August 2nd – 6th Quick Review/Preview: Stocks, Commodities, Forex

 

Likely Market Movers To Watch This Week

For details on these see: The Coming Week: Stocks, Commodities, Forex – 3 Key Market Drivers August 2^nd – 6^th  

 

1. Friday’s monthly US jobs reports and preceding events that provide clues on their results
2. Euro-zone, UK, and China PMI reports
3. Central bank rate statements and commentary from the Euro-zone and Australia
4. Weak technical picture for the bellwether S&P 500 combined with more lackluster US data suggests a higher chance of downside moves this week, though within ranges of the prior 2 months

STOCKS

 

 

S&P 500 DAILY CHART COURTESY OF AVAFX    04JUL30

Key technical points:

• S&P 500 failed to sustain a drive above its 200 day SMA (purple line)
• It recorded another major “lower-high” following the prior one of June 22^nd

 

Both points reinforce our expectation of a 3% – 5% drop to test lows of the prior months

Weekly summary per Briefing.com

Index	Started Week	Ended Week	Change	% Change	YTD %
DJIA	10424.62	10471.85	47.23	0.5	0.4
Nasdaq	2269.47	2259.70	-9.77	-0.4	-0.4
S&P 500	1102.66	1103.34	0.68	0.1	-1.1

 

COMMODITIES

 

Gold

• Lower on further easing of concerns about the Euro, at least relative to the USD.  
• Over the past years gold has tended to rise on fears about the EUR or USD losing value either from inflation (due to growth or excessive money)supply or from a breakup of the Euro-zone.
• Neither of these are near term concerns, though both will likely recur over the coming years.
• Break of long term uptrend line suggests more downside in coming months, $1100 zone likely strong support

 

Energy

• Little changed, though oil was up for July 4%, along with stocks
• A third ‘lower high’ reinforces downtrend, another test around $70 looking likely in coming months

 

Price Summaries – Courtesy of oilngold.com

 

12aug01

CURRENCIES

 

US Dollar Weekly Outlook: Lower on earnings, data, Euro-zone stabilization, monthly jobs reports threaten more downside

 

US Dollar Bias: Neutral-Bearish

1. US data weak compared to EU, GDP miss plus downward revisions for 2007-09 confirm the stagnation story
2. Fed considers more QE on worsening fundamentals, looking more dovish compared to ECB
3. EU worry eases as PIIGS hold successful bond sales, rates stabilize, markets shrug off EU banking weakness implied by stress tests
4. USD bias flat to slightly lower near term barring fundamental or technical breakdown
5. For the coming months, USD’s fate depends on how US economic fundamentals compare relative to those of the Euro-zone, and risk aversion – spikes in either should send USD rallying vs. the EUR
6. Key events:

• Monday: July ISM manufacturing index and prices paid, June construction spending, and remarks on the economy by Fed Chairman Bernanke
• Tuesday: June personal income and spending, personal consumption expenditure (PCE) numbers, pending home sales, and July vehicle sales. Also, 2 Dow Components, Procter & Gamble (PG) and Pfizer (PFE) report earnings.
• Wednesday: weekly MBA mortgage applications, July challenger job cuts, ADP employment change, and ISM non-manufacturing
• Thursday: Dow component Kraft (KFT) reports earnings
• Friday: the change in non-farm payrolls (NFP), unemployment rate, and average hourly earnings

 

Euro Weekly Outlook: EU Bank Stress Tests, Risk Appetite Likely To Set EUR Direction

 

Euro Bias: Neutral-Bullish

1. Up on relatively good data vs. the USD
2. Absence of further sovereign debt worries for now due to successful PIIGS bond sales, in some cases even at lower rates
3. Low expectations on EU bank stress tests also help prevent EUR drop despite the weakness in EU banks implied by the low standards and lack of transparency
4. Little chance of the ECB hiking interest rates before mid – 2011, but even that compares favorably to the  Fed’s considering further easing
5. EUR will drop if Greece restructures its debt in the coming months
6. A break above 1.3125 opens chance for a push to the 1.3350 – 3400 zone
7. Unemployment rate in the 16 member euro area remained unchanged at a 12 year high
8. Euribor rate continues advance, posting yearly highs, suggesting markets remain nervous about the EU

 

Key events

• Monday: final July manufacturing PMI numbers out of France, Germany, and the Euro zone
• Tuesday: Jean-Claude Juncker is set to speak and June EZ PPI
• Wednesday: French, German, and EZ final July Services, EZ retail sales for June
• Thursday: German June factory orders , the ECB interest rate announcement, followed up by commentary from Jean-Claude Trichet
• Friday: France’s June trade balance and German industrial production

 

Japanese Yen Weekly Outlook: Rising Risk Aversion Favors Further Yen Gains

Japanese Yen Bias: Bullish

• Yen crosses trending lower
• Extreme JPY longs leave it vulnerable to even minor risk rallies
• Light event calendar leaves Yen moving with events elsewhere, especially US jobs reports and related data earlier in the week
• BoJ intervention possible but unlikely

 

British Pound Weekly Outlook: BoE Rate Statement Likely To Be A Non-Event

 

British Pound Bias: Neutral-Bearish near term vs. USD after gains

• Higher inflation threat balanced by tentative recovery means no rate change likely
• Calendar events to provide further clarity on UK recovery

 

Key events

• Monday: July manufacturing PMI
• Tuesday: July construction PMI
• Wednesday: July services PMI
• Thursday: BoE interest rate and asset purchase facility
• Friday: July PPI along with June industrial and manufacturing production

 

Swiss Franc Weekly Outlook: Benefitting from EZ stabilization, USD weakness

 

CHF Bias: Bullish

• Calming in EZ suggests better export prospects
• Weakening USD with rising risk aversion also feeds CHF demand

 

Key events:

Monday: Retail sales

Canadian Dollar Weekly Outlook: Rate increase prospects and fundamentals boost long term prospects

 

Canadian Dollar Bias: Neutral-bullish

• Markets price in another 75 bps rate increase in the coming year
• Ties to stocks, oil could hinder CAD advance

 

Key events

• Thursday: building permits for June
• Friday: July employment data, Ivey PMI

 

 Australian Dollar Weekly Outlook: Pressured by likely risk aversion, continued pause on rate increase

 

Australian Dollar Bias: Bearish

• Most expect RBA to hold rates steady, though hawkish comments could bolster AUD, as could continued improvement in Aussie economy
• Much depends on China growth
• Progress depends how whether USD moves more on its own fundamentals or risk aversion

 

Key events

• Monday: June retail sales and building approvals
• Tuesday: RBA’s interest rate decision, July AiG performance of services index, June trade balance, Q2 house price index

New Zealand Dollar Weekly Outlook: Likely lower on risk aversion, fading rate hike prospects

 

NZD Bias: Neutral

Lower as RBNZ lowers rate boost expectations

Events

Monday: July ANZ commodity price, 2Q private wages and average hourly earnings

Wednesday:  Q2 unemployment rate and employment change

Other Events- China

• Sunday: unemployment rate and employment change
• Monday: unemployment rate and employment change
• Tuesday: July non-manufacturing PMI
• Wednesday: July HSBC services PMI

 

Disclosure: No Positions