26 JUNE 2013: US DATA LIFTS STOCKS

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Strong manufacturing and housing data lifted the US equity markets after several losing sessions following the meeting in the Federal Reserve (FED) and Chairman Ben Bernanke’s statement last Wednesday. Global markets have since been in turmoil on the prospect of a tapering in the USD 85 billion monthly bond buying program, which have fed stocks with liquidity and created what many see as an artificial rally. Uncertainty as to whether monetary easing will continue, has in two weeks wiped out most of these gains.

The economic data presented yesterday gave strong arguments to those arguing that the US economy is back on the right track and the 6.5% unemployment target set by FED, is within reach. Realizing the heavy waves last week’s statement has created, FED representatives were, on Wednesday, eagerly playing down the likelihood for a quick end to monetary easing, stressing the many uncertainties and FED’s conditions for a termination.

These efforts were, to a certain degree, undermined by better than seven years housing figures. Greater demands for capital goods such as cars and aircrafts point in the same direction. The positive numbers had Dow Jones turn sharply up after four dismal losing sessions. Dow ended 0.65 % up at 14 754, still far from the benchmark 15 000. Nasdaq also gained ground and added 0.5 %. The European markets ended in positive territory after big losses since last week.

The Dollar is the big winner of the FED statement. It gained new ground after the housing data was published, but fell somewhat back. EUR/USD which started on a good note on 1.3235 dipped at a point below the resistance level on 1.3172 which represents the last 200 days moving average. A fall below that level will indicate that the EURO is in bullish territory. EURO fell as deep as 1.3162, but has since recovered well above 1301,72 to 1.3091.

The USD/JPY followed a similar trading pattern and stands 97.90. Australian Dollar rebounded strongly while the Chinese Central Bank’s tighter credit conditions towards private lenders conducting a freewheeling policy, sent new shivers through the Chinese stock markets. The losses were, at one point, 5.5 %, but turned back to a relatively modest 0,2 %. While the US economy seems to improve fundamentally, there are big question marks around the world’s second biggest economy . Oil and commodity prices have risen on the back of the new positive data in US.

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20 JUNE 2013: FED STRENGTHENS USD WHILE STOCKS PLUNGE

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The US Federal Reserve (FED) will start to taper its monetary easing program in the second half of 2013 ,and terminate the bond buying completely in the first half of 2014. That was Chairman Ben Bernanke’s message after FED’s meeting yesterday. A termination depends, however, on continued growth, controlled inflation and achievement of FED’s 6.5 % unemployment target. The US economy is moderately growing, but FED see increased downturn risks due to budget cuts, which have weakened growth. The low interest rate policies will continue.

Markets reacted by sending stocks down. Dow Jones Industrial fell 1.35 %. Nasdaq lost 1.12 %. The Asian indexes plunged on the news. The bond buying program has been the main driver behind this year’s stock rally. A termination invites uncertainty. The Asian-Pacific MSCI-index fell more than 3 %. The Japanese Nikkei was equally hard hit as were Australia, New Zealand and other Asian markets. The downturn in equity markets is most probably going to continue in Europe today.

FED’s conclusion and Bernanke’s comments don’t come as a big surprise. Over the last few weeks there has been continuous speculation as to when tapering would start. FED seems to be convinced that the US economy is on the right track, but keeps the door open for continued stimulus policies in the worst case scenario. This “exit” from monetary easing shall hardly calm nervous markets which usually overreact to news regarded as negative.

FED’s decision has strengthened the Dollar in relation to all currencies. EUR/USD has fallen from the 1.34 level to 1.326. Yen has also lost ground and trades at 96.28 Yen to a Dollar.GBP/USD, which lately has traded at around 1.57, plunged to 1.5448. The USD/AUD continues to fall, 0.9250, on new data confirming a slower Chinese growth. Oil prices are down. Brent crude trades at USD 104.69 a barrel, down one-and-a-half Dollars. Gold and commodity prices continue to lose ground.

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07 JUNE 2013: DOLLAR PLUNGES IN BROAD SELL-OFF

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The Dollar plunged against the Euro, Japanese Yen, and other currencies as investors reduced bets on the greenback on concerns that today’s US jobs report will disappoint. Euro/USD trades at 1.3262. American stocks fell in tandem with a weaker USD, but rebounded to end in positive territory. Dow Jones added 0.53 % to climb back above the 15.000 level. Nasdaq gained 0.66 % to 3 424. The changes seem to be technically driven by psychological factors.

A poll amongst economists expects 170 000 new jobs could’ve been added to the US economy in May with an unemployment rate of 7.5 %. Fear of a weaker than expected job report prompted, however, investors to unwind bets on a stronger Dollar that had been profitable for months. Gold prices, which have been under strong pressure for months, suddenly rose 1 percent to USD 1412 an ounce as investors sold long positions on the Dollar.

The Euro gained after the European Central Bank, ECB, left interest rates unchanged. ECB President, Mario Draghi, stated that further monetary support was unlikely in the near future. ECB has kept interest rates at a record low of 0,5 % waiting for a turnaround in the Euro zone. Bank of England have also chosen to leave their loose monetary policy unchanged. British Sterling, GBP, has jumped against the Dollar at 1,5612 and gained substantially during the last few days from low 1.51 levels.

Concerns that key US job data will disappoint sent the Japanese Nikkei into bear territory in Asia this morning. The Nikkei plunged 1.9 % to a two month low. Nikkei has lost 20 % from a five-and-half-year high, just two weeks ago. Other Asian stocks failed to capitalize on overnight gains in Wall Street. The Asian Pacific MSCI-index fell 0.6 % to its lowest level since November. The fall in equities seem to indicate a stronger appetite among investors for safe haven bonds. The yield on U.S, German and Japanese bonds have risen recently.

Oil prices are higher on the back of a weaker Dollar. Brent crude trades close to USD 104 a barrel, up from the USD 100 mark earlier in the week.

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27 MAY 2013: INVESTORS LOSE OUT DUE TO BAD TIMING

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Stocks took a breather last week after signs of cooling in China, and what some investors saw as a possible change in FED policies. The Nikkei, which has soared since last November on hopes of economic revival, was the hardest hit with Thursday’s 7,32 % fall. Other Asian and European markets dropped as well, but not so dramatically, raising questions whether the bull market has come to an end.

Some investors blame FED-chairman, Ben Bernanke for the turmoil. Others point to a seeming difference between Bernanke and the board’s published minutes for late April. Investors might, however, blame themselves for unrealistic expectations and their gamble on a change in FED’s policies.

Investors have different motives in their bet for a change. Some are appalled by FED’s money printing and that there is no predicted hyperinflation. Others hoped that Bernanke’s monetary experiments would be abandoned. Such abandonment would have meant that President Obama’s entire economic policy had failed. The third and biggest group of Wall Street investors simply blame themselves for missing out on the stock rally. The general indexes have beaten the hedge funds three times since January.

No wonder many of them are frustrated. Fat bonuses this year might hang on their own wishful thinking for a quick change. Change depends, however, on objective analysis, and a correct reading of Bernanke’s careful wording. In his testimony last week, Bernanke repeated word for word what he stated since last September.

FED will continue to buy 85 billion of bonds monthly till the 6,5 % target for unemployment and a steady growth is established. The US economy is not quite there yet. It might well take another 8 – 12 months. The grunting from dissatisfied FED board members is not something new.Their hopes for a change in policies have been reflected in the last eight FED minutes.

There will, of course, be a change. But the timing will be decided by economic data and FED’s consideration. Investors lost billions of dollars last week on a wrong bet on the timing for a change. By now, they have hopefully swallowed their anger and are ready to meet markets which are hopefully back on track, ready for rallies and continued new highs.
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23 MAY 2013: BERNANKE TAKES USD TO NEW HIGHS

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The head of the federal Reserve, FED, Ben Bernanke’s statement to Congress caused markets to fluctuate wildly yesterday. Bernanke’s comments initially had a positive impact on the stock markets when he stated that it would have unpredictable consequences for the US economy if FED’s bond buying program was terminated within the near future.

The bond buying program has boosted the US and global stock markets, but has so far failed to create new employment. FED has earlier stated that the bond buying of USD 800 billion collar will end when the unemployment has reached 6,5 %. It now stands at 7,6 %. This statement was initially seen by markets as a continuation of the bond buying that has boosted global equity markets.

At the same time Bernanke indicated that the termination of the bond buying might be on the immediate cards.. These comments were supported by the minutes from the April/May FED board meeting opening for a termination of the bond buying within the near future. This resulted in a steep fall in US stock indexes. Dow Jones fell from 16 464 down to 15 307 with equal immediate drops in S&P and Nasdaq.

The USD jumped to 103,73 Yen a Dollar. The DXY, a basket of currencies against USD, raised to a record high of 84,27, Euro/USD jumped to 1.2854 as Swiss Franc weakened both towards Dollar and Euro. The Australian dollar trades at its lowest level in a year. Precious metals have fluctuated wildly through the New York session with gold trading between USD 1369 and 1416. Silver reached USD 23,20 to fall back to 22,27. Oil prices remain steady.

Bernanke’s statement boosted global stock markets. Dow Jones immediately increased to a record high of 15 464 with equal jumps in European equities.

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