For full details see the full version article by the same name (less 'Abridged') at www.fxinsights.com
Overview: Modestly risk off day. Stocks fell into the close in Asia but stayed positive on the day, European bourses lower, along with virtually all commodities and risk fx. One of the busiest weeks for scheduled news events of the year. For full details on how we see the coming week: WEEKLY KEY MARKET DRIVERS AND IMPLICATIONS: STOCKS, COMMODITIES, FOREX
STOCKS: US: Flat – US stocks were fractionally higher for the day Friday and modestly lower for the week after trading in very tight ranges, reflecting a light news calendar that provided little new direction.
US Bonds: Up- Benchmark 10 Year Note up. Yields remain around 2.52% after it futures prices rising as of midday GMT. US bonds and stocks continue their very unusual multi-month up-trend, as the 2 generally move in opposite directions. One of these markets is wrong, and usually bond markets prove to be correct when we see such divergences from normal behavior.
Asia Stock Outlook: Up - Virtually all major Asian indexes are higher despite a lack of any clear news driven reason. There are reports of increased foreign inflows into Asia’s emerging market bourses. Many of these, however, were falling into the close though remained in positive territory. Given the packed economic calendar this week noted above, we expect cautious trading ahead of major news events, followed by volatility on any surprises.
European Stock Outlook: Down– Opened lower and staying down, following Asia’s selloff into its close. Financial and auto stocks led the decline, fueled by concerns about slower growth and EU banking. Fueling these fears are combination of reports including:
· The New Economics Foundation (NEF) think tank said UK banks may require additional bailout funds. This comes against a backdrop of concern that even the relatively lenient Basel III capitalization reforms may strain many banks.
· Growing Spanish unemployment to over 4 million, a rate of well over 20%, already one of the EZ’s highest.
· Growing Irish debt to GDP ratio under the burden of growing Irish bank bailout costs, all of which add to Ireland’s deficit and cancel out the benefits of other budget cuts.
· Comments by Nobel prize winning economist Joseph Stiglitz that the economic crisis in the region could mean kill the Euro, and that the only long term solution to the crisis might be for Germany, Europe's strongest economy, to ditch the currency altogether. [we have long remained skeptical that Germany’s voters would tolerate their savings being diluted away for the sake of EU economic unity].
Commodities Outlook Friday-Midday Monday GMT: Oil, gold/silver up since Friday but falling thus far Monday, softs were lower Friday and are continuing to fall thus far today.
Crude Oil Daily Outlook: Down- Futures retreating mildly from $ $81.50 Friday to around $81. Oil rose from just over $76 last week on a combination of reduced supply and China growth data.
Gold Daily Outlook: Down: Futures pulling back modestly from Friday’s highs to around $1350.It is still in the ‘Bollinger Band buy zone between the upper 1 and 2 standard deviation lines. Many traders will stay in a trend until price closes below the upper 1 standard deviation line. Gold is threatening to do this. Notice from the chart below how this simple application of Bollinger Bands would have kept you in the trade since the gold rally began in late July.
see full version article
Gold Daily chart AVAFX as of 10:45 a.m GMT 02oct04
NB: Both gold and US treasuries are in multi-month up trends. This does not make sense, as gold is a currency hedge against the USD (and other leading fx) while US treasuries are a partial bet on the USD. This divergence implies one of the up trends should break down in the near future.
Softs: Virtually all were lower Friday and continue to fall.
FOREX Daily Outlook Friday-Midday Monday GMT: Mixed risk trends in forex, despite a mild risk off day overall, combined with EURUSD profit taking on a spate of EUR-negative reports noted in our discussion of European stock markets. CHF strongest, JPY weakest since Friday, CHF strongest thus far Monday, EUR weakest.
US Dollar Daily Outlook: Down vs. all except the JPY since Friday but gaining ground Monday vs. all except the CHF as profit taking on the EURUSD provides some technical bounce for the dollar, as does the overall ‘risk-off’ tone thus far Monday.
Euro Daily Outlook: Up vs. the USD, JPY, GBP, AUD since Friday but falling vs. all Monday and ceding those gains, down hard vs. the CHF after giving up all of Friday’s gains and more against the Swissie thus far today, also down since Friday vs. the CAD and NZD. As we noted in our discussion of stocks in Europe today, a series of negative reports is pressuring the EUR, despite Chinese remarks that China will support the EUR and won’t sell EU bonds. China needs an alternative to the USD for parking its vast currency reserves.
Yen Daily Outlook: Down vs. all since Friday, though gaining against riskier fx thus far today except for the USD, against which it is falling modestly.
British Pound Daily Outlook: Up vs. the USD, JPY (but losing ground to them thus far Monday), down vs. the EUR, CHF and commodity dollars since Friday and lower thus far Monday.
Australian Dollar Daily Outlook: Up vs. the USD, JPY, down vs. all others, losing ground against most Monday, especially the CHF, though gaining on the EUR
New Zealand Dollar Daily Outlook: Up vs. the USD, JPY down vs. the EUR, GBP, CHF, CAD, AUD.
Canadian Dollar Daily Outlook: Down vs. EUR, GBP (but recovery thus far Monday), and CHF, up vs. the USD, JPY (but falling vs. these thus far Monday), AUD, NZD
Swiss Franc Daily Outlook: Up vs. all on risk aversion, despite Euro-zone anxiety that usually hurts the CHF as the EZ is Switzerland’s prime export market. However on this a risk-off day the CHF is the only safety fx that isn’t suffering from some form of official moves that threaten to devalue it.
DISCLOSURE & DISCLAIMER: NO POSITIONS, 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