FOREX, COMMODITIES, STOCKS OUTLOOK March 31st: Analysis, Key Events, Trends, Trade Ideas

Stocks: Today: Asia mixed, Europe up. Stocks chop around due to both light holiday volume, as well as caution stemming from a weak Greek bond sale thus far and the usual uncertainty ahead of US Non-farms Payrolls

.- FX: Slight bias against safety currencies [JPY, USD, CHF in order of safety appeal] vs. risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk appetite appeal], as stocks essentially flat, USD gains against fellow safeties and the Euro, but mixed vs. commodity dollars (and the GBP on better than expected Q4 UK GDP).

- Main events: TUES: GBP Final GDP q/q+, USD CB Consumer Confidence+, WED AUD Building Approvals-, Retail Sales-, NZD NBNZ Bus. Confidence-, CHF KOF Econ Barometer USD ADP Non-Farm Payrolls, CAD GDP m/m, JPY Tankan Mfg Index AUD Trade Balance CNY Mfg PMI GBP Mfg PMI USD Unemployment Claims, Challenger Job Cuts, USM Mfg PMI, FRI: USD NFP & Unemployment Rate

- Big Theme: Risk assets mostly continue to trade in ranges of the past weeks due to light holiday volume and caution ahead of both US Job Reports and this week’s Greek 12 year bond sale which will quickly test whether last week’s EU Contingency Plan succeeded in restoring confidence enough to lower Greek borrowing costs. Results thus far are not encouraging.

STOCKS:

US: The overall market finished flat after interest in a better-than-expected consumer confidence report dissipated. We believe the normal caution ahead of the US monthly jobs reports and concerns over Greece’s current inability to sell bonds also weighed on stocks.

A stronger-than-expected improvement in the May Consumer Confidence Index to 52.5 further improved what was already a generally positive tone in the early going. Though gains were modest, the morning advance was broad based.

Still, credit analysts at S&P remain concerned about Britain’s fiscal deficit. Such concern offers another reminder that even historically stable global economies face sovereign debt challenges. To its credit, though, France’s AAA rating was affirmed by Fitch analysts, who also said the outlook for France’s grade is stable.

Strength in the dollar dragged down the broader market, but tech stocks showed resilience. That gave the sector a 0.5% gain and helped the Nasdaq edge out its counterparts.

Financials were part of the reason that the broader market struggled to post a gain. The sector, which is second to tech by market weight, finished with a 0.7% loss. That made it the worst performing sector in the S&P 500. Diversified financial services stocks (-1.3%) were the weakest performers in the sector; they were also among the most actively traded names by volume in the entire market.

Overall trading volume was light once again, under 1 billion shares traded hands on the NYSE. The low-volume trade has been consistent in recent weeks as participants continue to take a cautious stance, wary of jumping in or out of the market for fear of a correction or missing further gains.

Asia Stock Outlook: Down: At the close early Wednesday GMT: Japan’s Nikkei average hit an 18-month intraday high before paring gains on Wednesday, the final day of the financial year, but further gains were expected in the new quarter as a global economic recovery picks up strength.

European Stock Outlook Up At the open early Wednesday GMT: European stocks pared early losses and turned slightly positive in the first few minutes of trading on Wednesday, as steady oil prices boosted energy stocks, eclipsing a dip in heavyweight mining shares.

At 0719 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 0.06 percent at 1,080.05 points. The benchmark index had a roller-coaster session on Tuesday, hitting an 18-month high before surrendering gains and ending the day flat.

ASIA-MIXED N225I % HS % SSEC % FTSTI % AORD %
EUROPE FLAT FTSE % DAX CAC %
US- UP S&P +0.00% DJIA +0.11% NASDAQ +0.11%
THIS MORNING DOWN N225I -0.06% HS -0.46% SSEC -0.62% FTSTI -0.84% AORD -0.68%
UP FTSE +0.24% DAX +0.10% CAC +0.10%
Commodities Outlook: Flat: In Tuesday and early Wednesday trade GMT: continuing to tight range trading

Crude Oil Daily Outlook: Up: In Tuesday and early Wednesday trade GMT, futures continuing higher following overall risk appetite, rising as stocks continue higher and the USD pulled back over the past days.

Gold Daily Outlook own: In Tuesday and early Wednesday trade GMT again diverging from stocks, overall risk appetite, beginning to form another leg in its downtrend. Note that gold’s pullback in late November was the earliest leading indicator of the last major risk asset pullback, which did not occur until nearly a month later for oil and stocks.

FOREX Daily Outlook: In Tuesday and early Wednesday trade GMT: Continuing bias to risk currencies as risk assets hang on at or near new highs amid ongoing uncertainty about Greece and this Friday’s US jobs reports. Tuesday USD gained vs. fellow safeties and the Euro, but mixed vs. commodity dollars (and the GBP on better than expected Q4 UK GDP).

This week ends with two significant market moving events for the USD and thus the entire forex markets: the attempted Greek 12 year bond sale and the US monthly jobs reports Friday. The Greek bond sale has been weak thus far, which should hurt the Euro (and thus help the USD) because it undermines the EZ confidence and the credibility of the new EU contingency plan’s effectiveness at calming markets to allow Greece ( and its fellow PIIGS block) lower borrowing costs.

However expectations for Friday’s US jobs reports are high, leaving markets vulnerable to disappointment, which would hurt the USD

US Dollar Daily Outlook: In Tuesday and early Wednesday trade GMT: Up vs. the JPY, AUD, NZD, EUR, steady vs. the CHF, down vs. the CAD, GBP. Key data today is the ADP figure, Chicago Mfg PMI

In NY trade yesterday the dollar made a move up from negative territory to finish with a 0.3% gain against competing currencies. The greenback’s gain was somewhat restricted by strength in the British pound, which garnered support amid news that Britain’s fourth quarter GDP was upwardly revised to reflect a 0.4% increase.

Euro Daily Outlook: In Tuesday and early Wednesday trade GMT: Up vs. the JPY, down vs. the CHF, USD flat vs. the AUD, down vs. the GBP, CAD – Pressured by anemic demand for Greek bonds, and a possibly very good US monthly jobs report that could boost the USD. However, bouncing back in early European trade as German unemployment figures showed the largest drop since August 2008.

Regarding the impact of the Greek bond sale, key points include:

The euro fell victim to fresh concerns about Greece’s ability to borrow. After EU leaders announced a financial aid mechanism for Greece last week, they stressed that aid is not needed at this time.

Prime Minister Papandreou concurred by saying that the country would first try its luck with the markets by raising money through bond auctions. Unfortunately weak demand has triggered many questions about the country’s ability to borrow. Greece’s surprise auction of bonds that mature in 2022 this morning raised only EUR 390 million, less than half of their EUR 1 billion upper limit.

Greece needs to raise EUR 10.5 billion by the end of May to avoid tapping the bailout plan put into place and resurrecting concerns about a fiscal crisis within the Euro zone. What the results of the bond auction tell us is that just because the Germans and French have agreed to provide support to Greece with the help of the IMF, it is still up to Greece to move forward with their austerity package and reduce their deficit. Unfortunately, austerity spending takes time to show results, and are unlikely to show results within the coming months

While it is good that a mechanism for aid is in place, needing to use it would still be an embarrassment for the Euro zone. As noted in our most recent post The EU Contingency Plan: Doomed By Its Main Strength, it’s unclear how smoothly the EU could actually get the cash to Greece should sudden need arise, assuming Angie Merkel is really willing to face her voters after having just tossed a chunk of their taxes at a very unpopular cause.

Meanwhile, even though Iceland is not a member of the Euro zone, S&P’s decision to downgrade their debt raises contagion fears because they borrow from banks within the region and it reminds everyone that many problems still exist in Europe..

Yen Daily Outlook: In Tuesday and early Wednesday trade GMT: Down vs. the USD, CHF, GBP, AUD, EUR

British Pound Daily Outlook: In Tuesday and early Wednesday trade GMT: Up vs. everything on better than expected Q4 GDP which, given its oversold nature, left it ripe for a bounce on any kind of positive news. Over the past weeks attempting to carve out a bottom for now.

Australian Dollar Daily Outlook: In Tuesday and early Wednesday trade GMT: Down or flat vs. most fx except for the JPY as poor retail and building data pressure it

New Zealand Dollar Daily Outlook: In Tuesday and early Wednesday trade GMT: Up vs. the USD, JPY, down vs. the GBP

Canadian Dollar Daily Outlook: In Tuesday and early Wednesday trade GMT: Up vs. most fx except for the GBP

Swiss Franc Daily Outlook In Tuesday and early Wednesday trade GMT: down vs. the AUD, EUR, up vs. the JPY, steady but fading vs. the USD

CONCLUSIONS & Big Picture: Short term bias for risk assets, The S&P 500, our key risk asset barometer, like other major stocks, holding on at/near 52 week highs Also, fx and commodities continuing their range trading. Long Term Bias Down:, especially in July, when 2 major events hit: Spain needs to sell about 30 bln euros in bonds AND a massive wave of US mortgage rate resets not seen since 2007 begins. The last time we saw this magnitude of rising mortgage rates markets stalled out and ultimately crashed. NB: Never fight the trend, no matter how irrational, as markets can stay irrational longer than you can stay solvent (Keynes). Therefore, as anyone who follows our trade recommendations knows, we always wait for some breach of key support/resistance as a signal to enter a position as odds appear to be in our favor, and even then only when the likely target is more than 2x as far away as out stop loss (which we ALWAYS USE, RIGHT?) so that our winning trade profits exceed out losses by at least 2:1.

Trade Ideas: We favor the dollar given the likely ongoing problems with the Greek bond sale and the likely good US jobs figures, but no recommendations until key support resistance levels breached

Disclosure: No positions

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