The US earthquake and tsunami is probably over

As you all probably know, the US debt ceiling had been the primary focus of attention since the PIIGS passed over the baton of global focus.

“A deal had been reached to cut US$ 2.4T over the next decade”, President Barack Obama announced.

There are three hurdles to overcome –

·         Vote by the Senate

·         Vote by the House of Representatives and hence to the President’s desk

·         If the ‘deal’ pleases/meets the credit rating agencies requirements.

Otherwise, this would create another series of aftershocks. Prior to the deal being reached, global markets were jittery over the last week or two. News of the deal had sent Asia Pacific indices higher. This would probably overflow to Europe and the US.

But, what is actually the plan details and how would the experts interpret the details? As usual, the market rally on news/hopes and reverses when the details are intepreted otherwise.

Cometh nightfall, the markets will be focus on the bill being passed to the Senate and the House of Representatives. At the backroom, credit rating agencies will be accessing the new deal.

There’s something to note over last week. Yes, you’ve guess it right. The US economic data (GDP figures) were really pathetic. Q2 GDP figures came in lower than expected. To add injury, Q1 GDP figures were revised much lower. Could I say fortunately or unfortunately, the debt ceiling drama was in focus?

As the August 2^nd deadline is in focus, it would remain the primary focus until Friday, the next key indicator, US Nonfarm payroll and the unemployment rate. Aftwhich no (bad) news is good news!

Are you ready for a financial war?

The dead line for US debt ceiling is Aug 2nd. At point of writing, it is still in a tug of war. How would you trade during this period?

Since my last post, though I was still monitoring the financial climates, i hesitated to post as there was no new news to post. Markets were volatile and within range. In my opinion, my speculation is still valid.

From my earlier post on the worst has yet to come dated July 12^th, I speculated

“And if you are thinking of the US corporate earnings to booster up confidence, do not hope this would happen. Let me explain, the quarterly results reflect the earnings of the previous quarter. Even if the results are good, the speculators are focus on WHAT is happening today!”

The bulls did not do much better as the bears were still in control of the whole drama. I’ll resume posting as D-Day is just round the corner. Be prepared for more volatility!

Let’s look at how benchmark indices are performing at time of writing, 1230pm Singapore time 20110729

Benchmark	20101231	20110429	20110531	20110630	20110729
All Ordinaries	4,846.90 Dec 30	4,899.00 Apr 29	4,788.90 2:52AM EDT	4,659.80 3:33AM EDT	4,503.30 11:28PM EDT
Shanghai Composite	2,808.08 Dec 31	2,912.14 Apr 29	2,743.72 3:00AM EDT	2,762.08 3:00AM EDT	2,694.14 10:47PM EDT
Hang Seng	23,035.45 Dec 30	23,720.81 Apr 29	23,684.13 4:01AM EDT	22,398.10 4:01AM EDT	22,395.65 11:33PM EDT
BSE 30	20,509.09 Dec 31	19,135.96 Apr 29	18,503.28 6:30AM EDT	18,845.87 6:30AM EDT	18,209.52 6:30AM EDT
Jakarta Composite	3,703.51 Dec 30	3,819.62 Apr 29	3,836.97 5:00AM EDT	3,888.57 5:00AM EDT	4,105.95 11:48PM EDT
KLSE Composite	1,518.91 Dec 30	1,534.95 Apr 29	1,558.29 4:50AM EDT	1,579.07 4:50AM EDT	1,546.33 11:33PM EDT
Nikkei 225	10,228.92 Dec 30	9,849.74 Apr 28	9,693.73 2:28AM EDT	9,816.09 2:28AM EDT	9,893.71 10:34PM EDT
NZSE 50	3,309.03 Dec 30	3,519.33 Apr 29	3,547.64 1:31AM EDT	3,448.35 1:14AM EDT	3,400.11 11:33PM EDT
Straits Times	3,190.04 Dec 30	3,179.86 Apr 29	3,159.93 5:10AM EDT	3,120.44 5:10AM EDT	3,176.70 11:28PM EDT
Seoul Composite	2,051.00 Dec 30	2,192.36 Apr 29	2,142.47 5:05AM EDT	2,100.69 5:05AM EDT	2,138.02 11:28PM EDT
Taiwan Weighted	8,972.50 Dec 31	9,007.87 Apr 29	8,988.84 1:30AM EDT	8,652.59 1:30AM EDT	8,663.11 11:28PM EDT
CAC 40 Paris/France	3,804.78 Dec 31	4,106.92 Apr 29	4,006.94 12:06PM EDT	3,982.21 12:05PM EDT	3,712.66 12:32PM EDT
DAX Frankfurt/Germany	6,914.19 Dec 30	7,514.46 Apr 29	7,293.69 11:45AM EDT	7,376.24 11:45AM EDT	7,190.06 11:45AM EDT
FTSE 100	5,899.94 Dec 31	6,069.90 Apr 28	5,989.99 11:40AM EDT	5,945.71 11:35AM EDT	5,873.21 11:35AM EDT
DJIA				12,414.30 Jun 30	12,240.11 4:04PM EDT
NASDAQ Composite				2,773.52 Jun 30	2,766.25 5:30PM EDT
S&P 500 INDEX,RTH				1,320.64 Jun 30	1,300.67 4:19PM EDT

As you probably know, the highlights of events were Europe debt crisis and the US debt ceiling. The drama is about to end. The volatility will heighten till Aug 2^nd or the resolution of US debt whichever comes first.

My Generals have rested. The financial climate is conducive. We’re ready to battle come August!

QE3 developments. Not now says Bernanke

Prior to Wednesday this week, there were discussions and a possibility that QE3 was on the table. Traders took the news and sent US dollar much lower while commodity currencies, Crude Oil and Gold went much higher. Gold traded at a high of US$ 1,594 thereabouts.

However, on Thursday the Fed Chairman said to the Senate Banking committee that inflation is much higher, the situation is more complex and are still uncertain about the near term developments in the US economy. Before any further discussion of new stimulus, the Feds would like to see if the US economy picks up or not. As such, the Feds are not prepared to take further action at this point.

He added that the US default debt would be devastating for both the US and global economy.

As a result, the US major indices closed lower for the day with the NASDAQ falling 1.22% lower. Spot Gold retreated from the highs and closed around US$ 1,586 for the day.

After US closed, Google announced 2Q earnings that blew past expectations. The 2Q performance was much better than analyst anticipations.

Thoughts for the day. Would Asia market follow through with the Feds or be optimistic with Google earnings? Would Europe still be focus on sovereign debts? The closure for US debts is round the corner. Would an agreement be reached by next week such that the funds would be available by Aug 2^nd?

QE3 was finally discussed

In the Minutes of the FOMC dated June 21-22, 2011 released this morning, the probability of introducing QE3 was (finally) brought up!

It looks like the FEDS have sufficient data to interpret the health of the US economy. Take note that this was (even) discussed before the announcement of Nonfarm payroll data and Unemployment rate announced last Friday. The Chairman, Ben Bernanke and his team will gather more data on the health of the US economy before taking the right course.

And what was the immediate response to US equity markets? It pared losses for the day and rose more than 50 points above the flat line. As gold rises in tandem to a possibility of QE3, it rose and was quoted at US 1,565 at point of writing. Crude Oil finished higher at US 97.43. (The commodity markets close between 2-3 am Singapore time). The after trading for Gold August delivery was tested at US 1,574.30 (near record highs).

With half hour to US closing, Moody cuts Ireland to Ba1 with outlook negative. As a result the Euro could not hold its high at 1.405x and resumes losses to below 1.40 after the Ireland downgrade. Speculators in turn focused over to US major indices to drive down the indices to the lows of the day.

How would global mindset be played in Asia and Europe tomorrow? The ‘Hopes for QE3’ or ‘Moody’s downgrade of Ireland’. We’ll know tomorrow, wouldn’t we?

For a complete transcript of the Minutes of the FOMC, click here. If you wish to locate the specific paragraph that discusses the above QE3, scroll down all the way to the heading ‘Committee Policy Action’ and read the paragraph immediately above this heading.

THE BLOGSPOT THAT PRECEDES THE HEADLINES!

The worst has yet to come

Greece has yet to default. Though an almost certainty, in my opinion I do not think Greece would default as long as JC Trichet is the President of the ECB! Who is taking over?

First of all, I am NOT pessimistic. It is a reality. And if you are wondering, what’s happening out there, please read on.

As mentioned in my previous blog, the ‘big boys’ didn’t get Greece, so they are targeting the rest of the PIIGS, namely Portugal, Ireland, Italy and Spain. They are doing it now.

The credit rating agencies has yet to emerge in full force on PIIGS. In my speculation, they would emerge when the ‘French’ rollover of voluntary new debts is announced. This would certainly escalate the current scenario.

On the two largest economy – US and China.

Coupled with the US drama  between the Democrats and the GOP on US debt ceiling, a decision has to be made by next week (not Aug 2^nd) the latest, otherwise, there would not be sufficient time to pass it through the red tape.

As mentioned in my earlier post, China accounting scandal and financial institution are being red flag by Moody, now. If you recall, I mentioned this much earlier but why are global investors / speculators triggering these events (only) now. In other words, why did China and Hong Kong markets react now and not much earlier?

For the record, VIX had spiked from 16.00 to (currently) 18.39. Day high for VIX is 19.06. Similarly, Gold rose from US 1,510 to a high of US 1,557. Last but not least, the USDX spiked to a high of 76.41 today. The Gold pricing and USDX levels were not seen since last April.

In other words, what the market is telling you is to back off! For the moment, step out of the box and have a better picture. My Generals have been telling me (in turn I am sharing this with you) do not fall into the bull trap, last week or two. We are still sidelined.

And if you are thinking of the US corporate earnings to booster up confidence, do not hope this would happen. Let me explain, the quarterly results reflect the earnings of the previous quarter. Even if the results are good, the speculators are focus on WHAT is happening today!

Wall Street bounces back

What a performance from the major US indices this morning!

Despite the

·         Weak global data last week

·         Major credit rating agencies indicating that a Greek rollover to be a credit default

·        Moody’s downgrading Portugal’s credit rating to junk on Tuesday. Sovereign CDS rose much higher for Portugal, Italy, Ireland, Spain and Belgium

·         China markets were dragged lower by mainland bank stocks

·         China raised benchmark interest rates for a third time on Wednesday

·         Weak US economic data – ISM growing at a slower pace

US investors ignored all the ‘news’ and pushed the major indices much higher!

Investor’s mindset. The global mindset could be in synch most of the time or they could be different or individual as in Asia, Europe and US. This is a classic case where the US mindset forms their own and deviate from the norm (and despite weak US data, US debt worries, slow global growth concerns)

For the record,

·         The US dollar index rose to 75.01

·         Gold closed (up) around US$ 1.529

·         Crude oil (up) at US$ 96.89

·         VIX (down) at 16.34

·         The commodity currencies; Aussie (1.0698), Kiwi (0.8269) & Loonie (0.9652) and

·         The Euro and Gbp at 1.432 and 1.60 respectively.

Two major events are in store on Thursday – ECB MPM and on Friday – US Nonfarm payroll and Unemployment rate.