FOREX, COMMODITIES, STOCKS OUTLOOK May 4th: Analysis, Events, Trends, Trades 10:30 GMT

NB: THE FOLLOWING IS AN ABRIDGED VERSION FOR A FAST OVERVIEW OF ALL MAJOR GLOBAL STOCK, FOREX, AND COMMODITY MARKETS — FULL ANALYSIS AND CHART ILLUSTRATIONS OF RECOMMENDED TRADES GO TO http://fxmarketanalysis.wordpress.com/   AND SELECT “DAILY OUTLOOK{date}: Analysis, Events, Trends,  FOR TODAY

Stocks: Prior day: Asia down, Europe, US up. Today: Asia, Europe Down on continued concerns about Greek rescue, BP oil spill, latest China moves to cool housing bubble in low liquidity with bank holidays in Japan, UK.

- US Bonds: down in reaction to rising risk appetite, 10 year benchmark rates up to 3.7050% from 3.66%

- 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], but many exceptions as EUR, AUD, GBP weighed by specific issues discussed below.

- Main events: MON:USD ISM Mfg PMI, NZD Labor Cost Index, TUES: AUD RBA Rate St., GBP Mfg PMI, USD Pending Home Sales, WED: AUD Building Approvals, USD:ADP Non-Farms Payrolls, ISM Non-Mfg PMI, NZD: Employment Change, Rate, THUR: AUD Retail Sales, Trade Balance, GBP Election, Services PMI, EUR German Factory Orders, Min Bid Rate, ECB Press Confr. CAD Building Permits, Unemployment Claims USD Unemployment Claims, Bernanke Speaks, FRI: AUD RBA Policy St. CAD: Unemployment Change, Rate, USD Non-Farms Payrolls, Unemployment Rate

Big Theme: Risk Appetite off again: Long anticipated normal test of support after Fridays big high volume drop is again ON the menu as most asset markets down on EU, China, Oil Spill, Goldman Sachs concerns. For details see this weeks weekly analysis at http://fxmarketanalysis.wordpress.com/.

STOCKS:

US: Down- Following Fridays selloff, we had the typical good Monday, with the S&P 500 settled near its session high with broad-based gains as bullish bargain hunters stepped in

Materials stocks were the only major sector that failed to stage a gain. Instead, they finished flat as diversified metals and mining plays fell to a 2.3% loss.

The dollar’s 0.6% advance did nothing to derail the broader market from staging a strong advance. For virtually the entire session both the dollar and the stock market with strong gains and both finished near their session highs. This is a classic illustration of how, contrary to popular belief, there is in fact no direct short term connection between USD strength and stocks. Stocks are risk assets, the dollar has generally behaved as a safe-haven asset over the past years. Thus stocks and the dollar tend to move in opposite direction because they respond to different sentiment, not because they have genuine short term influence on each other except to the extent that traders believe they do and act on that belief, creating a self fulfilling prophecy effect.

Small-cap stock climbed 2.3%, led by a surge in Jackson Hewitt which announced a change to its credit agreement.

In other corporate news, Continental (CAL) and United (UAUA) agreed to a definitive merger. The announcement stoked takeover chatter, which helped lift the Amex Airline Index 2.2%.

Meanwhile, auto makers were out with their latest monthly sales numbers. Toyota Motor (TM) said that its U.S. sales for April increased 24% year-over-year, while Honda Motor (HMC) posted for April an annual increase of almost 13% in U.S. sales. Ford Motor (F) reported that its sales for April were up 25% from the year before.

Personal income and personal spending for March increased 0.3% and 0.6%, both were in-line with expectations. However, core personal consumption expenditures were modestly above forecasts, as was construction spending.

Construction spending for March made a surprise increase of 0.2%. It had been expected to fall by 0.5%.

The ISM Manufacturing Index for April came in at 60.4, which was essentially on par with the 60.0 that had been widely expected.

Advancing Sectors: Consumer Discretionary (+2.1%), Industrials (+2.1%), Financials (+1.8%), Tech (+1.4%), Utilities (+1.3%), Telecom (+1.1%), Energy (+1.0%), Health Care (+0.6%), Consumer Staples (+0.6%)

Declining Sectors: (None) Unchanged: Materials DJ30 +143.22 NASDAQ +37.55 NQ100 +1.6% R2K +2.3%% SP400 +1.6% SP500 +15.57 NASDAQ Adv/Vol/Dec 1978/2.33 bln/747 NYSE Adv/Vol/Dec 2360/1.18 bln/696

US Bonds: As expected in a rising US stock market, demand for safe haven assets like the USD and US TBonds was lower. The benchmark 10-year fell That raised its yield from 3.66% to 3.7050. However prices have been moving up in early Tuesday Asian trade on growing worries about the political obstacles facing Europes huge Greek bailout.

European Bonds: The euro and Eurobonds remain under pressure on fears that the latest plan will again hit political snags and that Greece will be unable to enact or sustain the additional austerity measure on which the plan depends, based on the latest Greek riots. More strikes are planned for May 4-5th. There is also concern that remaining uncertainty on Greece will pressure yields higher for the rest of the PIIGS block. Italy needs to sell about 30 bln of bonds in June, and Spain needs to sell 30 bln in July.

Goldman Sachs has advised clients to buy credit default swaps on Portuguese, Spanish, and Italian bank. These are bets that these countries problems will worsen.

For analysis of the EU Debt Crisis and its likely outcome and effects on the global asset markets and the Euro, see Euro-Toast: Euro To Test Lows As Greece, PIIGS Default Or Restructure. While the current Greek rescue plan may provide short term relief, it failed to address how the EU would deal with other nations needing aid to avoid default. This is the glaring shortcoming of this and every other plan before it. Clearly EU officials hope that somehow market faith in the EUs support is restored. We think not, nor, it appears, does Goldman Sachs.

Until we see substantial and sustained moves down in the costs to insure against PIIGS nations bond defaults, default contagion risk remains on the menu.

In related news, the ECB has dropped collateral criteria for Greece and will accept any Greek sovereign debt as collateral. As if they had a choice.

Asia Stock Outlook: Down at the close in early Tuesday trade GMT on uncertainties abound on the EU crisis, China construction and real estate bubble, and US jobs reports this Friday.

European Stock Outlook: Down At the open in early Tuesday trading GMT European shares fell after early gains on continued concerns that the latest bailout package for Greece will not be approved by all needed parties, that Greece may not be able to sustain the needed spending cuts over the coming years (a prerequisite for receiving aid) Chinas latest steps to cool its housing bubble also weigh on markets today, along with uncertainties about the ramifications of the BP oil spill for BP, the oil industry and US Gulf Coast economy.

Commodities Outlook: In Monday and early Tuesday trade GMT: Little changed since Friday

Crude Oil Daily Outlook: Steady Continued steady at just above $86, holding near 17 months highs as BP oil spills potentially positive effects on oil supply and cost balance concerns on the EU and China tightening

Gold Daily Outlook: Steady- holding at recent highs around $1178.80 as Greek bailout means more Euro printing.

FOREX Daily Outlook: In Friday and early Monday trade GMT: Bias to risk currencies with CAD, NZD strongest, USD third strongest due to specific concerns: EU Greek bailout, UK elections, end of AUD rate increases, weigh on the related risk currencies.

US Dollar Daily Outlook: Up vs. the EUR JPY, CHF AUD, GBP, down vs. the NZD, CAD. In sum, up vs. all except the commodity dollars (except for the AUD), reflecting a combination of risk appetite tempered by specific concerns about the EU, UK elections, and the end of Australias rate hikes (which spark AUD profit taking) that pressured specific riskier currencies.

Euro Daily Outlook: Up vs. the JPY, AUD, steady vs. the CHF, down vs. the USD (continuing into Tuesday), GBP (but recovering in early Tuesday Trade GMT as Asia closes, Europe opens), CAD, NZD

The euro remains pressured by concerns about the new EU Greek rescue. Specifically:

· Will the plan receive approval quickly enough?

· Will the May 9th German Westphalia elections register enough opposition to the plan to raise doubts about future German contributions?

· Will Greece be able to sustain the spending cuts needed, especially in the face of strong popular opposition?

· Even if the answer to the above issues is affirmative, will the plan truly be a final solution for Greece, or has the problem simply been deferred?

· What if another PIIGS nation needs assistance? The plan was silent on how the EU will respond to other PIIGS nations at risk of default. Given that Goldman Sachs has already advised clients to buy CDS on Italian, Spanish, and Portuguese banks, it clearly sees potential problems with these countries, as there will indeed be if demanded yields on their bonds keep rising, raising the cost of further borrowing that threatens to complicate or frustrate efforts to close their deficits. The consensus is that the EU could also rescue Portugal, but that the debt load of Spain and Italy are too big for EU resources. After recent credit rating downgrades to Spain and Portugal, more could be coming from the other ratings agencies.

Many of these questions will remain unanswered for the near future, and that means the EUR will struggle under the weight of that uncertainty.

Greek 10 and 2 year bond rates have been falling. Keep an eye on CDS spreads for other PIIGS block nations this is the key determining if the crisis is truly easing or simply moving from Greece to another in-crises country.

For analysis of the EU Debt Crisis and its likely outcome and effects on the global asset markets and the Euro, see Euro-Toast: Euro To Test Lows As Greece, PIIGS Default Or Restructure

Yen Daily Outlook: Down vs. the USD, NZD, CAD, AUD, GBP, CHF, EUR (but recovery Tuesday vs. the EUR, GBP, CHF)

British Pound Daily Outlook: Down vs. the USD, CHF, NZD, CAD, steady vs. the AUD, up vs. the JPY

Australian Dollar Daily Outlook: Down vs. the USD, EUR, CHF, NZD, CAD up vs. the JPY, steady vs. the GBP

Australia’s central bank raised its key cash rate by 25 basis points to 4.5 percent on Tuesday and signaled the first stage of its tightening cycle was over after six hikes in eight months.

New Zealand Dollar Daily Outlook: Up vs. all majors except the CAD on overall risk appetite, rate increase expectations, isolation from EU troubles.

Canadian Dollar Daily Outlook: Up vs. all majors on rising oil, stocks, and relief bounce following its selloff on Friday.

Swiss Franc Daily Outlook: Down vs. USD, NZD, CAD, steady vs. the EUR, up vs. the JPY, GBP, AUD. Risk appetite hurts CHF but uncertainties on EU Greece bailout, UK elections and end of Aussie rate increase help the CHF vs. the EUR, GBP and AUD.

CONCLUSIONS & Big Picture: Longer term uptrend remains though Fridays drop in most stocks was the second high volume drop over 1.5% (per the S&P 500) in a week, suggesting at least some pullback underway, with plenty of fundamental reasons cited above in the summary section. Monday bounce suggests resilience yet alive. Technically: The S&P 500, our key risk asset barometer, like other major stocks, pulling back from 200 week moving average- key resistance. Near Term Bias: higher chances of the long awaited pullback, which should not be exceptional unless EU debt situation- the chief fundamental risk to the recovery- worsens significantly. A slowdown in China is also likely at some point, at least due to Chinese efforts to cool its economy, at worst from a collapse of Chinese real estate prices and construction demand that has fueled much of its growth. Cost estimates of BP liability and damage to US Gulf Coast economy (tourism and fishing big) keep growing.

Longer term, we are especially concerned about the latter part of 2010. In July, when 2 major events hit: Spain needs to sell about 30 bln euros in bonds AND a massive wave of US mortgage rate resets not seen since 2007 begins. The last time we saw this magnitude of rising mortgage rates markets stalled out and ultimately crashed. NB: Never fight the trend, no matter how irrational, as markets can stay irrational longer than you can stay solvent (Keynes). Therefore, as anyone who follows our trade recommendations knows, we stay long and always wait for some breach of key support/resistance as a signal to enter a short position as odds appear to be in our favor, and even then only when the likely target is more than 2x as far away as out stop loss (which we ALWAYS USE, RIGHT?) so that our winning trade profits exceed out losses by at least 2:1.

Near term the biggest market mover remains the latest news on the EU debt crisis.

DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.