Regarding Wednesday Nov 12 2008:
Market Sentiment:
Positive side: -
Negative side:
• U.S. are in red now, for the second day this week, on continuing concerns about future of U.S. auto industry especially the GM
• Crud oil under 60 $/b reflecting possibility of weak demand from an increasingly slowdown in global economic activity
Currencies:
USD:
Demand side:
• Risk aversion generally
Supply side: -
JPY:
Demand side:
• Risk aversion generally
Supply side: -
EUR:
Demand side: -
Supply side:
• Industrial Production probably declined as much as 1.4 percent in September
• BOE Quarterly Inflation Report could also affect Euro negatively
• Risk aversion generally
GBP:
Demand side: -
Supply side:
• BOE Quarterly Inflation Report probably paint a dark outlook for growth and possibility of sharp decline in inflation headline, leaving hands of policymakers open for lowering interest rate both sharper and for a longer period of time
• Unemployment rate probably rose
• Risk aversion generally
AUD:
Demand side: -
Supply side:
• Falling oil price, below 60 $/b today, add more concerns about the future of a commodity exporter country like Australia
• Risk aversion generally
November 11, 2008
November 9, 2008
Daily Market Outlook
Daily Market Outlook
Regarding Monday 10 Nov, 2008:
Market Sentiment
Positive Side:
• The health of auto industry in the U.S., especially in the case of the GM which facing even bankruptcy, was a big source of concerns last week but it may work in the opposite direction considering a letter from the democrat leaders Pelosi and Reid to the Treasury's Paulson urging him to use some of his $700B to solve the problem.
• G20's members gathered in Sao Paulo on Friday pledged to use monetary and fiscal policies to stimulate economic growth and help to increase the international trade and capital flow. Ahead of the Washington on Nov 15 it may improve the sentiment or at least help investors to be less worried if not optimistic.
• President-elect Barak Obama expressed its support for a second round of stimulus package appearing in his first news conference on Friday.
Negative Side:
• News of heavy job losses in the U.S. may affect Asian markets negatively on Monday. Last Friday's report showed that the economy has lost 240K jobs in October when the unemployment rate reached 6.5 percent, both came more than analysts' estimates. Dow Jones rose near 200 points that day but after two consecutive 400 decline in the previous two days.
• Allianz may report its first quarterly loss since 2001 which could again raise questions about the health of financial system.
Currencies
USD
Demand side:
• Allianz may report its first quarterly loss since 2001 which could again raise questions about the health of financial system, raising demand for liquid assets such as the greenback.
• Lack of significant economic data on Monday
Supply side:
• Any improvement in overall market sentiment
• Improvement in money market rates, such as the 3M USD LIBOR, if continues could reduce demand for the dollar.
• Speculation about the possibility of more production cut by the OPEC's could affect dollar if it help oil prices to rise.
JPY
Demand side:
• All negative forces of the market sentiment
Supply side:
• All positive forces of the market sentiment
GBP
Demand side:
• Decline in PPI may reflect improvement in the inflationary pressures making it easier for the BOE to support the economy.
Supply side:
• The same force, decline in PPI, increases the possibility of both sooner and larger interest rate cuts.
EUR
Demand side:
Supply side:
• Generally, ECB has much more room to cut interest rate and it might not be fully priced in the currency.
• Reports this week are to show that the GDP in euro-zone probably shrank in the third quarter.
• Specifically, Monday's reports on Italian Industrial Production and French Manufacturing Production probably shows decline in September.
Regarding Monday 10 Nov, 2008:
Market Sentiment
Positive Side:
• The health of auto industry in the U.S., especially in the case of the GM which facing even bankruptcy, was a big source of concerns last week but it may work in the opposite direction considering a letter from the democrat leaders Pelosi and Reid to the Treasury's Paulson urging him to use some of his $700B to solve the problem.
• G20's members gathered in Sao Paulo on Friday pledged to use monetary and fiscal policies to stimulate economic growth and help to increase the international trade and capital flow. Ahead of the Washington on Nov 15 it may improve the sentiment or at least help investors to be less worried if not optimistic.
• President-elect Barak Obama expressed its support for a second round of stimulus package appearing in his first news conference on Friday.
Negative Side:
• News of heavy job losses in the U.S. may affect Asian markets negatively on Monday. Last Friday's report showed that the economy has lost 240K jobs in October when the unemployment rate reached 6.5 percent, both came more than analysts' estimates. Dow Jones rose near 200 points that day but after two consecutive 400 decline in the previous two days.
• Allianz may report its first quarterly loss since 2001 which could again raise questions about the health of financial system.
Currencies
USD
Demand side:
• Allianz may report its first quarterly loss since 2001 which could again raise questions about the health of financial system, raising demand for liquid assets such as the greenback.
• Lack of significant economic data on Monday
Supply side:
• Any improvement in overall market sentiment
• Improvement in money market rates, such as the 3M USD LIBOR, if continues could reduce demand for the dollar.
• Speculation about the possibility of more production cut by the OPEC's could affect dollar if it help oil prices to rise.
JPY
Demand side:
• All negative forces of the market sentiment
Supply side:
• All positive forces of the market sentiment
GBP
Demand side:
• Decline in PPI may reflect improvement in the inflationary pressures making it easier for the BOE to support the economy.
Supply side:
• The same force, decline in PPI, increases the possibility of both sooner and larger interest rate cuts.
EUR
Demand side:
Supply side:
• Generally, ECB has much more room to cut interest rate and it might not be fully priced in the currency.
• Reports this week are to show that the GDP in euro-zone probably shrank in the third quarter.
• Specifically, Monday's reports on Italian Industrial Production and French Manufacturing Production probably shows decline in September.
October 29, 2008
From Interest Rate to GDP; A Lovely Road toward an Unpleasant Destination
It is almost certain that the FOMC will lower interest rate today, but what would happen after that?
Regardless of what the Fed will do today, I think the market will finally turn its focus toward the GDP and may be more importantly the Personal Consumption; both are to be released as early as tomorrow. The third quarter GDP is expected to show the first contraction since the 2001 recession while the Personal Consumption, the most important driving part of the economy, may show the first decline since 1991.
It is important to keep in mind that the figures will reflect the economic activity even before the credit crisis start to intensify from the late September. Since then, central bankers around the world tried to thaw the frozen credit market by reducing their benchmark interest rates; either in coordinated or scheduled meeting.
So it may help to see the today's rate cut (if it happens at all) in this context and also remember that the consumer sector is the least responsive component to changes in interest rates. It means that such attempts at best can help to reduce the negative impacts, unemployment specifically, from other sectors on the overall economy.
Based on this analysis, I expect that any positive effect from a possible rate cut will finally start to fade as the market find itself closer and closer the GDP numbers.
October 26, 2008
OPEC Extraordinary Meeting: Missing Signals in a Noisy Environment
OPEC's members gathered in Vienna on Friday to cut production level concerning about oil prices, which has fallen more than 50 percent from its July 147 $/b to about 63 $/b in the last week. However, I was probably wrong for giving it too much weight in my daily assessment.
They finally announced a 1.5 Mb/day cut, when it was almost clear that there would be no cut more than 2 Mb/day and nobody expected to see any significant reaction to such a small cut. In fact, I was too concerned about the possibility of a temporary rally in oil, which didn’t happened at all, and its consequences on the dollar.
I think it worked as a noise, making it difficult to discover signals in the market that otherwise might be very clear. Specifically, and in combination with other factors such as being personally tired, an opportunity was missed for selling sterling at a very cheap price ahead of the U.K. GDP report (see the chart).
However, I made money that night betting on the positive reaction from the Canadian dollar, and I was completely true in closing the position (long on CADJPY) on perception of fading technical signals.
They finally announced a 1.5 Mb/day cut, when it was almost clear that there would be no cut more than 2 Mb/day and nobody expected to see any significant reaction to such a small cut. In fact, I was too concerned about the possibility of a temporary rally in oil, which didn’t happened at all, and its consequences on the dollar.
I think it worked as a noise, making it difficult to discover signals in the market that otherwise might be very clear. Specifically, and in combination with other factors such as being personally tired, an opportunity was missed for selling sterling at a very cheap price ahead of the U.K. GDP report (see the chart).
However, I made money that night betting on the positive reaction from the Canadian dollar, and I was completely true in closing the position (long on CADJPY) on perception of fading technical signals.
October 16, 2008
The Power of Sentiment: How analysis could be affected
(Note: This post has been originally written on Sep 30 but added later on Oct 16)
I used to see the market more challenging when market-moving factors become more psychological than fundamental. But recent days showed that such a psychological environment could have at least one advantage by eliminating many factors which in a normal condition should be entirely taken into account.
On Sep 29, everything was based on fear; first because of uncertainty before the House vote on the rescue plan, and second by a sever disappointment from the surprise rejection which finally cost the major indexes more than 7 percent.
And today, Sep 30, it was just optimism from revived efforts by the Congress' members and the U.S. President who are trying to make the market confident that the bill will be eventually passed. And it was when a 3.5 percent decline in Japan industrial production and a 16.3 percent decline in the U.S. house prices – reported by the S&P/Case-Schiller – were unable to prevent the market from a more than 3 percent advance.
Following charts could show that how specific the situation is:
• The prices of oil and gold are highly decoupled (and between Euro and oil as well)
• Oil and USDJPY rise and fall in the same direction (reflecting less effect from oil on the dollar)
• It is also worth to see that the market still react strongly to simple technical patterns
I used to see the market more challenging when market-moving factors become more psychological than fundamental. But recent days showed that such a psychological environment could have at least one advantage by eliminating many factors which in a normal condition should be entirely taken into account.
On Sep 29, everything was based on fear; first because of uncertainty before the House vote on the rescue plan, and second by a sever disappointment from the surprise rejection which finally cost the major indexes more than 7 percent.
And today, Sep 30, it was just optimism from revived efforts by the Congress' members and the U.S. President who are trying to make the market confident that the bill will be eventually passed. And it was when a 3.5 percent decline in Japan industrial production and a 16.3 percent decline in the U.S. house prices – reported by the S&P/Case-Schiller – were unable to prevent the market from a more than 3 percent advance.
Following charts could show that how specific the situation is:
• The prices of oil and gold are highly decoupled (and between Euro and oil as well)
• Oil and USDJPY rise and fall in the same direction (reflecting less effect from oil on the dollar)
• It is also worth to see that the market still react strongly to simple technical patterns
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