All eyes will be focused on the Parliament results of Greek austerity proposal

Last week, it was the Greek vote of confidence. The Parliament results of the austerity plan will be in the focus this week. As you probably know, there were several important events last week. It came but was overshadowed by the Greek events.

I like to summarize and add a few opinions to the (six-weekly) Fed monetary policy meeting, the International Energy Agency announcement and a new concern, the Italian banks. The week began with the Greek vote of confidence followed by:

Ben Bernanke’s press conference was crucial as it displayed;

·         an acknowledgment that the economic recovery was unfolding more slowly than previously expected,

·         the slowdown is likely to be temporary

·         Commodity-based inflation pressures are expected to dissipate

·         QE2 will be complete at the end of June and

·        Economic conditions are likely to warrant exceptionally low levels for the federal funds rate for an extended period (2-3 quarters).

What worries me is that Ben Bernanke

·         acknowledged that ‘the Fed does not have a precise read on why the slow pace of economic growth is persisting’

·         The Fed's central tendency projections for real GDP growth in 2011 and 2012 were lowered from their April projections.

As discussed earlier, Ben Bernanke is not someone who might be ahead of the curve amidst the European debt crisis and global slowdown concerns. Hence, I was not surprised he did not give any hint to the prospect of QE3. However, it does not mean he would not continue to buy bonds! Read There are no hints on QE3 but

On a separate report on the US economy, Republicans walked out of budget deficit negotiations with talks reaching an impasse.  The dateline of the debt ceiling being raised by August 2 is too close for comfort.

Oil prices went sharply down with the news that the IEA is releasing 60 million barrels from strategic petroleum reserves (30 million from the U.S.). Crude oil futures for August delivery, which sat above $114 per barrel at the start of May, settled the week just under $91 per barrel.

I smell a rat when the reported ‘catalyst’ that Greece reached an agreement with the EU & IMF on a new five-year austerity plan. I wouldn’t have cheered as this wasn’t a real hurdle. I don’t think the ECB, EU nor does the IMF want a credit default. There are two real hurdles the Greeks have to pass to avoid a credit default

1.    Getting the austerity passed through Parliament and

2.    Building confidence that the Greeks can live through the austerity plan

US economic data. The positive Q1 GDP and durable orders report stood at 1.9% was overshadowed by concerns of weak reports from Italian banks and that the austerity plan may not pass through Parliament this coming Thursday (approx Friday 0500am).

All eyes will be on the Greece vote of confidence! What else?

Updated 20110621 1014pm Singapore time. All eyes will be watching for the result.
The result is expected to be delivered 5pm EDT or Singapore time: Wednesday 0500am.
Though Greece is the primary focus, have we forgotten?

·         The US debt ceiling

·         The China accounting worries

·         The earthquake, tsunami and nuclear crisis in Japan

·         The MENA tension

·         The overshadowed “QE2 is about to end”

Coupled with weak economic data in the US and China, interest rate hikes in emerging and Asia, speculators are worried of a global slowdown that leads to lower demand in commodities.

How about the recent euphoria of hopes of a 2^nd bailout package for Greece, why do oil traders have a different mindset pushing down the price of oil, Gold being a safe haven rises, the gain in strength of Swiss Franc, a primary funding of carry trades.

The CBOE Volatility index, a measure of volatility had pierced through ‘20’ touched a high of 22.39 before settling at 21.85 last Friday.

Together, as you all probably know (the week ended but not impressive. For a continuous sequence of events that lead towards the closing last Friday, read Financial markets are getting tensed towards the weekend )

·         Asia markets closed lower with the exception of the KLSE

·         Though European stocks closed lower for the week but the French and German equity index broke the losing trend

·         S&P eked out a small gain to close the week higher, DOW closed higher pausing the 6 week losing trend while the NASDAQ closed down for the seventh week.

The week of 2011 June 19^th is history. What the speculators will look forward in the coming week will be

·         Not about Greece, but the contagion to PIGS, the numerous financial institution that holds Greek debt, if there were a default (leading to a 2^nd Lehman crisis)  Story of a boy  name Grease

·         The progress of economic data, if any

·         The direction of US monetary policy where the key event would be the accompanying press conference by the Fed Chairman. Personally, I don’t think BB would hint on QE3 unless of a credit event happening in the EZ.

·         EZ manufacturing and services data on Thursday and

·         US GDP on Friday.

That’s the weekly summary for the week and going forward.
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Weekly summary 20110612 - Equity markets down into the 6th week

Market update / Weekly recap for Week ending June 12^th 2011.

The US stock market suffered wide-spread selling, pushing the NASDAQ and Russell 2000 in negative territory for the year. As stocks stumbled, market participant sought the relative safety of Treasuries and the dollar. There was a risked sell off in Commodities, the US dollar rose.

The events that triggered the sell-off in Global markets were:

1.    Weak May Manufacturing data across China, US and Europe, Chinese exports data came in lower than expected – this weighed concern about weak demand and a slower global economy.

2.    Fed Chairman, Ben S. Bernanke remarked that there is an ‘uneven’ and  ‘frustrating slow’ recovery into next year – slow global economy

3.    Prospects for a Greek default, European officials clash over how to fix Greece’s debt problems.

4.    Europe’s Monetary Policy Meeting signals rate hike in July but downplays future interest rate hikes into 2012 when inflation forecast was adjusted lower - The Euro fell and the US dollar strengthened.

5.    On-going fear Asian Central Banks would continue to raise rates to curb inflation. India boosted interest rates (nine times) to 7.25% in May 2011 since Mar 2010, Philippines Central Bank boosted overnight deposit rate to 4.5% in May, New Zealand dollar reached a record versus the US dollar after the Reserve Bank of NZ said interest rates will rise within 2 years but kept its benchmark rate at 2.5%, South Korea’s third hike (on Friday) to 3.25% in 2011 (this was mostly unexpected), speculation that accelerating inflation may prompt China to raise rates again.

The sum-of-all fears ‘highlighted’ has caused a weak sentiment that the global economic recovery has stalled, thus weighed concerns on Global demand. This

·         Pushed the Dow Jones Industrial Average below 12,000 for the first time since March

·         Drove the US major indices (DJIA, S&P, and NASDAQ) lower for the sixth straight week. Friday's drop extended the Dow’s longest weekly losing streak for stocks since the fall of 2002.

·         Wiped out the NASDAQ yearly gains for 2011.

·         Sent Europe indices to a 3 month low

·         Pushed most Asia indices to a 6 week low matching the collapse of Lehman Brothers Holding in 2008.

·         Dropped Shanghai B index down 2.7% to 249.9 in the wake of US regulators warning about the risk surrounding Chinese companies that has been listed through reverse mergers, and a string of Accounting scandals

As on the Commodities front,

·         OPEC did not reach a consensus on production targets. However, Saudi Arabia announcing an increase in oil production sent Crude prices lower for the second weekly lost to a close at US$ 99.29.

·         US Corn approaches a record of US$ 8 a bushel on bad US weather. US global inventories will drop as adverse weather slashes acreage. In addition, there is a rise in demand for livestock feed and ethanol.

·         Copper prices drop due to a decline in China imports.

·         Gold fell 1% to close at US$ 1530 as the US dollar rallied and also as a result in weakness in Crude Oil and commodities as speculators turned to risked off selling. Gold closes for the week 0.5% down testing the 20 days MA at US$ 1,524 which had been a support level for the past three weeks.

The CBOE Volatility Index rose 6.13% to 18.86.

In summary, the sentiment I gathered is that most fund managers and investors are sidelined on a risk off mode awaiting further economic data (inflation – CPI core). They are also watching very closely to key technical support levels for Gold, S&P, etc. On the whole, unfavorable economic data outweighs favorable economic data. Technically, financial markets may touch key support levels. For e.g. in the S&P and rebound. But not for the medium term.

There’s a third theory that speculators may pushed the markets much lower so as to engage the Fed to consider the probability of another Quantitative Easing program. Let’s see how it goes.

The events Next Week:

MONDAY: Fed's Lacker speaks, GOP Presidential debate
TUESDAY: NFIB small business optimism index, PPI, retail sales, business inventories; earnings
WEDNESDAY: Weekly mortgage apps, CPI, Empire state mfg survey, Treasury international capital, industrial production, housing market index, Geithner testifies before House Financial Services, oil inventories, credit card default rates reported
THURSDAY: Housing sales, jobless claims, current account, Philadelphia Fed survey, Fed's Fisher speaks, money supply;
FRIDAY: Consumer sentiment, leading indicators, quadruple witching

Weekly summary 20110605 - Gold strengthens further; US markets fall into 5th week

Equity markets closed lower last Friday, June 3^rd. US Stocks ended down for the fifth week (with the Dow experiencing its longest weekly slump since 2004), resulting from  

·         Wednesday's weaker-than-expected ADP employment report,

·         Friday’s Nonfarm payroll reports which came in lower than expected and

·         The unemployment rate climbing to 9.1%.

Asian stocks were also not spared as it records the longest losing streak since Lehman collapsed in 2008. The weak manufacturing and employment data had added more concerns about the strength of the global economy resulting in investors taking less risk.

In currencies, the dollar fell against the Yen and (a record) Swiss franc as investors sought safe haven assets as increasing concerns that the US recovery is slowing. The Euro also strengthened as a result of strong growth in the Euro zone, interest rate differential and another bailout for Greece.

As for commodities, Gold strengthened as investors seek safe haven status from a lower than expected Nonfarm payroll report and uncertainties over Greece’s potential bailout. Silver has weakened as investors have been dumping industrial Silver following reports of weaker Manufacturing data. Crude Oil declined as unemployment rate climbs to the highest level this year showing signs of slowing US growth and hence demand. Sugar dropped on speculation that supplies will be affected from Brazil (world’s largest producer) where the crop may fall short of estimates during the record harvest season in April.

I hope the above will draw your attention to where financial markets are currently and why it is trending in that direction. As it takes a lot of effort to compile the above from various financial providers and summarizing the herd’s mentality, the continuation of ‘weekly’ reports will depend on the statistical data of my readership. FYI, there will be Holidays: Monday in Australia (Perth), Hong Kong, New Zealand, South Korea, China and Taiwan.

Meanwhile, I hope your financial consultant had provided their ‘point of view’ and strategy. if you would like or need the benefit of a professional financial planner, I recommend you meet with one. Ask friends and family for recommendations, or visit the Financial Planning Association website.

The status of my Generals. My ‘Generals’ are not thought to speculate nor bargain hunting. In the Chinese Art of War, they will find a suitable climate, a suitable terrain and a suitable time. And unless there are more optimistic indicators, they would delay the War as long as possible. Meanwhile, the search for optimism and favorable terrain continues.

Summary of events since May 2011. Global markets peaked end April 2011. With my article date May 4^th on Profit taking, my initial speculation was profit taking. Following which, I suspected there was unwinding of carry trade in my article dated May 5^th on Further profit taking accelerates unwinding of carry trades.  My speculation was based on my theory, published May 11^th on Without news on QE 2.5, QE2 coming to an end accelerates unwinding of carry trades

A wise man once said, ‘There’s always a market tomorrow!’ Therefore, I find it reasonable to trade and invest when, where the situation is in our favor. This is explained on May 18^th on Investing (or Trading) is like going to WAR. However, as financial markets lack the optimism to go higher, I tried to find a reason by digging up the events, leading to the end of QE2 as published on May 19^th with Global Financial Crisis, QE1, QE2, Inflation, Higher interest rates. What’s next?

 The market does not close today. There’s always a market tomorrow!

Weekly summary 20110529 - Gold strengthens. Equity drops

It had been a long and volatile week. Fortunately, most financial markets ended the day on a positive note.

At closing, Friday May 27^th, Global equity markets closed higher for the day with the exception of China, Japan and Argentina.

The US markets closed up following

·         Stronger than expected University of Michigan consumer sentiment data and

·         Encouraging comments from the Group of Eight (G8) about the strength of the global economy.

However, the Dow and S&P closed lower for the fourth week! The performance of other major indices in Asia, Europe, Latin America, MENA and Emerging markets were also not spared.

As for commodities and currencies,

·         Crude Oil, Gold and Silver closed higher for the day and week

·         The Aussie, Kiwi and the Loonie were much stronger.

The question for today is that when most markets end up on a positive note, where is the weakness?

As US is currently the world’s largest economy, its economy and reserve currency status affects the whole world. Global markets would normally take cues on how the US market performs. When the US market sneezes, other major indices will soon catch the cold.

Similarly, the strength or weakness of the US dollar will affect the prices of commodities – agriculture, mining, currencies and dollar denominated instruments and vice-versa.

Hence, there is no prize for guessing that the weakness lies in the US dollar. The US dollar index closed the week much lower, near 74.90. It had peaked earlier this week on Monday near 76.53.

However, the point I am trying to emphasize here is not where the market closes for the day or week but that while investing, I would certainly take note the strength of the US economy, the economic data and the US dollar.

While the US dollar is currently still the reserve currency, its strength and weakness can determine the prices of commodities, crude oil, precious metals and some currencies. Hence, it would also determine the demand and supply. Please note the daily chart of the US dollar index and its technical representation.

Notes: The Group of Eight normally referred to as G8 comprises the Group of Six (France, Germany, Italy, Japan, UK and the US) with the inclusion of Canada and Russia.

Memorial Day falls the following Monday where all US markets will be closed. Click here for the following week's weekly summary.