Spread Betting Commodities, Dow Jones and S+P 500
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The Regular Update from The Mole and paddypowertrader.
The Financial Markets - 2 July 09
Despite the weakish US mortgage applications, ADP jobs and ISM numbers, it looks like your friendly fund manager is front running the perma-bull, expected 2nd half recovery green shoots story. He also went pilling into stocks at the off yesterday running the Dow Jones up 133 points. Food stocks were the big winners with Kraft up 5% and General Mills raising its 2010 guidance. However stocks failed to maintain their upward momentum and pared their gains in low volume trading, following decidedly downbeat comments from GM (government motors) about creditor payments, weakness in financials and disappointing auto sales. Add to this too, the Governator I.O.U of California declaring a state of “fiscal emergency” put the pressure on.
Note that the technical types are pointing to a potential head and shoulders topping pattern on the S&P 500 and stress that a close below 880 would complete this and pave the way for a move to the low 800’s
Today’s Market Moving Stories:
- Chinese Vice Foreign Minister He Yafei said on Thursday he had not heard about reports that China had requested a debate about global reserve currencies. Asked about the matter by a reporter during a news briefing, He said, “I have not heard that China has this request”. Sources told Reuters on Wednesday that Beijing has asked to debate proposals for a new global reserve currency at next week’s Group of Eight summit in Italy and the issue could be referred to briefly in the summit statement. He said that Beijing hoped the dollar, the main global reserve currency remained stable but added that China “of course” hoped for reserve currency diversification in the future. This should of course be Greenback supportive until the next comment from BRICs officialdom says the complete opposite !
- And staying in China, imports and exports in June fell from year-ago levels, but a senior Ministry of Commerce official said on Thursday the decline was less than in previous months. In April and May, exports and imports both fell more than 20 percent from year-earlier levels. Chen Jian, a vice-commerce minister, made the comments at a briefing to reporters. He did not provide actual import or export levels for June.
- Rio Tinto Ltd’s $15.2 billion rights offer, the fifth-biggest on record, generated strong demand from UK investors.
- This put the world’s top iron ore miner back into growth mode after a debt-funded purchase of Alcan had brought it to its knees. Rio revealed on Thursday that shareholders had stumped up for almost all its London shares on offer. The UK tranche would have raised about 7.1 billion pounds ($11.66 billion), more than a fifth of the market value of the UK-listed company. Results from the Australian offer were still to be released. Strong take-up of the rights offer would place Rio in a much stronger position, though the mining group will still need to sell off non-core assets, analysts quoted on Reuters said
- Responding to an article Wednesday in a German auto magazine Toyota Motor Corp flatly denied on Thursday a report that it was considering building derivatives of Mercedes-Benz’s A-Class and B-Class cars on its own platform to better utilise its European plants in the long term. “We are denying this completely,” Toyota spokesman Yuta Kaga said in Tokyo. “There is no truth to anything written in the article.”
- Here is a news story that poses more questions than provides answers. The FT reports that the share price of Commerzbank increased yesterday by almost 20% on the back of hopes that the bank can get rid of its bad assets with the help of Germany’s bad bank scheme. But how is this possible? The article quotes an analyst as saying there is no risk transfer. Commerzbank is still responsible for its bad bank, and its future losses.Swag From The Bank
- European stocks have started soft this morning with VW off 2.5% on weak U.S. auto sales and expect oil producers to be under pressure on the fall in crude (Total & BP are notably weaker at the off) while Lomin is down 4%. Watch WPP who have just been downgraded to a sell at Citibank.
- Elan are set to benefit from a new collaboration announced between Biogen Idec and Acorda Therapeuitics. The pair have entered a license agreement to develop and commercialize Fampridine –SR, a Multiple Sclerosis (MS) therapy, in markets outside the U.S.
Green shoot debunk-watch
On the Green shoot debunk-watch today is James Hamilton where the latest example of where the global green shoots are both a statistical and real illusion. Looking at US auto sales figures, he said the yoy improvement is due to the relative weakness of June 2008 to May 2008, while on monthly terms the current figures are truly dreadful. All categories of auto sales, including imports, are deteriorating.
The Big Picture View for H2
A key element in my broad brush view of markets is that the recovery under way will run out of steam before it begins to feel sustainable and the markets are currently very complacent. Output gaps will remain large, unemployment will continue to rise and central banks will be in no position to tighten monetary policy for a long time. As economic data begin to flatten out rather than returning to boom-time behaviour, confidence in asset markets should fade despite the extreme fiscal and monetary policy steps taken to bolster confidence. As such, I am on the look-out for evidence that the upside in the so called ‘V-shaped’ recovery is limited by the need to reduce leverage as banks are unable to lend at the same rate as in the recent years of cheap and easy credit.
This week, global PMIs (purchasing managers indices) kept the V-dream alive with further steady improvement, although the PMI is still well below the average of recent years and the Chinese and Indian PMIs have flattened out after leading the recovery.
Some measures of demand show more vulnerability and credit growth remains weak. The expected capital expenditure component of Japan’s Tankan survey fell further, contrary to the normal pattern of upward revisions as the year progresses. UK business investment was revised sharply lower in Q1, which will dated information shows capex in a bigger hold to climb out of. Industrial new orders in the Eurozone reported sank further in April, while private loans showed hardly any growth over the past year. US consumer confidence also stumbled in June.
We will probably get more mixed messages in the coming month, although these patchy demand and credit data are tentative signs that the recovery should be more muted than normal. The trades that capitalise on fading optimism are the ones likely to perform for the rest of this year. The front end of yield curves is too steep. The back ends may also be too flat, although supply will continue to weigh on bond markets. There is also too much optimism in commodity and equity markets.
The glue holding these markets together remains the easy monetary and fiscal policies around the world. The ECB gave a big boost to quantitative easing with its (free) money market operations and should talk about its covered bond purchases today at 13.30. These policies may delay and limit the correction in risky assets when it comes, but from where I sit most of the potential good news is already in the price.
Ahead today
- ECB interest rate decision (12:45 BST) with the press conference to follow at 13.30. It’s a slam dunk that rates will remain on hold at 1%, with the ECB in “wait and see” mode. After downgrading its outlook last month, the ECB should remain cautious about the sustainability of recovery despite signs of stabilisation. There should be more on the implementation of the covered bond purchase programme as the start date nears (the ECB should also remain under pressure to implement an additional purchase programme, most likely in Q4).
- US non-farm payrolls, Jun (13:30 BST): Released a day early due to the 4th of July holiday. Payrolls should show another solid fall, dropping by 350K, although this is less than the near-700K declines posted earlier this year. Unemployment should continue to rise, reaching 9.6%.. The risk to these forecasts must be for a higher number after the poor if unreliable ADP report yesterday. As ever watch for big revisions to the previous months numbers & beware the knee jerk reaction to the headline number
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The above comments do not constitute investment advice and neither paddypowertrader nor SpreadBets.org.uk accept any responsibility for any use that may be made of them.
"Spread Betting Commodities, Dow Jones and S+P 500" last update by The Mole, 02-Jul-2009
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