It is a big week for stocks and by extension risk assets – this is particularly so when you have a look at the technical set up in the S&P 500 on both the daily and weekly charts.
Earnings season continues and the market seems a little non-plussed both with what it’s seen so far but also what it expects to see. This means there is a lot of room for topside surprises but this earnings season feels more ripe for more disappointment about the ability of US companies to continue to meet profit targets amid falling revenues and weak underlying demand.
It will be interesting to see how markets take the news from China about the stronger export and import numbers that were released over the weekend. On the face of it it might seem bullish but then there are already articles in the press saying that it is a seasonal bounce related to the a pull forward of activity prior to Golden week holidays that finished recently. We’ll see how markets react today in Asia.
On Friday night stocks turned lower even though the profits from banks such as JP Morgan and Wells Fargo weren’t bad. The structure of the US home loan sector is different than ours and it is almost impossible for banks not to make money when they are borrowing at zero from the Fed and lending to home owners fixed for 30 years. You really have to screw up in other parts of your business to put those metrics in peril. But we have seen that movie before – even recently with JP Morgan’s London “whale”. But as long as the banks are lending and, crucially, people want to borrow, then that is ultimately a good thing for the economy. On Saturday I linked an article about how Bernanke’s policy working from Quartz – here it is again if you are interested.
The S&P 500 had another down day Friday of 0.3% and finished the week off 2.2% at 1428 not far above the very important 1400/20 zone. The Dow rose 0.02% and the NASDAQ fell 0.17%. In Europe the FTSE fell 0.62%, the DAX dropped 0.68% and the CAC fell 0.72%. Madrid was off 1%.
Data in the US kicks of with retail sales tonight and then Wednesday we have Empire State manufacturing and housing starts before we get the Philly Fed survey on Thursday along with Jobless Claims – let’s see if last weeks big drop is revised. This data and the second Presidential debate will be important for markets. US elections and the fiscal cliff are racing toward us at headlong speed and I expect them to have some impact over the next few weeks. And of course we continue to have plenty of earnings results with GE, Microsoft, IBM, Google, Intel, McDonald’s, united Health and Johnson and Johnson all out. Then we still have the simmering tensions in Europe. Another easy week!
On FX markets, the euro’s strength washed away over the course of the day and the US dollar had a points victory. I saw an interesting take by Alan Ruskin one of the world’s best FX Strategists from Deutsche Bank in the Wall Street Journal where he was quoted as saying of the Presidential debate that the:
“The race has tightened up substantially and there is enough of a difference between the candidates in terms of monetary and fiscal policy that there’ll be more sensitivity,”
Mitt Romney is seen as “significantly more dollar friendly than President Obama,” Mr. Ruskin wrote in a note last week. That is because Mr. Romney could “greatly influence the long-term quantitative easing debate” by appointing a Federal Reserve chairman who isn’t as keen to support the economy through more bond-buying plans.
An interesting take and one that echoes H&H’s recent thoughts on threats to the gold price.
The euro sits this morning at the top part of the 1.28/1.30 range that was established last week and clearly waiting for the next catalyst for a move. 1.28 still looks like formidable support but the outlook for the euro over the course of this week is really more about the outlook for the stock markets – so we’ll have an eye on that, for a change!
The Australian dollar had a fairly indecisive day, the second in a row. The high on the day was just a little below the previous day at 1.0288 and the 200 day moving average at 1.0294 remains very solid support but equally 1.0150 is massive support. Volatility is low, the range is becoming compressed and the elastic band is tightening in the Aussie and other markets for a break out.
On commodity markets, it was a generally weaker day with crude closing at $91.86 Bbl, gold was down 0.62% to 1759, copper fell 1.54% and is starting to look like a big pullback is in the offering if it slips just a little further for a catalyst. The Ags got smashed with wheat down 3.41%, corn off 2.72% and soybeans fell 1.71%.
Lets have a look at some Met4 charts from my AVATrade platform.
EUR/USD: Hourly charts this morning for the EUR given the range seems to have been established for now. We believe the EUR is mapping out a 1.28-1.31 range and using the shorter term technicals to trade this range is favoured until either side breaks. 1.2989/92 remains fairly solid. 1.2950 if broken suggests a deeper retracement on the day if it gives way.
AUD/USD: The AUD retested the previous day’s highs before retreating and breaking the little hourly uptrend from last week. I went too early on a call during the day losing 20 points but made it back on the run lower in offshore trade. It’s just a range trade today so I’d probably be using my 15 minute charts.
Data: Australia’s seemingly enduring love affair with motor cars will be tested with the release of new motor vehicle sales today and mortgage lending data. Offshore Chinese CPI, US retail sales and Empire Manufacturing survey.
Here is a snapshot of where markets sat this morning at 7am from MT4 at AVATrade
Twitter: Greg McKenna . He is the Chief Investment Officer of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
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