"Dig where the gold is…unless you just need some exercise."
Market Week Wrap-up
- Risk appetite was full on this week as earnings season got underway. Investors took relatively strong earnings reports from Alcoa, Intel and JP Morgan as evidence that the December quarter earnings season will be bright. Coming into the week there were fears that scheduled debt auctions in Portugal, Italy, Greece and Spain would go sour and amp up the old flight-to-safety trade, but all four auctions came off without major problems, thanks in part to rumors of ECB buying. The euro, which suffered last week from fears of contagion in Portugal, headed straight up as European partners negotiated boosting the size of the €750B ESFS bailout fund. Inflation fighting was a key theme throughout the week, as supply disruptions caused by natural disasters in Australia and South America continued to push commodity prices higher. In Asia, the PBoC continued its campaign to cool off overheated lending by raising its reserve ratio rate once again, and the Bank of Korea raised interest rates to cope with what it called supply-driven inflation. In Europe, ECB Chief Trichet warned that the central bank would rigorously enforce price stability after Dec CPI breeched its 2.0% target. In the US, headline December CPI rose by the fastest pace since June 2009 (ex food and energy CPI was fairly tame). Fed speakers offered gently upbeat assessments of the recovery; Chairman Bernanke reaffirmed that US GDP would grow 3-4% in 2011 and Philadelphia Reserve President Plosser said the Fed might need to curtail QE2 if the economy exceeds that forecast. On Friday, the US December retail sales data posted its sixth consecutive increase, offering evidence of a more robust recovery. For the week, the DJIA rose 1%, the S&P500 gained 1.7% and the Nasdaq added 1.9%.
- Mixed earnings reports and data gave investors few reasons to push equities higher this week. Among major corporations, quarterly earnings tended more toward problematic than outstanding, and the economic malaise of developed economies was emblemized by S&P's downgrade of Japan's sovereign rating and disappointing Q4 GDP data from the US and the UK. Other US data was not unfavorable. The housing data could have been worse, although analysts caution rising interest rates in 2011 will not be kind the sector. Declines in the S&P/CaseShiller home price index are still moderating, although the geographical distribution of the declines is still broad based. New and pending home sales were better than expected in December, thanks to record low interest rates. January consumer confidence rose back to levels last seen in May 2010 and blew away expectations. Weekly Initial claims jumped to three-month highs at 454K, although traders seem to believe the Labor Department's claims that the recent bad weather and other seasonal factors are to blame for the upward spike. December durable goods orders continued to grow (ex transport), although the series slumped unexpectedly when taking transportation into account (analysts pointed out that over recent months there have been solid upwards revisions to the back month durables data). President Obama's State of the Union speech on Tuesday was long on rhetoric and short on proposals, while the FOMC sat on its hands on Wednesday. In Europe, the peripheral debt crisis produced surprisingly little drama, though the back and forth on whether or not to expand the ESFS continued. Tension built up in Egypt all week long after protestors successfully deposed the hated regime in nearby Tunisia. Confrontation exploded in Cairo on Friday, driving up oil and gold prices higher on fears the Suez canal could be threatened. For the week, the DJIA fell 0.4%, the Nasdaq slipped 0.1%, and the S&P500 lost 0.5%.
- Nearly half of the DJIA component stocks reported quarterly results this week. Few of these firms hit the ball out of the park. Caterpillar, DuPont and Travelers strongly outperformed Wall Street's expectations and offered relatively strong 2011 forecasts. Verizon, McDonalds, United Technologies and 3M muddled through with moderate growth and in-line results. American Express's profit was lower than expected and the firm warned that unemployment and housing were still a threat to its business. Investors dumped Johnson & Johnson on soft revenues and weak FY11 guidance. They punished Procter & Gamble and AT&T, the former for a y/y decline in profits, the latter for net new postpaid subscriber gains that were nearly half the amount seen last quarter. Boeing's quarterly results (ex items) were alright, although the company slashed its 2011 outlook after revising its 787 delivery schedule. Microsoft easily topped expectations, as profit margins grew on a y/y basis, and revenue from key units increased, but worries about the slowing pace of PC sales and sub-par Windows 7 sales turned off investors.
- Integrated oil names Conoco and Hess, and refiner Valero rose sharply on the week after reporting strong earnings, aided by the bullish outlook for crude. Quarterly profits at Chevron were solid, although revenue missed expectations slightly. In addition, analysts were concerned about the modest 240M boe added to reserves in 2010. Haliburton is up nearly 12% on the week on solid earnings and a strong outlook for shale gas drilling and other unconventional energy plays. Both Halliburton and Chevron issued pointed warnings about developments in the Gulf of Mexico. Halliburton said prospects for recovery in the GoM remain uncertain in the first half of 2011, and perhaps the full year. Chevron cautioned that while the GoM moratorium is over, regulations are still not issuing permits, and they may not achieve annual targets if activity fails to resume in the Gulf this year.
- In tech, Amazon surprised markets with notable decline in its operating margin, scaring off investors despite the online retailer's relatively solid quarterly earnings. Interestingly, CEO Bezos said Kindle books have now overtaken paperback books as the most popular format on Amazon.com. Both Yahoo and EMC offered tepid results. Results from chipmakers Texas Instruments and Qualcomm were not very inspiring, although investors bought the names on strong guidance and a great outlook for the industry heading into 2011. And despite enormous short interest, shares of Netflix resumed their climb into the stratosphere as its continuing transformation into a streaming video company pushed up Q4 net subscriber additions dramatically.
- In other earnings, Ford missed bottom-line estimates in its fourth quarter (before special charges). The company pointed to weaker sales in Europe, due to lower market share. Diversified manufacturer Textron topped expectations in its Q4 and executives asserted that demand for business jets from its Cessna unit would recover in 2011. Defense names General Dynamics and Lockheed Martin were a bit better than expected, although both still face headwinds from anticipations for stagnant US defense spending. Airlines moved higher on excellent Q4 results from US Airways and United Continental. Rail names moved higher on relatively strong results from Norfolk Southern and Canadian Pacific.
- US Treasury yields finished the week lower, helped by a surge in safe-haven buying on Friday. First-hand reports of unrest unfolding in Egypt roiled the markets, reversing a lower open in government bond markets. Prices had been softer midweek, in particular at the long end of the US curve. The FOMC's statement suggested little has changed in the committee's view, despite the recent uptick in some inflation gauges. The US benchmark 10-year yield is down about 8 basis points on the week, moving back towards 3.3%, while the German Bund fished lower as well, dropping back to 3.15%.
- Interest rate levels played a key role in the dollar price action this week, as dealers suspecting a soft dollar theme would likely to continue into the FOMC decision. Despite Europe's ongoing peripheral debt woes, the hawkish tone heard from ECB members continued to reverberate throughout the trading week and managed to push EUR/USD to fresh two-month highs on Thursday. An influential think tank report asserted that a comprehensive EU plan that would prepare the groundwork for higher ECB interest rates is in the works. Last weekend ECB Chief Trichet offered a strong warning about short-term inflation, and other ECB members echoed his position throughout the week. Further euro momentum came from the solid inaugural EFSF bond auction. Meanwhile the dollar faced pressure from key data releases, including the uptick in weekly jobless claims and the durable goods figures. The explosion of civil unrest in Egypt on Friday slammed the euro, erasing most of the gains made by EUR/USD. The month of January ends on Monday, and traders should keep in mind that since the launch of the euro in 1999, EUR/USD's trading range in January has reliably predicted either the high or the low for the pair for the rest of the calendar year.
- Events in the UK drove GBP/USD. On Tuesday the UK's Q4 GDP reading came in negative, provoking commentary that a double dip recession was right around the corner. GBP/USD tested below the 1.58 handle after the data. UK officials blamed the unexpected decline in the GDP data on the bad weather in December. Several analysts called for GBP/USD to dip below the 1.50 level in the months ahead. The UK data is concerning for future growth trends since the austerity measures proposed by the coalition government are front loaded in the first half of 2011. GBP/USD popped higher following the release of the BOE minutes which revealed a hawkish shift. BOE member Weale joined established hawk Sentance in calling for a tightening, and all members agreed that medium-term inflation risks have probably shifted upwards.
- Afterhours on Thursday (Tokyo time) S&P cut Japan's sovereign rating to the lowest level of high-grade (AA-) to reflect concerns about its debt-to-GDP ratio continuing to climb to unprecedented levels. Japanese Cabinet officials were quick to respond to the surprise rating downgrade. Finance Minister Yosano said the government is planning to take steps to change fiscal revenue and spending policies to help preserve investor trust in Japan's financial position. Economy Minister Yosano - a renowned hawk - conceded investor confidence in Japan has been shaken, while PM Kan stressed the importance of maintaining fiscal discipline. Other ratings agencies chimed in on the S&P action: Fitch said Japan politics will be a key indication of fiscal credibility, and Moody's reminded the nation has been able to make the necessary adjustments in the past. The yen broadly weakened in the aftermath of the downgrade and hit two-week highs above 83.20. However, the pair was back below 82.50 by Friday with dealers citing Japanese exporters taking advantage of yen weakness.
- The Reserve Bank of New Zealand left interest rates unchanged at 3.00% as expected and affirmed its prior outlook on the economy. Markets anticipated a more dovish outlook as seen in the language of the last decision, when RBNZ cuts its 2011 GDP projections and said rates would remain low until underlying inflation showed more obvious signs of increasing. This time around, the central bank renewed its long-term commitment to tightening while also pointing to improved forward indicators. After some initial weakness, NZD/USD spiked by about 100 pips above $0.7740.
- Data out on Monday showed that Australia's Q4 CPI hit its lowest level since early 2009. Speaking after the data, Treasurer Swan conceded the underlying inflation has moderated in Q4, but warned Q1 is expected to spike because of the impact of flooding on food prices. In the meantime, expectations for the central bank to resume its rate hikes have been pushed back into the second half of the year; the RBA is expected to keep rates on hold for the sixth straight meeting next week.
Week of 1/31/2011 thru 2/4/2011
Monday, January 31, 2011
Economic
08:30 US Dec Personal Income, Dec Personal Spending, Dec PCE Core, Dec PCE Deflator, Canada Nov GDP
09:45 US Jan Chicago PMI
10:00 US Jan Milwaukee NAPM
10:30 US Jan Dallas Fed Manufacturing Survey
11:30 US Treasury's 3- and 6-month bill auction
Tuesday, February 01, 2011
Economic
10:00 US Dec ISM Manufacturing, Dec Construction Spending
11:30 US Treasury's 4-week bill auction
16:30 API Crude Oil/Gasoline/Distillate Inventories
Wednesday, February 02, 2011
Economic
07:30 US Jan Challenger Job Cuts
08:15 US Jan ADP Employment Change
09:00 US Treasury's Quarterly Refunding Announcement
10:30 DoE Crude Oil/Gasoline/Distillate Inventories
Thursday, February 03, 2011
Economic
08:30 US Prelim Q4 Nonfarm Productivity, Q4 Unit Labor Costs, Initial Jobless Claims, Continuing Claims
10:00 US Jan ISM Non-Manufacturing, Dec Factory Orders
10:30 DoE Natural Gas Inventories
Friday, February 04, 2011
Economic
07:00 Canada Jan Unemployment
08:30 US Jan Nonfarm Payrolls, Jan Unemployment Rate, Jan Manufacturing Payrolls, Jan Average Hourly Earnings
10:00 Canada Jan Ivey PMI
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
08:30 US Advance Q4 GDP q/q, Q4 GDP Price Index, Q4 Personal Consumption, Q4 Core PCE q/q
09:55 US Final Jan University of Michigan Confidence
Todays Headlines
8:30:02 AM
*(US) INITIAL JOBLESS CLAIMS: 454K V 405KE; CONTINUING CLAIMS: 3.99M V 3.87ME
- Prior Initial Jobless Claims revised lower from 404K to 403K
- Prior Continuing Claims revised higher from 3.861M to 3.897M
8:30:35 AM
*(US) DEC DURABLE GOODS ORDERS: -2.5% V +1.5%E; DURABLES EX TRANSPORTATION: 0.5% V 0.9%E
- Durable Goods Orders, Ex-Defense: -2.5% v -2.3% prior
- Capital Goods Orders Non-defense Ex-aircraft: 1.4% v 1.3%e
- Capital Goods Shipments Non-defense Ex-aircraft: 1.7% v 1.0% prior
9:01:01 AM
(US) Treasury announces plans to suspend the issue of supplementary financing bills (SFPs); will bring down balance in program to $5B
- Funds will be brought down as the US approaches the debt ceiling; short term bills will mature and will not be rolled over
9:53:15 AM
(IR) Ireland lower house (dail) passes Finance Bill
- Vote 81 to 76
-Reminder: On Jan 26th the lower house passed an amendment to the bill in a 80 to 78 vote.
-The Finance Bill now moves to committee stage to be debated in the upper house (Seanad) for final approval
10:00:02 AM
*(US) DEC PENDING HOME SALES M/M: 2.0% V 1.0%E; Y/Y: -3.6% V -2.4% PRIOR
- Prior MoM revised lower from 3.5 % to 3.1%
- Prior YoY revised lower from -2.4% to -2.8%
11:02:18 AM
NY Fed: Purchased $5.79B in outright coupon purchase; dealers submitted $33.56 for consideration (bid to cover 5.8)
- Avg bid to cover over prior four auctions is: 3.03
- Heaviest purchase $1.57B in the 04/15/13 maturity
- Purchased maturities dated 07/31/2012 - 07/15/2013
11:53:55 AM
(CH) China Commerce Min: Can maintain GDP in excess of 8% for 2011; sees increasingly encouraging domestic consumption and imports
- Also to encourage domestic firms' investment overseas.
- Uncertainties remain in the eurozone debt crisis.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
06:00 Brazil Dec Unemployment
08:30 US Dec Durable Goods Orders, Initial Jobless Claims, Continuing Claims
10:00 US Nov Pending Home Sales
10:30 DoE Natural Gas Inventories
13:00 US Treasury's 7-year note auction
Todays Headlines
8:00:03 AM
*(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 2.00%; AS EXPECTED
- Maintains interest rate path between 1.5-2.5% until Mid-March
- Underlying inflation around 1.5% vs. 2.5% target
- Inflation and growth factors imply low monetary policy rate but rates should not remain low for too long
10:00:03 AM
*(US) DEC NEW HOME SALES: 329K V 300KE
- Prior revised lower from 290K to 280K
- Median price $241.5K v $215.5K prior (revised from $213K), $222.6K y/y (+8.5% y/y, +12% m/m)
- Months supply: 6.9 v 8.4 prior (revised from 8.2 reading in Nov) (Months of Supply lowest since April 2010)
- Homes for sale: 190K v 195K prior (revised from 197K reading in Nov) (Homes for Sale lowest in over 40 years)
10:00:51 AM
(US) Congressional Budget Office (CBO): FY11 US budget deficit as share of GDP to be 9.8%, falling to 7% in FY12
- Sees FY11 US budget deficit at $1.48T v $1.3T y/y, falling to $1.1T in FY12
- Sees FY11 US GDP +3.1%, FY12 GDP +2.8%
- Sees average US GDP growth in 2013-16 at +3.4%
10:01:20 AM
(IR) Fianna Fail selects Michael Martin as leader, as expected
- Former Foreign Min Michael Martin expected to win.
- Replaces former party leader and current prime minister Brian Cowen.
11:31:40 AM
(EU) ECB's Trichet: Inflation expectatations remain anchored; ECB never precommits on policy for any time frame - TV interview from Davos
- Will not exclude idea of EFSF purchasing bonds; could become a useful option.
- Reiterates debt restructuring is not being viewed as an option for EMU nations.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
06:00 Brazil Jan IBGE CPI
10:00 US Dec New Home Sales
10:30 DoE Crude Oil/Gasoline/Distillate Inventories
13:00 US Treasury's 5-year note auction
14:15 FOMC rate decision
Todays Headlines
8:36:41 AM
Barclays raised European Diversified Financials Sector to Positive from Neutral
- ICAP.UK is rated Overweight
- TLPR.UK initiated Overweight
- III.UK cut to Equal Weight from Overweight
8:53:22 AM
(SA) S&P: Affirms South Africa sovereign rating at 'BBB+'; Outlook raised to Stable from Negative
- Cuts long-term local currency rating to 'A' from 'A+' (one notch)
9:15:04 AM
(GE) Germany Deputy Fin Min Asmussen: Reiterates that Germany would like to see a debt holiday in the eurozone; a comprehensive rescue package for Europe will be ready in a few months
- Germany will display solidarity with other eurozone states, it asks for better competitiveness and fiscal solidarity in return.
- There is no euro crisis, only a difficult debt situation.
- The euro will be the one and only common currency; Germany relies on a stable euro
- Reiterates view that Germany opposes Euro bonds
- Difficult to identify the causes of recent rise in Bund yield; Germany will maintain 'safe-haven' status
10:00:03 AM
*(US) JAN CONSUMER CONFIDENCE: 60.6 V 54.0E (Highest reading since May 2010)
- One year inflation expectations 5.5% v 5.3% m/m
- Prior revised higher from 52.5 to 53.3
11:03:37 AM
NY Fed: Purchased $7.72B in outright coupon purchase; dealers submitted $27.96B for consideration (bid to cover 3.62)
- Avg bid to cover over prior four auctions is: 3.39
- Heaviest purchase $5.49B in the 12/31/15 maturity (longest dated)
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
09:00 USNov S&P/CS Home Price Index, Nov S&P/CS Composite-20, Mexico Dec Trade Balance
07:00 Canada Dec CPI
10:00 US Jan Consumer Confidence, Jan Richmond Fed Manufacturing, Nov House Price Index
11:30 US Treasury's 4-week bill auction
13:00 US Treasury's 2-year note auction
16:30 API Crude Oil/Gasoline/Distillate Inventories
Todays Headlines
5:12:03 AM
(FR) France Pres Sarkozy: Current account imbalances have doubled over the last decade - press conference
- New monetary order will see emergence of new currencies
- France does not want to question the USD reserve role nor return to a system of fixed-exchanged rates
- USD plays a prominent role and should be strong
5:32:13 AM
(TU) Turkey Central bank raises Lira deposit reserve requirement for shorter term deposits; effective from February 4th
- Raises Reserve ratio for immediate-access deposits to 12% from 8%.
- Raises 1-month deposit reserve requirement to 10% from 8%
- Raises 3-month deposit reserve requirement to 9% from 7%
9:00:40 AM
(RU) Reports of blasts heard at Moscow's Domodedovo International Airport arrival hall; multiple casualties reported - Russian media
- Follow up: At least 30 reported fatalities, with well over 100 injured. Attack said to have occurred in a terminal that serves mostly domestic flights.
- Unconfirmed report that the attack was by a suicide bomber.
10:10:23 AM
(IS) Preview: Israel Central Bank interest rate decision expected at 10:30 ET
- Expected to raise the Base Rate by 25bps to 2.25%
11:03:19 AM
NY Fed: Purchased $8.87B in outright coupon purchase; dealers submitted $22.35B for consideration (bid to cover 2.52)
- Avg bid to cover over prior four auctions is: 3.61
- Heaviest purchase $4.55B in the 12/31/17 maturity (longest dated)
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
"Don't bother just to be better than your contemporaries or predecessors. Try to be better than yourself."
Market Week Wrap-up
- Risk appetite was full on this week as earnings season got underway. Investors took relatively strong earnings reports from Alcoa, Intel and JP Morgan as evidence that the December quarter earnings season will be bright. Coming into the week there were fears that scheduled debt auctions in Portugal, Italy, Greece and Spain would go sour and amp up the old flight-to-safety trade, but all four auctions came off without major problems, thanks in part to rumors of ECB buying. The euro, which suffered last week from fears of contagion in Portugal, headed straight up as European partners negotiated boosting the size of the €750B ESFS bailout fund. Inflation fighting was a key theme throughout the week, as supply disruptions caused by natural disasters in Australia and South America continued to push commodity prices higher. In Asia, the PBoC continued its campaign to cool off overheated lending by raising its reserve ratio rate once again, and the Bank of Korea raised interest rates to cope with what it called supply-driven inflation. In Europe, ECB Chief Trichet warned that the central bank would rigorously enforce price stability after Dec CPI breeched its 2.0% target. In the US, headline December CPI rose by the fastest pace since June 2009 (ex food and energy CPI was fairly tame). Fed speakers offered gently upbeat assessments of the recovery; Chairman Bernanke reaffirmed that US GDP would grow 3-4% in 2011 and Philadelphia Reserve President Plosser said the Fed might need to curtail QE2 if the economy exceeds that forecast. On Friday, the US December retail sales data posted its sixth consecutive increase, offering evidence of a more robust recovery. For the week, the DJIA rose 1%, the S&P500 gained 1.7% and the Nasdaq added 1.9%.
- Beijing dominated the news this week as Chinese President Hu paid an official state visit to Washington. The trip was long on pomp and short on results; for markets it mostly provided an occasion to review the somewhat dysfunctional economic relationship between the world's largest economies. The euro continued to strengthen versus the dollar as European officials privately discussed a bigger and more flexible backstop for the debt of peripheral eurozone states. The weaker dollar and jitters about the potential for more Chinese rate hikes aimed at cooling off overheating GDP and inflation, drove commodity prices lower, led by oil and gold. Copper prices came off recent all-time highs and silver futures hit two-month lows. March crude tested the 90-day moving average for the second time this month, but remains stubbornly pinned near the $90 mark. After a very strong December for US manufacturing, regional Fed surveys (Empire Manufacturing and Philadelphia Fed Index) for the month of January suggest US industry will continue to strengthen in early 2011. The new orders and employment components in both surveys showed strong month over month growth, though the accompanying rise in prices paid evoked the specter of inflation. Weekly jobless claims sunk back to around the 400K level after an uptick in the prior week. Sales of existing homes surged in December, up more than 12% m/m, although some analysts wonder how rising interest rates will treat the mortgage market in the New Year. December housing data seemed scrambled by extraneous factors: December housing starts slipped lower m/m while building permits blew out expectations, thanks in part to a permitting rush ahead of new building regulations that came into effect in 2011. Bullish earnings from IBM and GE held up the DJIA, while the slide in Apple and other key tech names sent the NASDAQ lower. For the week, the DJIA rose 0.7%, the Nasdaq dropped 2.4%, and the S&P500 lost 0.8%. Smallcap stocks were particularly hard hit, leaving the Russell 2000 down 4% on the week.
- Officials in the US and China exchanged barbs ahead of President Hu's visit. Senator Schumer once again blamed China for holding down its currency and threatened to reintroduce legislation allowing US to impose a tariff on nations that manipulate foreign exchange levels. A report out of a Chinese think tank said China needed to examine diversifying its FX reserves as current reserves far exceed short-term needs. November TIC data out on Tuesday showed that China sold off some of its holdings in US Treasuries but still remained the largest holder. After meetings between Obama and Hu, US officials stated that China had affirmed its commitment to increasing yuan flexibility. As the Presidents announced billions of dollars in Chinese orders for US goods, Treasury officials said US exports to China were on track to hit $100B annually, supporting Obama's pledge to double exports in five years.
- Four of the five largest US banks disclosed fourth quarter reports this week, and for the most part the results were fairly poor. Both Bank of America and Citigroup missed analyst expectations; Goldman missed revenue targets by a hair and posted a 53% y/y decline in profits. BoA actually lost $1.4B in the quarter after taking into account nearly $7.6B in writedowns and special charges. Citi blamed its tepid top-line performance on lower revenue from its securities and banking divisions. On the bright side, provisions and loan losses fell at both Citi and BoA. On the conference call, Goldman's CFO said customer activity in December was "dead"; the firm's trading revenue, including commodities and currencies, fell 39% q/q on the dearth of market volatility. Morgan Stanley was the standout in the group, as profits and revenue were both greater than expected. But even the strong headline figures were somewhat overshadowed by the fact that the firm's earnings were significantly boosted by one-time profits from the sale of its stake in China International Capital Corp.
- The regional banks provided a strong contrast to the multinationals this week. Super-regionals Wells Fargo and US Bank met expectations and demonstrated strong y/y profit growth. SunTrust,BB&T, M&T Bank, PNC and Fifth Third all topped profit expectations, boosted in part by lower provisions for loan losses. In addition, Fifth Third disclosed that it would sell substantial chunk of common shares to repay its TARP funding. Commentary out of regional bank executives was cautiously optimistic, citing slowly improving credit quality and the traction being gained by the economic recovery.
- In other key quarterly reports, General Electric firmly exceeded expectations in Q4, beating earnings and revenue targets and offering a strong revenue outlook for 2011. CEO Immelt said that the firm saw its highest quarterly order intake since FY07. Apple fell 4% this week after Steve Jobs took an extended medical leave from the company; the firm's dazzling Q1 results and robust Q2 guidance only limited the slide. Shares of Google also dipped on a leadership change despite solid earnings, as it announced co-founder Larry Page will take over the CEO spot from Eric Schmidt, who will move into a more advisory role as executive chairman. Executives said there would be no material change in strategy under the new chief. IBM had a very good quarter and projected double-digit revenue growth for key business segments. AMD has managed to sustain higher profit and revenue levels in Q4 seen over the last few quarters, and highlighted the potential of its Fusion chip line, designed for mobile computing applications. However investors sold the name on a very soft Q1 revenue forecast.
- US Treasury prices entered the week on a pretty firm footing. Aided by a vacant coupon supply calendar, traders appeared willing to ignore surprisingly strong economic data, which in turn had yields hovering at the bottom of their recent trading band. By midweek bond prices were back under some pressure after Asian, European and even US data topped expectations, portending higher prices. Despite an uptick in inflation talk, Thursday's 10-year TIPS auction underwhelmed and supply returned to forefront with the Treasury announcing another $99B in coupon auctions. Also helping push yields higher was an apparent reversal in safe haven flows late in the week. European bank stocks surged and peripheral spreads narrowed sharply on hopes officials were finally getting ahead of the problems that have plagued peripheral European debt markets. US municipal bond prices also appear to have stabilized despite a New York Times report suggesting government officials are quietly discussing ways to let states seek protection in Federal bankruptcy court.
- The benchmark 10-year yield jumped more than 10 basis points on the week, briefly getting above 3.45%. The US curve steepened with the 2-30 year spread hitting all time highs above 400 basis points and the 2-10 year spread back above 280 basis points. The middle part of the curve held up the best, and it was only the 30-year yield that traded above the December highs to levels not seen since April. Gilt and bund yields also jumped. By Friday the yield on the two-year German bund hit its highest level in more than a year. That widened its yield advantage over the 2-year Treasury note to its widest level since January 2009. The 10-year Bund rate is back above 3.15%.
- China, inflation and the battle in the eurozone over how to cope with the peripheral debt crisis were the foci of foreign exchange markets. Chinese GDP figures, another China reserve ratio increase and President Hu's state visit to Washington grabbed headlines. Brazil increased rates, which also helped focus the attention of currency traders on inflation in BRIC nations. More sovereign bids for EUR/USD emerged in Asia ahead of the 1.3250 level. The pair hit fresh eight-week highs above 1.3565 late in the week. Dealers continue to point out that Asian appetite for euros is more or less insensitive to the overall level of EUR/USD as the purchases are driven by the need to ward off the strengthening of domestic currencies rather than any attempt to manage existing reserves.
- In Europe, the battle fatigue from months of peripheral debt strife has eased, helping to calm some key indicators of tension. Peripheral debt auctions saw declining yields and decent bid-to-cover ratios, and debt spreads narrowed toward their best levels in nearly two months. Spain replaced two bond auctions scheduled for Thursday with a syndicated issue. Strong EU and Germany ZEW surveys for the month of January showed that the crisis hasn't affected core EU states. Dealers were concerned about Spanish plans to ramp up its domestic bank bailout after Madrid's FROB fund said it would issue €3B in debt, an amount that would cover only about 10% of estimated needs. The Spanish Deputy PM said a restructuring plan for savings banks (cajas) was being prepared, and press reports late in the week suggested that the government could partially or wholly nationalize the cajas.
- European officials fought over the idea of expanding the EFSF fund all week. German politicians facing upcoming state elections back home continued to label the notion a non-starter, but some reports indicate that position may be eroding. EFSF chief Regling commented that the fund had more than enough money to fund both Portugal and Spain, but mid-week there were several anonymously sourced press reports asserting that Germany would allow the EFSF to finance Greek debt buybacks. EU, Greek and German officials subsequently denied the reports.
- GBP/USD regained the 1.60 handle for the first time in almost two months. BoE's Fisher said he was concerned about short-term inflation but still managed to walk the majority line that CPI would come back down in the medium term. The pair tested eight-month highs after high-than-expected UK CPI data prompted renewed speculation that the BoE may be forced to raise the benchmark rate in order to remain credible in the eyes of the investment community.
- The China/US trade imbalance took out its frustration on the yen. USD/JPY tested the 82.00 handle mid-week where it met some dollar bids from the Japanese postal system (Kampo). Plenty of Japanese officials warned that the strong yen was not reflecting fundamentals and reiterated that decisive actions would be taken soon to deal with the situation. Better US data sent US rates higher all along the curve and propelled USD/JPY back toward the 83 handle, where it encountered dollar selling by Japanese exporters.
- The Swiss Franc drew attention after the Swiss government announced a formal press conference on Wednesday to discuss the currency. Initially EUR/CHF probed the 1.30 handle for five-week highs in the pair ahead of the statement. During the conference, Swiss Economic Minister Schneider-Ammannt reiterated concerns about the strong Franc but added that economic growth would prevent the situation from slipping into crisis. A massive short covering in Spanish bank stocks late in the week highlighted the tightening of peripheral spreads and sent EUR/CHF above the 1.30 handle.
- China Q4 and 2010 GDP came in hot (Q4 at 9.8% v 9.4%e and 2010 at 10.3% v 10.2%e) and industrial production data also beat forecasts. China also reported December CPI at 4.6%, still elevated, but the first drop since last June. Accompanying commentary from the China National Bureau of Stats did little to dissuade perceptions of building pressure for policy tightening, stating that markets should not underestimate upward pressure on CPI in 2011 while reiterating that the central bank would keep its prudent monetary policy. A PBoC advisor forecasted 2011 GDP cooling to a more benign 9.5% rate, but also anticipated the rate of inflation would remain around 4%. Meanwhile, an analyst at China Industrial Bank cautioned that near-term inflation would likely trend higher on an anticipated food price spike in January.
- The week in Australia was highlighted by its giant mining firms reporting improved production metrics, tempered by the still unquantifiable impact of the floods across parts of the continent. Rio Tinto and BHP each reported quarterly iron ore output up in the mid-single digits, but acknowledged significant disruptions are expected for Queensland operations for months to come due to the flooding in that region.
Week of 1/24/2011 thru 1/28/2011
Monday, January 24, 2011
Economic
11:30 US Treasury's 3- and 6-month bill auction
Tuesday, January 25, 2011
Economic
09:00 USNov S&P/CS Home Price Index, Nov S&P/CS Composite-20, Mexico Dec Trade
07:00 Canada Dec CPI
10:00 US Jan Consumer Confidence, Jan Richmond Fed Manufacturing, Nov House Price Index
11:30 US Treasury's 4-week bill auction
13:00 US Treasury's 2-year note auction
16:30 API Crude Oil/Gasoline/Distillate Inventories
Wednesday, January 26, 2011
Economic
06:00 Brazil Jan IBGE CPI
10:00 US Dec New Home Sales
10:30 DoE Crude Oil/Gasoline/Distillate Inventories
13:00 US Treasury's 5-year note auction
14:15 FOMC rate decision
Thursday, January 27, 2011
Economic
06:00 Brazil Dec Unemployment
08:30 US Dec Durable Goods Orders, Initial Jobless Claims, Continuing Claims
10:00 US Nov Pending Home Sales
10:30 DoE Natural Gas Inventories
13:00 US Treasury's 7-year note auction
Friday, January 28, 2011
Economic
08:30 US Advance Q4 GDP q/q, Q4 GDP Price Index, Q4 Personal Consumption, Q4 Core PCE q/q
09:55 US Final Jan University of Michigan Confidence
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
*(SA) SOUTH AFRICA CENTRAL BANK (SARB) LEAVES INTEREST RATE UNCHANGED AT 5.50%; AS EXPECTED
- Gov Marcus: Policy stance expected to remain stable for some time; MPC remains sensitive of occurances in real economy; does consider growth and jobs in its forecasts
8:30:04 AM
*(US) INITIAL JOBLESS CLAIMS: 404K V 420KE; CONTINUING CLAIMS: 3.861M V 3.985ME
- Prior Initial Jobless Claims revised lower from 445K to 441K
- Prior Continuing Claims revised higher from 3.879M to 3.887M
10:00:05 AM
*(US) JAN PHILADELPHIA FED: 19.3 V 20.8E
**Dec Sub-Indices:
- Prices Paid: 54.3 v 47.9 prior
- New Orders: 23.6 v 10.6 prior
- Employment: 17.6v 4.3 prior (highest since Apr 2006)
- Inventories: 6.8 v -5.9 prior
10:26:02 AM
(PO) Portugal Fin Min dos Santos: Reported 2010 budget deficit will be below the forecasted 7.3%/GDP; Revenues approx +4.5% y/y
- Portugal supports increasing the size of the bailout fund from current levels as well as a wider role for the fund including buying bonds.
11:02:39 AM
NY Fed: Purchased $2.2B in outright coupon purchase; dealers submitted $8.17B for consideration (bid to cover 3.71)
- Avg bid to cover over prior four auctions is: 3.4
- Heaviest purchase $695M in the 08/15/39 maturity
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
08:30 US Initial Jobless Claims, Continuing Claims, Canada Dec Leading Indicators
10:00 US Jan Philadelphia Fed, Dec Existing Home Sales, Dec Leading Indicators
10:30 DoE Natural Gas Inventories
11:00 DoE Crude Oil/Gasoline/Distillate Inventories, Treasury note announcement
13:00 Treasury 10-year TIPS auction
Todays Headlines
8:11:12 AM
(US) FDIC's Bair: Mortgage market continues to be mired in credit distress cycle; mortgage services industry is 'fundamentally flawed'
- Requesting major changes to practices in mortgage servicing.
- Both the govt and servicing industry need to reach an agreement to mend crisis.
- Chaos around foreclosure and mortgage servicing adds new uncertainty to the market.
8:30:03 AM
*(US) DEC HOUSING STARTS: 529K V 550KE (14-month low); BUILDING PERMITS: 635K V 554KE
- Prior Housing Starts revised lower from 555K to 553K
- Permits post best figure since March, 2010 however lower by 45K y/y
9:35:35 AM
(CH) China President Hu: China-US cooperation needs to be based on "respect" for each-other's path of development
- US-China relations have been fruitful under President Obama
10:30:29 AM
(CA) Bank of Canada Monetary Policy Report: Sees Q4 GDP at 2.3% v 2.6% prior forecast; Q1 2011 GDP 2.5% from 2.6% prior forecast
- Guides Q1 core CPI 1.4%, Q2 CPI 1.6%, Q3 1.7%
- Strong CAD has hurt the competitiveness of Canada
- Inflation risks are balanced
- Guides 2011 GDP at 3.3% from 2.3% prior forecast
11:03:29 AM
NY Fed: Purchased $7.72B in outright coupon purchase; dealers submitted $39B for consideration (bid to cover 5.06)
- Avg bid to cover over prior four auctions is: 2.77
- Heaviest purchase $7.04B in the 01/15/14 maturity
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
08:30 US Dec Housing Starts, Dec Building Permits, Canada Nov Manufacturing Survey
11:30 Treasury 4-week bill auction
16:30 API Crude Oil/Gasoline/Distillate Inventories
Todays Headlines
9:00:51 AM
(IT) Italy Central Bank: Lowers Italy 2011 GDP to 0.9% v 1.0% prior; forecasts 2012 at 1.1%
- Sees 2010 debt-to-GDP ratio at 119.0% v govt forecast of 118.5%.
- Sees med- and long-term inflation for Euro zone consistent with the price stability goals of the ECB.
9:00:00 AM
*(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATE UNCHANGED AT 1.00%; AS EXPECTED
- Global economic recovery moving ahead at a somewhat faster than expected pace, though risks are still elevated. Expects Canada business investment to continue its strong recovery. Overall broad Canadian recovery is continuing as expected.
- Reiterates further rate hikes must be considered carefully. There is considerable stimulus in the economy already.
- Amends 2011 GDP forecast to 2.4% from 2.3% prior; Raises 2012 GDP view to 2.8% from 2.6% prior
9:00:34 AM
*(US) NOV NET LONG-TERM TIC FLOWS: $85.0B V $40.0BE; TOTAL NET TIC FLOWS: $39.0B V $15.0B PRIOR
- Prior Net Long-term TIC Flows revised higher from $27.6B to $$28.9B
- Prior Total Net TIC Flows revised higher from $7.5B to $15.1B
11:01:53 AM
NY Fed: purchased $1.74B in TIPS securities; dealers submitted $4.94B for consideration (bid to cover 2.84)
- Heaviest purchase $976M in the 07/15/20 maturity
- Purchased maturities dated 04/15/2013 - 02/15/2040
12:00:38 PM
(EU) ECB's Weber: Sees Germany and eurozone inflation below 2% in the medium term; euro is at least as stable as the Deutschemark was
- Forecasts 2011 Germany budget deficit at 2.5%/GDP; Germany has no room to increase spending or lower taxes
- Inflation risks are broadly balanced, although upside risks to inflation could increase; with risks in some assets classes including property
- Germany economy is seeing strong demand from outside its borders once again.
- Unemployment level in Germany will fall under 7% in 2012.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
"Live in such a way that you would not be ashamed to sell your parrot to the town gossip."
Market Week Wrap-up
- Risk appetite was full on this week as earnings season got underway. Investors took relatively strong earnings reports from Alcoa, Intel and JP Morgan as evidence that the December quarter earnings season will be bright. Coming into the week there were fears that scheduled debt auctions in Portugal, Italy, Greece and Spain would go sour and amp up the old flight-to-safety trade, but all four auctions came off without major problems, thanks in part to rumors of ECB buying. The euro, which suffered last week from fears of contagion in Portugal, headed straight up as European partners negotiated boosting the size of the €750B ESFS bailout fund. Inflation fighting was a key theme throughout the week, as supply disruptions caused by natural disasters in Australia and South America continued to push commodity prices higher. In Asia, the PBoC continued its campaign to cool off overheated lending by raising its reserve ratio rate once again, and the Bank of Korea raised interest rates to cope with what it called supply-driven inflation. In Europe, ECB Chief Trichet warned that the central bank would rigorously enforce price stability after Dec CPI breeched its 2.0% target. In the US, headline December CPI rose by the fastest pace since June 2009 (ex food and energy CPI was fairly tame). Fed speakers offered gently upbeat assessments of the recovery; Chairman Bernanke reaffirmed that US GDP would grow 3-4% in 2011 and Philadelphia Reserve President Plosser said the Fed might need to curtail QE2 if the economy exceeds that forecast. On Friday, the US December retail sales data posted its sixth consecutive increase, offering evidence of a more robust recovery. For the week, the DJIA rose 1%, the S&P500 gained 1.7% and the Nasdaq added 1.9%.
- Alcoa rang in earnings season after the close on Monday with in-line results. Shares of Alcoa had pushed out to one-year highs with the commodities boom ahead of the earnings results, but by the end of the week the stock was down three percent. Note that AA projected a 12% rise in aluminum demand in 2011, driven by aerospace and auto manufacturing.
- Semiconductor stocks benefitted strongly from Intel's better-than-expected Q4 earnings and strong FY11 forecast - with the exception of Intel itself. Analysts praised the chipmaker for its solid margins in Q4 and firm outlook for Q1 and FY11, but traders apparently still wonder how Intel will fare in the emerging tablet computing space. Semiconductor equipment names in particular benefited from Intel's very strong FY11 capex budget which rose to $9B v $5.2B y/y. On Friday KLAC was up 6% and NVLS was up 12%, while shares of INTC were in the red. Shares of AMD dropped sharply this week after CEO Dirk Meyer was forced out by the board on Tuesday. In other tech news, Verizon broke the AT&T monopoly on the iPhone, launching a CDMA compatible version. According to a report from ChangeWave Research, as many as one in four current iPhone users may switch away from AT&T to Verizon, a majority within the first few months of 2011.
- JP Morgan was the first of the heavyweight US banks to report Q4 earnings. Headline numbers from JPM were strong, with both earnings and revenue outpacing analysts' estimates. However, there are lingering questions about the quality of the earnings, which benefitted from $2B set aside to cover bad credit-card loans and $1.2B in reserves for sour mortgages. These were offset by higher reserves for litigation and WaMu issues, but still analysts believe all in all they shaved about $0.12 off earnings. CEO Dimon said mortgage litigation will be "a long ugly mess...will be years before we know the outcome," but it will not be a threat to JP Morgan, and said the board would discuss a dividend increase in March after scheduled guidance from the Fed. Earnings from Bank of America, Citi, Goldman Sachs and Morgan Stanley are on tap next week.
- Private education names made big moves this week on two discrete industry developments. On Monday the private ed names sank sharply after Strayer said that new student enrollments in its winter term were down 20% y/y. The company also said its FY11 total enrollment could fall as much as 5%. Then after the close on Monday Apollo Group reported very strong Q1 earnings (although new enrollment was down sharply y/y); by Friday APOL was up around 20% on the week, DV was up 10% and COCO was up more than 8%.
- US Treasury markets saw strong bids early on and some buyers returned the market late in the week. Another bout of risk aversion induced predominately by more European debt concerns set yields lower initially. Prices sold off heading into the $66B in coupon supply that hit the market mid week, while debt auctions in Portugal, Spain and Italy allayed contagion fears, at least temporarily. By Friday morning US rates were testing one-month lows, with the benchmark 10-year yield briefly testing 3.25%. Gilt and Bund yields have moved higher while European sovereign spreads contracted sharply midweek after Portugal went ahead with a €1.25B in bond auction. The Bund yield has surpassed 3% for the first time in more than a month while the 10-year Gilt is north of 3.6%.
- US municipal bond markets remain in focus for many traders. On Tuesday, analyst Meredith Whitney reiterated her dire near term outlook for state coffers, while an environment where risk assets are noticeably outperforming continues to lure money into equities. Muni bond prices have dropped every day this week and are now at levels not seen since the financial crisis. Yields have surged above 5% for the highest AAA rated 30-year bonds. Borrowing costs are clearly going up for local governments looking to sell new bonds, and in some cases issuers are pulling back the size of their offerings, if not withdrawing them all together.
- A rapid and somewhat surprising reversal in EUR/USD dominated FX trading this week. Coming into the trading week, markets were looking forward to debt offerings from the PIIGS with a sense of dread and many players were wondering if the auction results would speed up the now familiar journey on the road to a Eurozone bailout, this time for Portugal. The consensus expectation was that Greece, Portugal, Italy and Spain would struggle to raise money, with a failed auction not unthinkable. Press speculation and market rumors indicated that Portugal was facing a great deal of pressure to request bailout funds from the ESFS, even as officials repeatedly denied that anything of the sort was going on. We've all seen the movie a couple of times at this point: peripheral spreads widened, China (and then Japan) pledged support, Merkel and Sarkozy clashed in the press, and chatter circulated that the ECB was buying peripheral debt. As Spain and Portugal prepared to sell up to €4B in short- and medium-term debt, word went around that the ECB would not let either auction fail. Both were declared resounding successes, with bid-to-covers more or less healthy and total amounts sold at the high end of the indicated ranges, although it was hard to ignore the hefty gain in yields demanded for the instruments. The average yield asked for Portugal's Oct 2014 bond was 5.396%, versus 4.041% in its prior auction.
- Late on Sunday and into Monday EUR/USD bottomed out beneath the 1.2900 mark, and after the "successful" auctions the pair moved above the 1.31 handle. The pair edged higher toward 1.32 as players liquidated short positions, and in the second half of the week the pair shot right up around 1.3350 as it became apparent that Eurozone leaders were negotiating to expand the €750B European Financial Stability Facility (EFSF) by as much as 100%. The ECB rate decision on Thursday was once again a non-event, although Trichet urged European leaders to improve the "quality and quantity" of funding available under EFSF. The ECB's hawkish tone on short-term inflation (all members were unanimous on inflation language) provided more fuel for the EUR/USD to briefly test fresh 2011 highs at 1.3455. Goldman Sachs did its bit, recommending clients take long EUR/USD positions and target 1.3700. The Chinese reserve ratio rate hike capped upward momentum in EUR/USD, along with Fitch's downgrade of Greece's sovereign ratings to junk, matching S&P's rating.
- In other FX news, USD/CHF tested a pivotal seven-month downtrend line at 0.9730 early in the week, and rising risk appetite in Europe encouraged a weakening of the CHF currency against the major pairs. EUR/CHF climbed to one-month highs above 1.29 aided by stop-loss orders being elected. Franc weakness unnerved the Swiss Government, which called for an emergency summit meeting with various unions, industry and trade representatives to discuss ways of dealing with CHF strength. On Friday, the Swiss National Bank noted it had a CHF26B loss in currency reserves in 2010 due to currency appreciation, but called the strength in the Franc a "sign of strength" despite the challenges it creates for the domestic economy.
- In Asia, both China and Korea tightened monetary policy to cope with rising inflation levels. The PBoC continued its slow yet steady pace of yuan appreciation, with CNY setting a new post-revaluation 5-yr high of CNY6.59 against the dollar as Beijing looks to appease currency reform pressures ahead of Chinese President Hu's visit to Washington next week. The Shanghai Composite index fell over 1% on Friday following a set of hawkish comments from PBoC Assistant Gov Li Dongrong, warning China is facing rising inflation expectations while boosting the outlook for renewed PBoC tightening. The Bank of Korea surprised markets with a 25 basis point tightening to 2.75% against expectations of a hold, marking the third rate hike since the start of its tightening cycle in mid-2010. The accompanying BOK statement expressed rising concerns over supply-driven inflation, warning Korean CPI may not only remain above the government's 2010 target of 3.0% but could also top 3.5% for the entire first half of the year.
- Floods in Australia's Queensland State began to recede late in the week, but not before claiming at least 15 lives and severely disrupting export activity. RBA Board Member McKibbin as well as analysts out of Commonwealth Bank of Australia estimated the flood would reduce the nation's GDP by about 1% or A$13B, sending AUD/USD to a 1-month low of $0.98 before a late-week recovery toward parity.
Week of 1/17/2011 thru 1/21/2011
Monday, January 17, 2011
Economic
None Seen
Tuesday, January 18, 2011
Economic
08:30 US Jan Empire Manufacturing
09:00 BoC rate decision, US Nov Net Long-Term TIC Flows, Total Net TIC Flows
10:00 US Jan NAHB Housing Market Index
11:30 Treasury 3- and 6-month bill auction
Wednesday, January 19, 2011
Economic
08:30 US Dec Housing Starts, Dec Building Permits, Canada Nov Manufacturing Survey
11:30 Treasury 4-week bill auction
16:30 API Crude Oil/Gasoline/Distillate Inventories
Thursday, January 20, 2011
Economic
08:30 US Initial Jobless Claims, Continuing Claims, Canada Dec Leading Indicators
10:00 US Jan Philadelphia Fed, Dec Existing Home Sales, Dec Leading Indicators
10:30 DoE Natural Gas Inventories
11:00 DoE Crude Oil/Gasoline/Distillate Inventories, Treasury note announcement
13:00 Treasury 10-year TIPS auction
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
08:30 US Dec PPI, Dec Core PPI, Nov Trade Balance, Initial Jobless Claims, Continuing Claims
08:30 US Dec CPI, Dec CPI Core Index, Dec Advance Retail Sales
09:15 US Dec Industrial Production, Dec Capacity Utilization
09:55 US Jan prelim Univ of Michigan confidence
10:00 US Nov Business Inventories
Todays Headlines
7:45:14 AM
*(EU) ECB LEAVES MAIN REFI RATE UNCHANGED AT 1.00%; AS EXPECTED
- Deposit and Marginal Lending rates unchanged, as expected at 0.25% and 1.75% respectively
***Reminder: ECB press conference to begin shortly after 8:30am ET (13:30 GMT)
8:30:02 AM
*(US) INITIAL JOBLESS CLAIMS: 445K V 410KE (highest since Oct); CONTINUING CLAIMS: 3.879M V 4.088ME (lowest level since Oct 2008)
- Prior Initial Jobless Claims revised higher from 409K to 410K
- Prior Continuing Claims revised higher from 4.103M to 4.127M
8:34:29 AM
(EU) ECB's Trichet: ECB interest rates are appropriate; Sees evidence of short-term upward pressure in inflation - Prepared remarks
- Still expects price stability over the longer term, will watch inflation developments "very closely," anchoring of inflation expectations is essential. Inflation likely to go above the 2.0% target then slow down again.
- Exports to benefit from continued global recovery. Household demand will more and more drive growth
- Higher commodity prices are among the downside risks, recovery is expected to be dampened by balance sheet adjustment
- Reiterates that non-standard measures are temporary.
8:57:08 AM
(EU) ECB's Trichet: ECB bond buying program is ongoing; EFSF fund needs to be increased in quality and quantity - Q&A
- Notes today's decision was unanimous.; the language on inflation was also unanimous
- Will not elaborate on ESFS issues.
- Questions about ECB insolvancy are "absurd."
- Reiterates again that the ECB will always do what is necessary to maintain price stability.
10:15:06 AM
(US) Dept of Interior: May increase penalties for civil violations of offshore drilling regulations; may add more safety fregulations
- Safety records for drilling companies may become issues as the topic moves forward on consideration of future drilling leases
- Expecting to award deepwater drilling permits by Q3, would be a surprise otherwise
11:03:43 AM
NY Fed: Purchased $8.41B in outright coupon purchase; dealers submitted $20.99B for consideration (bid to cover 2.5)
- Avg bid to cover over prior four QE2 auctions is:2.8
- Heaviest purchase $3.79B in the 12/31/17 maturity (longest dated)
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
08:30 US Dec PPI, Dec Core PPI, Nov Trade Balance, Initial Jobless Claims, Continuing Claims
10:30 DoE Natural Gas Inventories
11:00 US Treasury's 10-year TIPS announcement
13:00 US Treasury's 30-year bond auction
Todays Headlines
5:52:19 AM
*(PO) PORTUGAL DEBT AGENCY (IGCP) SELLS APPROX €1.25B VS. 0.75-1.25B INDICATED RANGE IN 2014 AND 2020 BONDS
- Sells €650M in 3.6% Oct 2014 OT; Avg Yield 5.396% v 4.041% prior; Bid-to-cover: 2.6x v 2.8x prior
- Sells €599M in 4.8% Jun 2020 OT; Avg Yield 6.716% v 6.806% prior; Bid-to-cover: 3.2x v 2.1x prior
7:00:02 AM
*(US) MBA MORTGAGE APPLICATIONS W/E JAN 7TH: 2.2% V 2.3% PRIOR
- Refi's: +4.9% v +3.9% prior.
- Avg Rate on 30y mortgage: 4.78% v 4.82% prior.
- Purchase Index: (Seasonally adj): -3.7% v -0.8% prior
8:23:54 AM
(US) Meredith Whitney: Not expecting any states to default on their debt, expects municipalities to run the risk of default - CNBC
***Reminder: On 12/20 Meredith Whitney told CBS's 60 Minutes that she expects municipal market woes to become the biggest US economic problem apart from the housing market.
-She stated that there is "no doubt" that there will be "a spate of municipal bond defaults within the next 12 months." Could see 50-100 sizable muni defaults.
8:30:05 AM
*(US) DEC IMPORT PRICE INDEX M/M: 1.1% V 1.2%E; Y/Y: 4.8% V 4.7%E
- Prior MoM revised higher from 1.3% to 1.5%
- Prior YoY revised higher from 3.7% to 3.9%
9:13:04 AM
(SP) China's PBoC Vice Gov Li Gang: Will actively participate in European stabilization mechanisms if needed.
- Declines to confirm the reported €6B size of its Spanish bond purchase but adds that China is a long term investor in Europe.
- Reiterates view that Euro currency has key role in promoting a multi-currency world
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
10:00 Jan 08:30 US Dec Import Price Index
13:00 US Treasury's 10-year note auction
10:30 DoE Crude Oil/Gasoline/Distillate Inventories
14:00 Fed's Beige Book, Jan Monthly Budget Statement
Todays Headlines
8:30:26 AM
(US) Fed's Plosser speaks on economic outlook: notes a regular review of bond buying is critical; Sustainable economic recovery underway
- Fed might need to curtail QE2 If Economy Grows Faster.
- QE2 unlikely to lower unemployment and sees the rate declining only gradually.
- US GDP seen between 3-3.5% in 2011/12 period.
- Inflation seen between 1.5-2.0% by end of 2012; Deflation is highly unlikely.
- Housing market to remain weak consumer and business spending improving
9:30:39 AM
(PO) Netherlands Fin Min de Jager: it may be the case that Portugal needs help, but other states cannot force Portugal to request EU/IMF aid
- EU member States cannot oblige Portugal to ask EU for funds.
- Portugal should step up its measures for its budget and economy.
11:02:48 AM
NY Fed: Purchased $7.8B in outright coupon purchase; dealers submitted $21.1B for consideration (bid to cover 2.7)
- Avg bid to cover over prior four QE2 auctions is: 3.7
- Heaviest purchase $1.37B in the 06/30/17 maturity
12:31:00 PM
ECB's Weber: Euro zone is making good progress on fiscal policy reforms; EU has to include a no bailout policy in new framework as an incentive for Govts to stay on track
- Expect German growth to be strong; economy in Germany could return to pre-crisis level by the end of 2011. Domestic demand will continue to support growth.
- Notes that Govts are to blame for the crisis and not markets
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
10:00 Jan IBD/TIPP Economic Optimism, Nov Wholesale Inventories
11:30 US Treasury's 1-month and 1-year bill auction
13:00 US Treasury's 3-year note auction
16:30 API Crude Oil/Gasoline/Distillate Inventories
Todays Headlines
5:29:25 AM
(GE) German Banking Association (BDB): expects that the EU debt crisis will remain for some time
- Says that 'in principle' opposed to Euro bonds, but does not rule out Euro bonds if the debt crisis worsened
- Does not believe that the EU's €750B rescue facility will need to be expanded.
6:00:43 AM
*(EU) OECD NOV LEADING INDICATORS M/M: 102.8 V 102.6 PRIOR
- Nov. leading indicator for G7 countries rises to 103.0 from 102.7 m/m
- Sees accelerating activity in China, US, France, Japan and Russia
- Sees pace of recovery stabilizing in Germany, Canada, Italy, UK and India, slowdown in Brazil
7:50:40 AM
(EU) ECB Trichet: Confirms recovery of global economy, adds that it is better than expected; No time for complacency on inflation
- Declines to comment on Portugal's debt situation.
- Highlights the inflationary related threats in the emerging economies. Central banks must strive to ensure price stability.
- Price of food important with regards to CPI impact; need to monitor development in food prices carefully; CPI not a major concern for industrialized economies.
- Large capital inflows can be an issue globally but large inflows could be a problem.
8:19:32 AM
Morgan Stanley upgrading Semiconductor Capital Equipment Sector to In-Line from Cautious; US Chemicals Sector raised to Attractive from In-Line
- AMAT, LRCX named Top Picks
- LRCX named a Positive Research Tactical Idea; TER named a Negative Research Tactical Idea
- NVLS raised to Equal Weight from Underweight
9:45:49 AM
(US) Dec Chicago PMI revised to 66.8 from 68.6, subcomponents revised lower
- Dec new orders index revised to 68.7 from 73.6
- Dec prices paid revised to 78 from 78.2
- Dec employment revised to 58.4 from 60.2
- Dec production revised to 72.2 from 74
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
SchoolOfTrade.com and United Business Servicing, Inc. are not registered investment or trading advisers. The services and content provided by SchoolOfTrade.com and United Business Servicing, Inc. are for educational purposes only, and should not be considered investment advice in any way. U.S. Government Required Disclaimer - Commodity Futures Trading Commission. Futures and Options trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. cftc rule 4.41. These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under-or-over-compensated for the impact, if any, of certain market factors, such as liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Testimonials may not be representative of the experience of other clients. Testimonials are not a guarantee of future performance or success. No compensation is ever paid in exchange for any testimonials. Testimonials have not been independently verified.
