junk is surprising given that the Greek mess is old news, and suggests just how little conviction was behind the low volume rally of the prior 2 trading sessions. If the recent reports about Spain seeking EU aid are true (thus far denied by Spain but reported from 2 different German newspapers) then markets could really plunge anew, given the enormous amount of outstanding Spanish debt. Much depends on whether today’s Spanish bond sale’s success was real (from real market demand at affordable rates) OR excessively due to ECB buying and/or at unsustainably high rates.
EURUSD Short: Off for now until affects of Spanish bond sale become clear. . If in fact the sale was successful at affordable rates and from real market demand (not the ECB) then the EUR and other risk assets could be set to rally further. Not clear at the time of this writing.
DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.