GLOBAL MARKET BRIEF SEPT 6th Mid-Day GMT: Stocks, Commodities, Forex -Rally Continues

Overview: Risk appetite continuing thus far Monday across the range of risk assets, only oil lower but stocks, commodities, risk fx higher. NB: US markets closed, beware BoJ, SNB intervention attempts as low liquidity would make it relatively easy for them get crowded longs running for the exits to take profits and serve as future warning to speculators. If the BoJ, SNB let this opportunity pass, it’s a sign they’ve really given up for now, hoping that the risk rally will do their work for them.

STOCKS: US: Up – Stocks overcame early week losses and surged after overseas markets rose and better-than-expected economic data. The week ended on a positive note following a better-than-expected U.S. employment report.

The S&P 500 rallied 5.3% as all ten sectors posted a gain. Financials (5.7%), consumer discretionary (5.0%) and materials (4.2%) led the way. Defensive sectors underperformed on a relative basis, with utilities gaining 1.6%.

Overseas strength and better-than-expected economic data acted as the main drivers behind the buying interest.

The much anticipated August jobs report provided a needed upside surprise following news that August nonfarm payrolls fell 54,000, much better than the forecasted 101k-120k. Adding to the surprise, the September reading was revised down to a loss of ‘only’ 54,000, vs. the original decline of 131,000.

Private nonfarm payrolls rose 67,000, which was better than the 44,000 consensus. Private payrolls have increased each month since January. The unemployment rate rose to 9.6% from 9.5%, as expected.

However as noted by Gluskin Sheff’s David Rosenberg here, the underlying details were far less rosy. We quote:

1. Aggregate hours worked were flat.
2. All the employment gains were part-time — full-time employment, as per the Household Survey, plunged 254,000.
3. Those working part-time for “economic reasons” surged 331,000 — the biggest increase in six months.
4. While private payrolls were better than expected, 10,000 of that +67,000 tally reflected returning construction workers who had been on strike.
5. Manufacturing employment was down 27,000 and total goods producing jobs were flat — hardly signs of a robust economic backdrop.
6. The diffusion index for private payrolls actually fell to 53.0 from 56.7 in July — a seven-month low. It was 68.0 at the April high, which is consistent with an economy slowing down to stall-speed.
7. The labor market gap widened with the all-inclusive U6 unemployment rate rising to a four-month high of 16.7% from 16.5% in July. This is why the odds are stacked against a sustained acceleration in wages.

Clearly the labor market is continuing to struggle, though recent employment reports suggest there is a very low probability of a double-dip recession.

In other economic data, the August Consumer Confidence reading encouraged some buying interest in stocks after confidence climbed to 53.5 from 51.0 (Briefing.com consensus 51.0).

The market reacted positively to news that the August ISM Index rose to 56.3 from 55.5, well ahead of the Briefing.com consensus that called for a decline to 52.9. Later in the week the ISM Services report came in below estimates, but the market managed to shrug off the negative news.

The housing market got a glimmer of positive news after the July pending home sales index increased 5.2% m/m, which was well above the Briefing.com consensus that called for an unchanged reading.

Although we are in the slow period for earnings reports, there was plenty of corporate action on the M&A front. As noted by briefing.com:

Intel (INTC) announced plans to acquire the wireless unit of Infineon Technologies for $1.4 bln in cash.

Sanofi-Aventis (SNY) offered $18.5 bln in cash to acquire Genzyme (GENZ). Genzyme rejected the offer.

3M (MMM) is acquiring Cogent (COGT) for $430 mln, or $10.50 for per share. Separately, 3M is going to pay $230 million to acquire Israel-based Attenti Holdings.

In other corporate news, Monsanto (MON) came under pressure after the company issued a downside FY2010 EPS forecast of between $2.40 and $2.45 compared to the $2.49 consensus. Shares of Monsanto fell 1.4% for the week.

Meanwhile, retailers benefited from better-than-expected August same store reports from the likes of Abercrombie (ANF), Costco (COST) and Macy’s (M), among others.

US Bonds: Up- Benchmark 10 Year Note down with rising stocks, with yield up from 2.5820% Thursday to 2.7060%

Asia Stock Outlook: Up- Following through on the strong US close Friday virtually all major Asian indices close Monday with between 1%-2% gains.

European Stock Outlook: Up – Almost all European bourses opened and remained higher following strong closes in the US and Asia as better than forecasted US jobs data eases concerns about the US.

Commodities Outlook Friday-Midday Monday GMT: Oil slightly down, softs up, gold steady

Crude Oil Daily Outlook: Down- Futures slightly lower as supply concerns continue to weigh even as stocks rise. A sustained equities rally could well spark a ‘catch up’ rally in the coming days, as oil usually tracks stocks.

Gold Daily Outlook: Flat: Little changed since Friday though futures regaining some of Friday’s losses, still in tight range around $1250, about 1% off its highs, may need some anxiety over the EUR or USD to get much higher.

Softs: all higher since Friday, most continuing higher or steady.

FOREX Daily Outlook Friday-Midday Monday GMT: Clear bias to risk fx, most fx behaving per their place on the risk hierarchy, with some exceptions: CHF, USD, GBP,JPY weakest in that order, CAD, NZD, AUD strongest in that order.

NB: with Yen and CHF heavily overbought and low liquidity for the rest of the day with the US markets closed, it doesn’t take much to provoke a big price swing if someone has the firepower and will – so beware of BoJ or SNB intervention attempts to shake out some of the longs and force a torrent of profit taking and JPY and CHF cross short covering. If so could boost the USD.

US Dollar Daily Outlook: Down vs. all except the CHF (though giving up those gains today) on rising risk appetite, overall weak fundamentals. US Friday jobs report was good enough to feed risk appetite (bad for the safe haven USD) but not good enough to lift the USD on fundamental economic improvement and thus raised rate increase expectations (that can happen with really surprisingly positive US jobs reports).

Euro Daily Outlook: Up vs. the USD, GBP, JPY, CHF, down vs. the commodity dollars – behaving mostly as per its place on the risk hierarchy given the strong risk-on day, though surprisingly still stronger than the CHF, which has had strong data. Exactly the same results as the past few days.

Yen Daily Outlook: Down vs. all except up vs. the USD, GBP, CHF on rising risk appetite as this #1 safe haven is the natural weak currency in a strong risk on environment. Near record longs per latest COT report leave the JPY vulnerable to selloffs on any risk appetite days.

British Pound Daily Outlook: Down vs. all except up vs. the CHF, USD, as the otherwise safer CHF benefits from very strong data and already strong upward momentum.

Australian Dollar Daily Outlook: Up vs. USD, GBP, JPY (though losing Friday gains vs. the JPY thus far today) steady vs. the CHF, EUR, down vs. the NZD, CAD. Surprisingly weakest among commodity dollars despite lack of bad news

New Zealand Dollar Daily Outlook: Up vs. all, except for the CAD, no related news. Appear to be a continuation of rotation of risk appetite into the NZD and CAD out of the AUD.

Canadian Dollar Daily Outlook: Up vs. all no related news. Appear to be a continuation of rotation of risk appetite into the NZD and CAD out of the AUD.

Swiss Franc Daily Outlook: Down vs. all on profit taking, rotation into risk fx after recent strength

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