The Nikkei had an odd session, gapping higher but shooting above, and pulling back in order to form a shooting star. The truly interesting thing about this shooting star is that it is in the center of the massive negative candle from the Thursday session. In the sense, it is an “inside shooting star.” That being the case, there is a significant amount of noise just below, which of course should offer decent support. However, the Nikkei has been so out of hand with its volatility lately that we feel it is best avoided for the next several sessions.
The Nikkei fell hard during the session on Thursday, losing 6.3% by the end of the day. The market had started week, and only got worse as time went on. What’s truly astonishing about this is that the market finished at the lows of the session, which normally means that we are going to fall even farther.
Looking at the region of ¥12,300, it looks like there is a lot of clustering down here that could cause a bit of support to come back into this marketplace now. What will be interesting to see is how the markets react to this selloff and whether or not it continues. Quite frankly, normally one we see this type of selloff, there is a bit of a bounce in reaction as traders try to take advantage of a move that may have been overdone. However, this has been part of a much larger move. Because of this, we are very leery of getting involved in this market from the long side at this point in time. In fact, the easiest and probably the smartest trade is to simply wait for this market to bounce and look for a resistive candle.
The main reason we say this is that it’s very difficult to keep up that type of momentum into the second trading day. Because of that, we think that more than likely value investors will step in and trying to push his market higher. On top of that, the Yen seems to have found a bottom against the US dollar, as the 94 handle in that currency pair acted as significant support, causing it to form a perfect hammer for the session.
Another thing that will have to be watched is the JGB markets, as the Japanese simply must show that there some stability in the bond markets over there, or all hell will break loose. This is one of the biggest problems facing Japan right now, and the Bank of Japan needs to step in and calm things down, or the Nikkei really could begin to get punished from here as well.
Asian equities dropped on Thursday after the World Bank cut its global growth forecast amid concern central banks may pare monetary stimulus. Key benchmark indices in China, Hong Kong, Indonesia, Japan, Singapore, Taiwan and South Korea shed by 1% to 5.28%. US stocks fell on Wednesday as traders extended a selloff driven by concern about central banks winding down their stimulus measures. Wall Street closed lower for a third straight day on Wednesday, marking the Dow’s worst losing streak this year. The Dow Jones, which initially jumped more than 100 points, finished down more than 120 points, or 0.8%, falling below the key 15,000 level once again. The 3-day slide was the blue chip index’s first one of the year. S&P 500 also slipped 0.8%, while NASDAQ tumbled more than 1%.
Volatility has picked up in recent week amid increasing unease about when central banks will begin weaning investors off cheap money. European stock markets ended lower on Wednesday after unions in Greece called a general strike and as investors worried about a potential reduction in central-bank stimulus. Germany’s DAX 30 index slid 1% to 8,143.27 while France’s CAC 40 index dropped 0.4% to 3,793.7. U.K.’s FTSE 100 index fell 0.6% to 6,299.45.
Taking cues from the volatile equities markets, global currencies were just as reactive. The World Bank report downgraded global growth for the balance of 2013 from 2.4% to 2.2% weighed heavily on the markets which were already upset in the morning as the Nikkei tumbled after disappointment on the lack of action by the Bank of Japan, which concluded its two day meeting holding rates and programs. The JPY has climbed most of the week, trading this morning at 94.81 off its low near 1.05 as the Japanese government tries to turn the economy from deflation to inflation. The Bank of Japan kicked off its aggressive stimulus program in April and there have been positive results with exports climbing and economic data reporting above expectations. The Japanese government recently got a pass on its aggressive policy’s by the G20 and has been supported by the OECD, World Bank and the IMF; traders had expected the BoJ to add new programs or additional stimulus.
The US dollar continues to weaken ahead of next week’s Federal Reserve meeting. Just weeks ago, markets were trying to decide if the Fed would begin tapering stimulus, then a rash of lackluster data lowered expectations and traders relaxed, now some analysts are thinking that the Fed might add a bit more stimulus to help the economy smooth out the road ahead. The US dollar fell 23 points this morning to trade at 80.93.
The weak US dollar is helping the euro to trade in the green, exchanging at 1.3358 adding another 23 pips today. The euro rose to a fresh 3-1/2 month high versus the US Dollar on Wednesday as investors cut favorable positions in the U.S. currency on renewed expectations the Federal Reserve’s may keep its monetary policy ultra-loose.
The Nikkei fell during the session as we gapped lower on Wednesday, but found enough support at the ¥13,000 level to have buyers stepped in and push the market back up. The resulting action closed the gap for the session, and as a result we find ourselves sitting just under resistance at this point.
In order to start buying the Nikkei again, we need to clear the ¥13,600 level. Until we close above that on the daily candle, we cannot buy. On the other hand, selling is going to be a bit difficult until we get that resistive candle although we certainly are in a downtrend. At this point time, we feel much safer to be outside of this market than in it.
European exchanges closed sharply lower on yesterday, on ongoing concerns about the scaling back of monetary stimulus programs by central banks. Wall Street closed lower in volatile trading after briefly wiping out most of their losses, with all key S&P sectors closing in the red, as the Bank of Japan’s latest monetary policy decision disappointed investors. Global central banks seem to be the driving force in the market place. The Dow Jones, the S&P 500, and the NASDAQ started the day deep in the red before rebounding. The Dow even briefly made it into positive territory. But all three indexes ultimately closed between 0.8% and 1% lower.
On the economic front today, Europe and Germany will release their respective industrial production and consumer price index data, which is likely to improve and support the euro. Later traders will see the US release its monthly budget statement which may have a negative impact on the dollar. Yesterday The US NFIB Small Business Optimism improved from 92.1 to 94.4 indicating recovery of economic growth. The dollar index fell 0.65%. The Labor Department on Tuesday released its April data on job openings and turnover. Job openings fell 118,000 from March to April, but gross hiring rose a much larger 198,000. Yesterdays’ small business survey released by the National Federation of Independent Business showed a rising number of business owners who report difficulty finding qualified workers. In May, 19% of all owners reported job openings they could not fill in recent months.
Asian stocks fell this morning, extending a trend that wiped out about $400 billion from the value of global equities yesterday, as Japanese machinery orders declined more than expected and concern grew that central banks from Tokyo to Washington are increasingly reluctant to add stimulus. U.S. stocks declined sharply Tuesday after the Bank of Japan opted to hold its monetary policy steady, raising concerns that central banks will not provide additional economic stimulus. Tokyo’s Nikkei shed 1.8 percent to 13,077.83, extending declines after spiking up nearly 5 percent Monday after the prime minister promised new tax cuts. Markets in China, Hong Kong and Taiwan were closed for a holiday.
Seoul’s Kospi lost 0.3 percent to 1,914.86 while Sydney’s ASX S&P 200 tumbled 0.9 percent to 4,712.70. Singapore’s FTSE Straits Times index lost 0.3 percent to 3,160.28 and New Zealand was down 0.3 percent at 4,448.97.
Uncertainty about China’s recovery has weighed on markets following weekend data showing exports, retail sales and other indicators weaker than expected. Trading this week has been lackluster following a volatile period that saw many major markets come off multiyear or even record highs.
The Nikkei fell during the session on Tuesday, dropping from the ¥13,500 level to the ¥13,317 area. Look at this chart, you can see that we have found off of the red moving average, which of course is the 100 day EMA, but have found resistance of the 50 day EMA that is colored black. With that being the case, we could find ourselves simply bouncing around between these two averages as we try to form consolidation. Consolidation is something that we could use, because quite frankly the market has gotten too volatile and far too parabolic. With that being said, we expect sideways motion for the next couple of sessions. On a break of the 50 day EMA, which of course is the black one, we are buyers.
Tokyo saw a massive move during the session on Monday, gaining just under 5% for the session. This is just another example of massive volatility we are seeing in Asia lately. There are a lot of concerns about whether or not China is slowing down, whether or not the “Abenomics” measures will be enough to kick Japan’s economy and a forward here, and then of course just general geopolitical concerns as well. Because of this, the Nikkei has been on an absolutely massive roller coaster ride.
With that being the case, we have to look at this chart very carefully. What we see at the moment is that the ¥13,600 level should be a significant amount resistance. Unfortunately, that’s pretty much where we stopped during the session on Monday, and because of this we feel that the open the vital as to what happens in Tokyo from the rest of the day on. If we can gap above that area, then we have a real chance to breakout to the upside again. However, if we fail it’s very likely that we remain in the consolidation area that extends all the way down to the ¥12,600 level.
As the Americans have closed out relatively flat for the session, it’s likely that the Japanese markets will take a bit of a break during the session. However, we will have to keep our eyes open for headlines coming out of Japan that could move this market for the session.
As usual, you have to keep your eye on the USD/JPY pair as well, as it has a massive effect on the exporters which of course are some of the largest companies in Japan. Right now, it appears that the pair has found that Lisa some type of stable footing, and because of that we could get a weaker Yen, which of course benefits those very same exporters. In fact, we feel that the Nikkei is essentially making it moves based off the currency markets more than anything else at the moment. That being the case, make sure you have your eye on both.
I was watching CNBC Asia two nights ago and marveled at the talk of how well Japan was doing, noting the obvious enthusiasm for the record level of the stock market.
And just like it was back in late 1999, there are more bulls coming out on Wall Street and saying how high the Dow could run. I have heard talk of the Dow at 20,000 and the S&P 500 at 1,800.
Then there’s the recent cheerleading on the stock market from perennial bull Jeremy Siegel from the Wharton School of business, who thinks the Dow could trade at 17,000 this year. (Source: Navarro, B.J., “Jeremy Siegel Still Sees Dow 17,000,” CNBC, May 31, 2013.)
With all of this bullishness, I’m now thinking of an exit strategy. Everyone who thinks this stock market is going higher without some sort of correction may be surprised.
Never mind about the speculation surrounding the Federal Reserve cutting its bond buying at the upcoming Federal Open Market Committee (FOMC) meeting on June 14 and 15; as long as the jobs picture remains fragile, the Fed will likely refrain from doing so until there are stronger economic signals.
The ADP Employment Change was weaker than expected at 135,000 new jobs in May (source: Automatic Data Processing web site, last accessed June 6, 2013), below the Briefing.com estimate of 140,000. If the non-farm reading today also comes in subpar, then I believe the Fed may think hard about cutting stimulus at this juncture.
Of course, you also have to worry about the bubble-like situation in the Japanese stock market. Yes, I say the Nikkei is in a bubble and may be set to burst. The reality is that the benchmark Nikkei 225 is way overvalued, and it fell another 3.8% on Wednesday. With the decline, the overhyped index is now down 15.7% from its high on May 22.
Apparently, Japan’s Prime Minister and the mastermind behind the country’s massive capital injection, Shinzo Abe, failed to discuss the Japanese economy in detail at a keynote speech. Perhaps Mr. Abe has something he wants to avoid talking about?
While the Japanese situation is 10,000 miles away, the ramifications of a major sell-off there would likely trigger a correction in other global stock markets.
The bull market is not done, but I’m seeing an upcoming opportunity to accumulate stocks.
The Nikkei fell rather hard again this week, making it a third consecutive bearish week. However, there was a supportive cluster at the ¥12,500 level that had to hold, and as of the close on Friday it had. Because of this, we think that there is a chance that buying reenters the Nikkei this coming week. However, there is no technical signal four at this point in time, other than the fact that the aforementioned ¥12,500 level had offered support. If you are aggressive, then obviously you can take that answer buying, but in reality we feel that waiting on a candle that suggests that the markets going to go higher is probably the safer action.
The Nikkei went back and forth on Friday again, waiting for the US nonfarm payroll numbers to come out later that night. The number has come out, and the United States added roughly 170,000 jobs for the month of May, and more importantly for this particular index – the USD/JPY pair got a significant bounce off of the 95 handle. Is because of this that we feel that the short-term move is probably higher in the Nikkei, and a break above the shooting star from Thursday would be a significant sign of bullish momentum. However, the Nikkei seems to be hanging on every word out of the Bank of Japan, as well as the Diet, and other government officials in Tokyo. It is because of this that only the trader with fortitude should be involved from the long side in this market. However, if we are going to see a significant bounce – it should be in this general vicinity.
Pay particular attention to the exporters, as they have been beaten not rather significantly lately. This has to do more with the exchange rate than anything else. Because of this, as they have sold off much harder than some of the other stocks in Tokyo, we believe that companies such as Sony, Canon, and Toyota should all do fairly well in the short run. The real question of course is whether or not the Nikkei can keep the bullish momentum from the longer-term charts up. We suspect that the easy money has argument made, and in less you can’t that massive bullish run, and more than likely are get have to earn that money now.
On the other hand, if we managed to smash through the ¥12,000 level, we believe that this market will eventually retrace everything that it built up. If that’s the case, this market will become a raging short, and things will get ugly very fast. Keep an eye on the exchange rate versus the Dollar and the Euro, making sure that the Japanese yen doesn’t appreciate too rapidly as it has such a massive effect on this market.
As we approach the mid-point of the year, U.S. stocks continue to fare well with the annualized return of the Dow at 42% and the S&P 500 at 39%. While I have long been skeptical of the idea of stocks continuing at their current pace, you never know, as trading can be irrational, based on my stock analysis. Just think back to late 1999 and early 2000, prior to the technology implosion.
As my stock analysis suggests, you know things may be irrational when the Nikkei 225 in Japan is up over 70% during the last six months prior to a more than seven-percent correction on May 23 and 3.2% on May 27. Japanese stocks could further correct, as I’m not convinced the economy in Japan is guaranteed to grow consistently, despite the steady injection of easy money, based on my stock analysis. (Read “Japan Not Home-Free Despite Strong GDP.”)
A closer look at some of the sector performances so far this year shows gold and silver mining investments are faring the worst, with the gold mining sector down nearly 33% this year and its silver counterpart down a whopping 38%, according to data from Barchart.com. At this time, based on my stock analysis, I’m still not that anxious to play a bounce in gold and silver, as there are opportunities for making much better returns elsewhere.
The top-performing sector so far this year is the solar energy sector, which is up a staggering 89.7%, according to my stock analysis. And while the advance has been impressive, be aware that this sector is high-risk as far as volatility and that it is largely driven by momentum trading, as my stock analysis indicates. Some of the top players in the solar area include large-cap First Solar, Inc. (NASDAQ/FSLR), a developer of solar hardware that converts solar power from the sun into electricity. Of the mid-caps, there’s SunPower Corporation (NASDAQ/SPWR), and on the small-cap end, take a look at Canadian Solar Inc. (NASDAQ/CSIQ).
Chart courtesy of www.StockCharts.com
Insurance and financial stocks have also provided some excellent leadership this year, according to mystock analysis. The big banks are delivering and providing great returns to shareholders, and I expect this to continue—especially as they become able to pay dividends again, according to my stock analysis. The insurance sector, comprising those multi-line offerings, is up 48% this year.
I also continue to favor the technology sector, especially those stocks with a focus on mobility and the Internet. The Internet services sector is up 35% this year. Here we have online travel operators, such as Travelzoo Inc. (NASDAQ/TZOO) and Expedia, Inc. (NASDAQ/EXPE). In the social media space in China, take a look at Renren Inc. (NASDAQ/RENN), and in the Chinese e-commerce space, take a look at E-Commerce China Dangdang Inc. (NASDAQ/DANG).
Another sector that is doing well is the aerospace parts and services provider sector, which is up 31% this year, based on my stock analysis. Here you will find interesting companies, including two of my favorites: B/E Aerospace, Inc. (NASDAQ/BEAV), a supplier of seat and lighting accessories for planes, and Spirit AeroSystems Holdings, Inc. (NYSE/SPR), a maker of fuselage, propulsion, and wing systems.
Chart courtesy of www.StockCharts.com
On the small-cap end, consider taking a look at Astronics Corporation (NASDAQ/ATRO). And finally, for speculative investors, micro-cap CPI Aerostructures, Inc. (NYSE/CVU) is worth a look.
The one-day sell-off last week in Japan’s equities market with the benchmark Nikkei 225 plummeting more than seven percent in one day should not be ignored; in fact, the drop may be a harbinger of things to come. I don’t have a crystal ball, but my market sense is tingling.
The reality is that the sell-off in the equities market was not a surprise, given that the Nikkei has advanced 70% over the past six months. And this advance was driven largely by Prime Minister Shinzo Abe’s aggressive 10-year stimulus strategy to jumpstart the dormant Japanese economy.
Yet what was more concerning was the lack of a follow-through by the Nikkei equities market after the sell-off, as the index rallied a mere 0.9% the following day.
The market’s fear is that if the selling continues on the Nikkei, this could drive down confidence in the equities market and trigger deeper losses on the horizon, including declines in domestic trading.
The Japanese equities market could easily go lower, given the advance so far.
For Prime Minister Abe, should the Japanese equities market reverse course and decline, the move would likely erode confidence in Japan and test Abe and the country’s resolve.
In my view, as I have discussed in these pages in my previous commentary on Japan (read “Japan Not Home-Free Despite Strong GDP”), the country’s aggressive fiscal and monetary policy is not a sure bet to get Japan out of its economic abyss.
In fact, the aggressive printing of money in Japan will create a bloated national debt level on the country’s balance sheet, which is already one of the weakest in the world.
The ability to drive the economy by spending trillions may work in the upcoming years, but I wouldn’t feel good about amassing the amount of debt that Japan is.
The sell-off in the Nikkei equities market could make investors uneasy on this side of the Pacific.
Domestically, the market is concerned about the Federal Reserve looking at a possible reduction of its bond-buying program as early as June during the Federal Open Market Committee (FOMC) meeting that is scheduled for that month.
The fear is that more selling in the Nikkei equities market may trigger deeper losses to come not only in Japan, but elsewhere; so there may be some apprehension to jump into stocks at this point.
The chart of the S&P 500 below suggests that a possible correction may be in the works, as shown by the ovals. Note also that in 2012, the S&P 500 gained a mere seven points from May 1 to October 31—historically the weakest six months for stocks, according to the Stock Trader’s Almanac—but advanced 13.4% for the year, so we could be headed for some slack.
Although the US retail sales added on Friday to signs the United States is recovering, while the borrowing costs fell in Europe last week following the strong auctions, cautious is prevailing as the results of the Greek talks are unclear.
Investors are awaiting the progress of the crucial Greek talks, as the government is trying to reach an agreement with bondholders over the size of the losses in order to avoid a messy default.
Meanwhile in Europe the Euro zone finance ministers will meet in Brussels to discuss the latest offer from private holders of Greek debt, while France and Germany are due to sell short term bonds today.
Data today is absent from both Europe and the U.S., while in Asia volumes were thin as most markets were closed for the Chinese Lunar New Year’s holiday, which marks the start of the Year of the Dragon.
Equities in Asia were mixed today with Nikkei 225 falling 0.01 while the MSCI Asia Pacific Index rose 0.1%. The same goes for the currencies and commodities, while in Europe stocks started the session with losses, where DAX fell 0.24%.
The euro is moving with an upside momentum around the 1.2930 level, the pound is weakening trading around 1.5535, while the yen is weaker at 77.05. However the dollar index is falling trading around 80.20.
While gold is gaining trading around $1670.70, oil is weakening trading around $98.00 as EU foreign ministers will decide today when the embargo of Iranian oil will start, to increase pressures on Tehran to stop their nuclear program.
Although Greece is closer to reach a an agreement with bondholders, Europe’s bond auctions were successful this week, and the US presented upbeat economic data and earnings yesterday, markets are retreating on profit talking operations ahead of the weekend.
In Asia, stocks advanced on easing worries over Europe, since the French and Spanish bond auctions were solid yesterday, pushing the yields down. Meanwhile the U.S. jobless claims fell to the lowest in almost 4-years and Morgan Stanly and Bank of America posted better than expected earnings.
Nikkei 225 rose 1.47% especially since sentiment was positive as Greece is getting closer to reach an agreement with bondholders over the size of the losses to avoid a messy default, while China’s manufacturing PMI might contract for a 3rd month, boosting chances for easing measures to support growth.
However in Europe shares opened lower today as caution dominated ahead of the Greek talks, with DAX falling 0.38% while CAC 40 fell 0.51%. European stocks entered an overbought area after reaching a five month high, while Google delivered the first disappointing results on weaker European demand.
Data today include the UK retail sales expected to improve, Canada’s CPI expected to shrink, and the US existing home sales expected to expand in Dec. Earnings today include General Electric Co., while Italy’s Prime Minister Mario Monti’s Cabinet will meet to pass a plan to boost economic growth.
As risk aversion intensified ahead of the weekend, the euro is weakening, trading around 1.2925 while the pound is trading with a slight downside momentum around 15470. The dollar index is stronger trading around 80.27. The yen is weaker trading around 77.22. The AUD is weaker trading around 1.0395.
Markets are rising quietly ahead of the France’s and Spain’s bond auctions on hopes Greece will soon reach an agreement with bondholders while the International Monetary Fund considers expanding its lending resources to help the euro-zone countries fight the debt crisis.
The IMF is seeking to expand its lending resources by $500 billion yet the U.S. and other countries rejected the idea, considering that the Europe must solve this problem with its own money. Meanwhile Greece might reach an agreement with bondholders over the size of the losses to avoid a messy default.
The upbeat earnings report from Goldman Sachs and EBay helped keep sentiment positive, while earnings from Bank of America, Morgan Stanly, Google, Microsoft and Intel will keep investors cautious, especially after the New York based Kodak filed for bankruptcy as consumers turned from film to digital technology.
Asian stocks advance today on IMF and China, as world’s 2nd largest economy considers easing the capital requirements and is letting its five biggest banks boost lending to avoid hard landing risks. Nikkei 225 rose 1.04% yet the S&P/ASX 200 fell 0.07% after Australia’s employment unexpectedly fell in Dec.
In Europe shares advanced on Greece and IMF hopes ahead of the France’s and Spain’s long-dated bond auctions. Portugal’s yields fell yesterday after a successful auction easing some of the worries ignited since S&P’s mass debt rating cuts in Europe. DAX rose 0.04% while CAC 40 gained 0.49%.
Today the ECB will release its monthly report, while the US will be releasing its CPI index, the housing starts and building permits data along with the weekly jobless claims, Philly index and EIA crude oil inventories. In Europe, France will sell 9.5 billion euros of debt while Spain will sell 4.5 billion euros of bonds.
Markets were cautious after in UK the unemployment rate hit a 17-years high at 8.4%, while the World Bank cut its growth forecasts by the most in three years, yet after the IMF said it could propose expanding its lending resources by $1 trillion, sentiment turned positive.
The World Bank said the world economy will grow 2.5% this year compared with June’s estimate of 3.6%, while the euro area may contract 0.3% from a previous estimate of a 1.8% gain. Yet markets had a muted response just like the reaction to S&P’s downgrade to the EFSF’s rating.
Sentiment found more support as Greek Prime Minister will resume negotiations with bondholders as the country is close to reaching an agreement over the size of the losses to be bared by the creditors. Meanwhile Portugal will sell 2.5 billion euros of debt while Germany will sell 4 billion euros of bonds.
After the US manufacturing expanded by the fastest pace in 9 months while the German investor confidence jumped the most on record yesterday, investors will focus on today’s data as well, as the US industrial production is expected to rebound in Dec. after falling for the first time in seven months in Nov.
The PPI in the States is expected to fall, while in UK the unemployment rate hit a 17-years high deepening concerns Britain is heading for another recession. Most Asian stocks advanced today on positive economic data, where Nikkei 225 gained 0.99% while Hang Seng gained 0.30%.
In Europe shares advanced following the string auctions from Europe and the IMF proposal to expand its lending resources where DAX gained 0.74% while CAC 40 gained 0.70%. The euro is enjoying strong gains trading around 1.2830 while the pound is trading with upside momentum around 1.5375.
Markets turned positive today after Italy’s and Spain’s bond yields fell yesterday following the strong bond auctions, while ECB’s president Mario Draghi said there are “tentative signs of stabilization”, easing worries over the debt crisis.
Demand on the higher yielding assets increased today as in the US the consumer confidence is expected to rise to a 7-month high while Italy is expected to witness strong demand on the 4.75 billion euros of bonds it will sell today.
In Asia stocks rose to a one month high as sentiment improved as European policy makers are expected to start keeping the debt crisis under control, therefore Nikkei 225 rose 1.36% while Hang Seng rose 0.57%.
In Europe stocks rose as the euro is buoyant on eased worries over Europe which gave support to the commodities as well. DAX gained as of this writing 0.59% while CAC 40 gained 0.75%.
Data today may show that the US consumer confidence rose in Jan. to 71.5, the highest in 7 months. In Europe data may show the trade balance may see deficit in Nov., while in UK the PPI fell in Dec.
As the risks on the global economic outlook eased with Europe expected to start keeping the debt crisis under control, the euro gained trading around 1.2825, while the pound is around 1.5350.
The dollar index is weakening trading around 80.75, while the yen was higher trading around 76.70. The AUD rose today trading around 1.0350. Gold however fell today trading around $1640.30.
Oil recovered some of the sharp losses seen yesterday after Europe said it will delay the restrictions on oil imports from Iran for about 6 months. Crude is now trading with bullish momentum around the $99.55 level.
Markets are cautious as investors’ appetite for risk is about to be put to test since Spain and Italy are preparing to sell as much as 17 billion in debt today, while ECB and BoE will announce their key interest rates.
The European Central Bank and Bank of England are expected to keep the monetary policy unchanged this moth awaiting for more evidence about the effects of the previous easing measures.
After the ECB’s first interest rate decision for 2012, market’s will turn their focus towards Draghi’s press conference, yet the key economic data awaited from both Europe and the US today are also adding to the caution.
In Europe the industrial production is expected to fall in Nov. from the previous month, in the US retail sales are expected to improve in Dec., while in UK the industrial production fell below expectations in Nov.
Asian stocks retreated today as confidence turned more negative after Japan’s current-account surplus narrowed in Nov. on slowing demand for exports, while in China inflation eased to the lowest level in 15 months.
Although China’s policy makers are given more room to accelerate their easing measures, it indicates that consumption is weakening. Nikkei 225 fell today 0.74%, while Hang Seng fell 0.30%.
In Europe stocks are mixed ahead of the Spanish, Italian bond auctions while sentiment will be put to test ahead of ECB’s meeting. FTSE 100 fell 0.17% while CAC 40 gained 0.22%.
If investors will be disappointed by today’s results, the euro and other high yielding assets will face more downside pressures. For now the dollar index is moving with bearish momentum around the 81.25 level.
The euro is slightly higher around the 1.2720 level, while the pound is seeing losses trading around 1.5300 as the industrial production fell in Nov. more than expected. The yen weakened trading around 76.95.
The AUD is almost unchanged around the 1.0305, while the downside pressures imposed on the USD brought some gains to gold which is trading as of this writing around the $1648.10 per ounce level.
Japan said today it might reduce its petroleum imports from Iran, which continues to threaten shutting Strait of Hormuz in response to the US and EU sanctions, imposing upside pressures on crude which trades around $101.55.
Currency markets are moving in tight ranges while equities in Asia and Europe are mixed ahead of the German 4 billion euros 5-year bonds auction, while Spain and Italy are preparing to sell as much as 17 billion in debt tomorrow.
IMF chief Christine Lagarde will meet French President Nicolas Sarkozy in Paris to discuss the debt crisis, after Merkel-Lagarde meeting yesterday focused on Greece and efforts to resolve the crisis which is dragging Europe in recession.
Meanwhile Italian Prime Minister Mario Monti will meet the German Chancellor after Fitch said yesterday Italy, Belgium, Spain, Slovenia, Cyprus and Ireland remain on negative watch facing downgrades.
In Asia stocks were mixed as growth outlook is faltering across Asian countries on worried that Europe’s debt crisis will damage the global economy even more, where Kospi Index fell 0.41% while Nikkei 225 rose today 0.30%.
In Europe stocks are also mixed with DAX falling 0.06% while CAC 40 gained 0.27% ahead of the bond auction while economic data is absent from the euro-zone today, yet UK released its trade balance for Nov. were deficit widened.
The US will release its Beige Book and the EIA crude oil inventories later in the day, however markets await tomorrow’s key rate decisions from EU, UK and South Korea, all expected to hold rates unchanged to support growth.
Crude oil is almost unchanged at $102.10 yet its movement seem to be somehow bearish as Europe’s crisis is weighing on sentiment, yet the continued tensions over Iran and Nigeria are limiting its losses.
Markets are moving in tight ranges with some upside bias ahead of a key meeting between Merkel and IMF’s chief Lagarde, as well as bond auctions from Netherlands, Austria, Hungary and Greece.
German Chancellor Angela Merkel will meet today the IMF’s managing director Christine Lagarde in Berlin to discuss about Greece. Yesterday Merkel and Sarkozy stressed the need of quick solutions to ease Greece’s debt burden.
Data is absent today from Europe, yet Netherlands, Austria, Hungary and Greece are holding bond auctions. Meanwhile the US will release Nov.’s wholesale inventories expected to fall, yet the focus will turn to Merkel-Lagarde meeting.
As the US recovery is increasing while no fresh bad news came from Europe and in China policy makers are expected to accelerate easing measures after the weaker than expected trade balance report, markets are somehow optimistic.
Thereby Asian stocks climbed on Tuesday with Nikkei 225 rising 0.38% and China’s CSI 300 Index rising 3.33%. European shares also rose after Alcoa gave a good start to the earnings season, with DAX gaining 0.95%.
As sentiment improved, demand for higher yielding assets is increasing, yet the caution ahead of Merkel-Lagarde is keeping markets in tight ranges. The euro is almost unchanged at 1.2765, while the pound gains trading around 1.5465.