REVIEW ON FOREIGN MARKETS

FOREIGN MARKETS
With stocks witnessing a third consecutive sell-off on Friday, 22 January, 2010, it turned out to be a dismal week for stocks at Wall Street for the week that ended on that day. Earning reports dominated the week but the positive ones also failed to cheer investors. Concerns over financial sector regulation failed to induce buying interest among traders. Economic reports had limited impact on stocks. It was a holiday-shortened week with market being closed on Monday, 18 January, 2010.

For the week, that ended on Friday, 22 January 2010, Dow ended lower by 436.67 points (4.1%) at 10,172.98. Nasdaq ended lower by 82.7 points (3.6%) at 2205.29. S&P500 lost 44.27 points (3.9%) at 1091.76. All ten economic sectors ended in the red led by the materials sector. A large number of notable names reported earnings this week, including five Dow components.

During the week, President Obama proposed some reforms in the financial sector. Obama's plan lacked details, but it was announced that commercial banks will not be allowed to own, invest in or sponsor a hedge fund or a private equity fund. In addition, commercial banks will be prohibited from proprietary trading operations unrelated to serving customers for their own profit.

Several banks reported earnings during the week. The financial sector's losses were compounded by news of regulatory overhauls by the Obama administration. Among the companies in the financial sector that reported earnings were Citigroup, Goldman Sachs and American Express that beat earning estimates. Bank of America and Morgan Stanley missed estimates.

In the other earning space, industry bellwether General Electric reported upside results, as did McDonald's, Google and IBM.

At the end of the day on Friday, 22 January, 2010, stocks closed with steep losses for a third straight day paced by technology shares, which suffered from analyst downgrades and huge earnings expectations. The selling picked up in the afternoon as fears swirled regarding the possibility that Ben Bernanke might not get confirmed to a second term as Federal Reserve Chairman.

On that day, the Dow Jones Industrial Average ended lower by 216.9 points at 10,172.98. Nasdaq ended lower by 60.41 points at 2205.29. S&P 500 ended lower by 24.72 points at 1091.76. All ten sectors ended in the red led by financial, technology and materials sectors.

Losses cumulated at Wall Street despite better than expected earning reports from AMD and Google. Also, Mac Donalds and GE reported good earnings but the stocks ran out of gas by the end of the day.

Crude oil prices dropped significantly on Friday, 22 January 2010. Prices fell as traders mulled over China's tightening of the current monetary policies, which will lead to demand concerns for crude in coming months. Sell-off of US stocks at Wall Street also pressured to declining commodity prices.

On Friday, crude-oil futures for light sweet crude for March delivery closed at $74.54/barrel (lower by $1.54 or 2%). For the week, crude ended lower by 4.7%. On a year to date basis till date, crude is lower by 8%.

In the currency market on Friday, the dollar index, which weighs the strength of dollar against the basket of six other currencies stayed steady against most of its counterparts. The dollar strengthened during the week on fears that China will curb bank lending. The China Banking Regulatory Commission said it hasn't "specifically" told banks to suspend lending in January, but a report said that it had asked several banks to stop issuing loans. The dollar index dropped by a mere 0.2%. The dollar index lost 1.6% for the week.

Barring ICICI Bank, all the Indian ADRs ended in the red on Friday. Wipro Technologies and Punjab Tractors were the largest losers, each shedding almost 4.5%. HDFC Bank shed 3.5%. ICICI Bank added 0.25%.

COPPER OUTLOOK:

Base metal prices ended higher on Friday, 22 January 2010. Prices rose in tandem with the slipping dollar, which increased the appeal of base metals as an alternate investment.

At USA, copper futures for March delivery ended higher by 5.2 cents (1.6%) to 3.347 a pound. For the week, copper ended lower by 0.6%. This year, till date, copper is lower by 3.4%. Copper ended FY 2009 higher by 140%.

At LME, copper for delivery in three months ended higher by $115 (1.6%) at $7,390. On 3 July, 2008, prices had touched an all time intra day high of $8,940.

Copper ended substantially higher last year on expectations of revived global economic growth along with a decline in the dollar. The dollar index had dropped almost 4.2% last year. The metal was also pushed higher by record first-half imports to China, the world's largest user.

The U.S. buys about 13% of the 17 million metric tons of copper sold annually and China buys about 20%.

In the currency market on Friday, the dollar index, which weighs the strength of dollar against the basket of six other currencies stayed steady against most of its counterparts. The dollar strengthened on fears that China will curb bank lending. The China Banking Regulatory Commission said it hasn't "specifically" told banks to suspend lending in January, but a report said that it had asked several banks to stop issuing loans. The dollar index dropped by a mere 0.2%.

In FY 2008, copper prices dropped by 54%. Prior to 2008, copper prices ended FY 2007 with a gain of mere 5.5% after a whopping 44% gain in FY 2006. The price of copper gained every year since 2002 as global economic growth boosted demand for the metal used in pipes and wires.

Among other metals traded in the LME on Friday, lead ended 2% lower at $2,247 a ton and zinc dropped 5% to end at $2,343 a ton. Nickel dropped 2% to end at $18,510. Aluminium shed 1.6% to end at $2,220 a ton.

Continue reading...

GOLD CRUDE OIL AND BASEMETALS REPORT

Weekly Fundamental Outlook

The commodity sector got hammered last week as investors worried that overheating in China and US' bank proposal to curb risk-taking would reduce demand for higher-yield assets. The Reuters/Jefferies CRB Index dropped -2.1% to 275.56, the lowest level since December 22.

Crude Oil :
WTI crude oil slid -2% to close at 74.54 Friday in reaction to US' plan to limit trading banks. Energy demand in the US and China is also at risk of slowing down. The front-month contract plunged for more than -10% over the past 2 weeks.

The US President Barack Obama proposed restrictions on risk-taking at financial institutions. The plan includes limiting the size of financial institutions and to ban some 'risky' activities including proprietary trading and internal hedge funds. The news damped investments for risky assets such as commodities and equities.

Having waited for 5 months, investors received the CFTC's proposal on positions limits on energy contracts (physically settled and cash-settled futures in light, sweet crude oil, Henry Hub natural gas, and New York Harbor gasoline and No. 2 heating oil) on January 14. The purpose of limiting positions is to curb speculations of large banks and swaps dealers in oil, natural gas, heating oil and gasoline markets.

According to the Commission, the aggregate limits are set by formula based on open interest. The AMC speculative position limit would be 10% of the first 25,000 contracts of open interest and 2.5% of open interest beyond 25,000 contracts. The single-month position limit, in turn, is set at 2/3 of the AMC position limit. The position limits would be calculated off of the prior year's month-end open interest.

Only very bigger positions holders will be affected by the limits and the CFTC showed that 3 unique owners in crude oil market and 1 in the natural gas market were affected during the period from January 1, 2008 to December 31, 2009. However, more traders in heating oil and gasoline markets were restricted.

Apart from the policy side, fundamentals suggested crude oil price should remain within a range of 70-80 in the near-term. Released Thursday, the US Energy Department reported crude oil inventory drew -0.47 mmb to 330.6 mmb in the week ended January 21. Utilization fell to 78.4% for 81.3% but decline in demand was offset by higher reduction (-4%) in imports. Draw in distillate stockpile more than doubled consensus forecasts as extremely cold weather last week raised heating oil consumption. Demand rose +5.8% to 3.823M bpd while production plummeted -10%. Despite the draw, distillate inventory remained +17% above normal. However, gasoline stockpile rose +3.95 mmb to 227.4 mmb as driven by -1.5% drop in demand to 8.602M bpd.

Last year, rally in crude oil price hinged on robust demand growth in China. Indeed, demand in the country was strong as indicated by oil imports which gorse +1.6M bpd yoy in December. The Chinese government reported economy grew +10.7% yoy in 4Q09, the fastest pace since 2007 in 4Q09. For all of the year, the economy grew +8.7%, exceeding the official target of +8%.

However, the data did not send energy prices higher. Instead, the expansion raised worries about further tightening in the world's third largest economy. We believe Chinese demand in the near-term may slowdown due to policy tightening. However, in the longer-term, imports will pick up again as underlying fundamentals in Chinese economy stays strong.

Natural Gas :
After rising on Thursday and Friday, gas price added +2.2% last week. According to the US Energy Department, inventory drew -245 bcf to 2607 bcf in the week ended January 22, sending total gas storage -0.2% below 5-year average. Colder-than-expected weather in the US increased gas consumption. As weather returns to normal in coming weeks, we believe demand will reduce and so will supply. For most of the time In 2010, imports from Canada will weaken while production will be lower than last year as the impact of -60% decline (from peak to trough through September 2008 to July 2009) in rig counts feeds in. However, LNG imports will ramp up rapidly. Over the period of 2010 and 2011, LNG investments such as Yemen, Tangguh and Sakhalin projects will raise total capacity significantly

Precious Metals :
Gold price tumbled amid profit-taking and broad-based decline in commodities. The benchmark contract for gold plummeted -3.5% to close at 1090.8 last week. Although the yellow metal has fell -6.2% from recent high at 1163, we still see further downside risk, particularly as February and March are weak months seasonally.

PGMs slumped Friday. Platinum dived to 1521.1, the lowest level in more than 2 weeks, before recovery. The metal lost -3.2% over the week. Palladium ended the week with -1.7% decline. Price slipped to a 1-week low of 425 Friday before buying interest emerged. However, rebounds after the sharp fall indicates underlying demand for PGMS remain strong.

In China, imports for platinum and palladium grew +115.7% yoy and +215% yoy, respectively, in December. China overtook the US as the bigger auto market by sales in 2009. At the same time, it also surpassed Germany as the largest car exporter last year. With global auto market anticipated to recovery rapidly in 2010. We believe import s of PGMs for auto-catalysts will rise further.

ETF investments in PGMs remained firm last week. According to ETF Securities, platinum holdings in European and Australian Trusts pulled back to 433.2K oz (-17%) in the week ended January 2010. Holdings in the new US ETF surged to 149.9K oz during the period, from less than 10K oz in the first trading week. For palladium, holdings in European and Australian Trusts declined -4.7% to 648.2K oz while that in the new US ETF rallied to 209.9K oz. Holdings in the first trading week was also less than 10K oz. We improved fundamental outlook and strong ETF investment should boost PGMs prices this years.

The CFTC will hold further hearings in March to discuss about position limits on metal markets. We do not think this would dampen metal demands. As metals are non-perishable and easier to store, restrictions on financial markets will direct investors to physical market investment.

Base Metals :
Speculations on further monetary policy tightening in China weighed on base metals and the complex recorded broad-based decline last week. Copper proved to be the most resilient metal in the complex with only modest drop of -0.5%. China trade data showed that net refined copper import rose +26% mom in December. At the same time, the country's inventory slid -3.3% to 97308 metric tons from the previous week. These evidenced China's demand for the metal stays strong.

LME contract (3-month delivery) for lead plunged -8% to close at 2237. Last, we saw rapid rise in lead production in China. Producers stockpiled plenty of lead scrap in 2008 amid weak price and they released the scrap to the market in 2009 as price recovered markedly. This had led to significantly increase in secondary production of lead. We believe the phenomenon will continue in the first half of 2010 but should turn better in the second half. Therefore, we should be prepared for further weakness in lead prices in near- to medium-term.

DISCLAIMER: Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. we assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Continue reading...

FOREX WEEKLY REVIEW AND OUTLOOK

Risk aversion was in the driving seat last week as investors rushed out from stocks and commodities on a couple of concerns. US stocks were shot down by President Obama's bank proposal to limit risk taking by banks and doubt on Bernanke's future as Fed chairman in the second term. European stocks were dragged down by US equities, deteriorating investor sentiments as well as continuous concern on Greece's fiscal health and deficit contagion spreading to other European nations. Asian stocks were pressured by worry of further tightening measures by China government to cool growth and inflation. Dollar benefited from safe haven flow and rose sharply against most major currencies. However, the Japanese yen was indeed the biggest winner last week and yen crosses were extremely heavy.
On Thursday, US President Barack Obama proposed restrictions on risk-taking at financial institutions. The plan includes limiting the size of financial institutions and to ban some 'risky' activities including proprietary trading and internal hedge funds. The news damped investments for risky assets such as commodities and equities. On Friday, two Senate democrats said they would oppose Bernanke's second term as Fed chairman and there are altogether five Senate Democrats in this position with eighteen others undecided. Bernanke needs 51 votes to be confirmed but hey may need 60 votes from Senate to overcome a procedural hurdle. However, it's doubtful whether Bernanke would get 60 votes when the current term expires on January 31. These two issues sent DOW -5.1% down from intraweek high of 10729.89 to close at 10172.98.

The ongoing concern on Greece's ability to cut down its fiscal deficit boosted interest in Portugal's 2010 budget plan this week. IMF warned Portugal last week of the "critical" importance of getting its public finances in order and said that "fiscal consolidation is critical to prevent further deterioration and preserve hard-won credibility." There were growing concern of contagion spreading from Greece to other nations in the Eurozone even though the prospect of Eurozone breakup is still very low. Investors are also deeply concerned as German and Eurozone ZEW economic sentiments dropped much more than expected in January and triggered doubt on the sustainability of recovery in the region. Euro continued to weaken against Swiss Franc and dived to as low as 0.8650 against Sterling before recovering.

Asian stocks were pressured as Chine hiked one-year bill yield again and on speculation that that China will raise interest rates last Friday. While rates was not raised at the end, investors will continue to be cautious on any more tightening measures from China.

The above developments will continue to be main drivers in the financial markets. The developments in the next few weeks will be important to development whether last week's sharp fall in stocks and commodities were overreactions or a real change in sentiments and trend.

Looking at the charts, DOW's sharp reversal last week has sent the index deeply below the medium term trend line support as well as 55 days EMA. The break of 10218 key near term support level also confirms that a medium term top is in place at 10729.80 with bearish divergence condition in daily MACD and RSI. While it's still a bit early to say that the up trend from 6469.9 has completed totally, more downside should now be in favor in near term to bring the index through 10000 psychological towards 38.2% retracement of 6469.9 to 10729.98 at 9102.

Another point to note is that VIX, the fear index, rocketed higher last week to close at 27.31, having its biggest three day rise since February 2007. This could be another sign of market reversal.

Crude oil's fall from 89.35 extended further to close at 74.54 last week. While it's still early to suggest that medium term rise from 33.2 has finished. Some near term weakness is in favor to trend line support at around 70 psychological level.

Gold's fall from 1163 has also extended last week and closed below 1100 level at 1190.8. THe development indicates that correction from 1227.5 is set to resume for another low below 1075, and probably to projection level at 1010.7, which is close to 1000 psychological support.

The above developments will continue to favor more upside in both dollar and yen. Considering bearish outlook in USD/JPY, we'd expect yen to outperform the greenback though. Nevertheless, this is inline with the outlook of dollar index. Dollar index rose to as high as 78.81 last week before treating mildly. The break of 78.45 resistance confirms that whole rise from 74.19 has resumed. Current retreat from 78.81 is expected to be contained above 77.41 support and bring rally resumption. We'd expect more upside to 61.8% projection of 74.19 to 78.45 from 76.60 at 79.23 and then 38.2% retracement of 89.62 to 74.19 at 80.08.


Also, recap the bigger picture outlook, whole fall from 89.62 has completed at 74.19 on bullish convergence condition already. Our preferred view is that price actions from 88.46 are a three wave consolidation to longer term rise from 70.70. That is rise from 74.19 is tentatively treated as resumption of the longer term up trend. The final structure of the rise from 74.19, be it impulsive or corrective, will provide more hints on whether this view is correct.

The Week Ahead

The above mentioned developments will continue to be main drivers in the financial markets, including development in Obama's bank proposal, Bernanke's re-appointment, Portugal's budget presentation on Tuesday and any new tightening measure from China. In particular markets could very volatile on Tuesday on Portugal's budget deficit and Bernanke's reappointment vote. In addition BoJ, Fed and RBNZ are scheduled to meet this week. On the economic data front, Germany Ifo will be closely watched to confirm deterioration in business confidence. UK Q4 GDP and US Q4 GDP will catch much attention from the markets.

■Monday: Australia PPI; German Gfk consumer sentiment; US existing home sales
■Tuesday: BoJ rate decision; German Ifo business climate; UK Q4 GDP; US consumer confidence, house price index, Bernanke confirmation vote
■Wednesday: Australia CPI; US new home sales, FOMC rate decision; RBNZ rate decision
■Thursday: Eurozone confidence indicators; US durable goods
■Friday: Japan CPI, unemployment rate; Eurozone M3, CPI; Swiss KOF; Canada GDP; US Q4 GDP
EUR/JPY Weekly Outlook
EUR/JPY's fall fall from 134.36 extended further last week and the break of 126.88 support confirms that whole decline from 138.47 has resumed. Initial bias remains on the downside this week and further fall should be seen to 124.35 support and then 100% projection of 138.47 to 126.88 from 134.36 at 122.77 next. On the upside, above 128.38 minor resistance will argue that a short term bottom might be in place on oversold condition and bring recovery. But upside should be limited below 131.49 support turned resistance and bring fall resumption.

In the bigger picture, the break of 126.88 support revives that case that medium term rebound from 112.10, which is treated as correction to long term down trend from 169.96, has completed last year at 139.21. Break of 124.35 support will further affirm this case. By then, we'll expect such long term down trend to resume for a new low below 112.10. On the upside, break of 134.36 resistance is needed to invalidate this bearish view and suggest that EUR/JPY is still in consolidation to rise from 112.10 only. Otherwise, outlook will remain bearish.

In the long term picture, up trend from 88.96 (00 low) has completed at 169.96 and made a long term top there. The corrective nature of the rise from 112.10 to 139.21 argues that whole fall from 169.96 is note completed yet. A break below 112.10 low will confirm that whole fall from 169.96 has resumed and should then target 61.8% projection of 169.96 to 112.21 from 139.21 at 103.45 or further to 100 psychological support next.

DISCLAIMER: Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. we assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Continue reading...