Intraday Market Thoughts Archives

Despite a downward revision to US Q2 GDP, Fed Chairman Bernanke reassured markets that growth will accelerate in the second half and that the Fed has the tools to do more. Bernanke & Trichet will appear on a joint panel later today in Jackson Hole. NZD was the top performer followed by AUD; CHF lagged badly followed by USD. Fridays CFTC report showed a pullback in EUR longs. Ashraf's Premium long gold trades hit their target w/ +$45 gains.

In a sense, Bernankes speech didnt live up to the hype. No concrete measures were announced except for a one-day extension of the September FOMC meeting. This proved to be enough as it was taken as a sign that action could be taken at the Sept. 20-21 meeting.

Stocks opened lower and risk trades were under pressure ahead of the speech but reversed as Bernanke said the Fed continues to believe growth will pick up and that it has tools at its disposal if needed . The S&P 500 closed up 1.5% to 1176 and up 4% on the week after four consecutive weekly declines.

We believe much of what we witnessed in stocks was the result of a short-covering rally. The speech may have brought the US fractionally closer to QE3 but more was expected. Bernanke also warned that officials havent seen enough to take action, the threshold to utilizing [new tools] is going to require fairly different conditions than what we have today, he said.

Bernanke may further refine his comments on Saturday when he appears on a panel with Trichet.

Other economic data continued to point to strains in the US economy. The U Mich consumer sentiment survey fell to 55.7 compared to 56.3 expected. Q2 GDP was revised to 1.0% compared to the 1.1% consensus. Domestic demand was revised to +1.1% from +0.6% . The US economy is operating very close to recession with any negative shock likely to be a tipping point.

Swiss franc fell on Friday after the SNB encouraged banks to charge fees on excess CHF reserve and UBS announced it may follow the directive shortly afterward. This news pushed USD/CHF above barriers at 0.8000.

Weekly Charts

On the week, NZD and AUD were the top performers with CHF and GBP lagging.

Gold was the real story of the week as it plunged more than $200 only to recover half of the declines. Last week we wrote: Those wishing to establish fresh positions may have a chance to buy on a pullback in the next week. The gains on Thursday and Friday affirm buying interest and the close on Friday above the 50% Fibonacci retracement of the breakdown points to further modest gains, at a minimum.

Ashraf's Premium long gold trades hit their target w/ +$45 gains. The silver trade remains in progress . For direct access click here: http://ashraflaidi.com/products/sub01/access/?a=483 Non-subscribers click here: http://ashraflaidi.com/products/sub01/

On the week, EUR/USD posted the highest weekly close since early June and is nearing a medium-term technical breakout.

AUD/USD and other AUD crosses have rebounded solidly but it will take a close above 1.06 in AUD/USD next week to trigger a move back to 1.10.

It was the third week in a row of gains in USD/CHF.

Weekly CFTC Data

Fridays COT report showed net euro longs down to +2.5K from +6.7K. Overall the moves in the report were unusually small. JPY and NZD net longs were virtually unchanged at +47K. AUD longs increased 13K to +43K. The CAD net grew by 4K as shorts were taken off. The CHF positions surprisingly grew by 1K to 9K. One of the takeaways from the report is that overall speculative positions are dropping, a sign of volatility and uncertainty.

UK GDP confirmed at 0.2%. Finnish-Greek collateral issue continues to be unclear. Market turns to US Q2 GDP revision and Ben Bernanke's speech at Jackson Hole symposium. Ashraf's Premium trades are in progress.

UK Q2 GDP remained unrevised on quarterly and annual basis at 0.2% q/q and 0.7% y/y respectively. Despite the data & market fixation on Bernanke, GBPUSD broke below 1.63, extending losses towards 1.6260s.

The Finnish collateral issue is likely to continue to weigh in on markets as the situation is unclear. The Finance minister Urpilainens office has informed that the collateral deal with Greece is no longer valid, most likely due to political pressure from Germany, while a senior Finnish government source said that collateral continues to be an absolute precondition for a participation in the second Greek bailout. Negotiations are therefore likely to continue in search of another solution.

Other news include information that France, Spain, Italy and Belgium extended their bans on short selling financial stocks until the end of September and that rating agency S&P sees downside risks in some Asian countries. S&P however notes that debt wise, Asia continues to be more stable than Europe or USA.

The US session kicks off at 8:30 am ET with preliminary Q2 GDP expected slightly lower at 1.1% from previous 1.3% which would be a third consecutive quarterly slowdown. Over the past year analyst continued to lower their growth projections as it is becoming clear that V shaped recovery was only a wishful thinking. A significant problem with lower long term growth is that measures such as GDP to debt ratio were projected with higher growth in mind so each tick lower have a considerable negative impact.

Revised University of Michigan Consumer Sentiment index due at 9:55 am is expected at 56.2 but it is unlikely to cause volatility as traders will eagerly wait for Ben Bernankes speech at Jackson Hole symposium that should start only five minutes later at 10:00 am. New round of QE is not likely but Ben Bernanke will attempt to convince markets that the Fed has additional tools that could be used should deteriorating economic conditions warrant it.

Subscribers can see Pre-Bernanke Trading Strategies here http://ashraflaidi.com/products/sub01/access/?a=483 Non-members can subscribe here http://ashraflaidi.com/products/sub01

k

UK Q2 GDP revision could boost sterling, European tensions continue to cause concern, Japanese CPI turns positive as PM Kan resigns, US Q2 GDP revision, Bernanke speaks at Jackson Hole. Ashraf's Intermarket Insights has 9 new Premium trades, including GBPUSD, EURGBP & gold.

GBP sustained significant pressure over the past few days and it wasnt helped yesterday by weaker consumer confidence figures for July, which dropped to a 3 month low. Yesterdays CBI retail sales data for August confirmed the fears that the August riots did indeed hit trade and saw the index fall to -14 to its lowest level since May 2010. With MPC member Martin Weale refusing to rule out further easing steps yesterday the pound has remained heavy.

Today's UK Q2 GDP revision could well change that with expectations for growth to remain unchanged at the preliminary 0.2% we saw earlier this month. The year on year figure is also expected to remain unchanged at 0.7%. A slight revision higher would be even better, but even at 0.2% the growth seen in Q2 is still better than France and Germanys Q2 figures combined.

Ashraf's Intermarket Insights include 9 NEW PREMIUM TRADES, on EURUSD, GBPUSD, EURGBP, USDJPY, gold and silver. Click here for direct access to Friday's trades http://ashraflaidi.com/products/sub01/access/?a=483 Non-members can subscribe here http://ashraflaidi.com/products/sub01

Tensions in Europe continue to remain elevated with Greece having to access the Emergency Liquidity Assistance (ELA) in order to keep its banks funded, raising fears that they are starting to run out of collateral acceptable to the ECB. The Finland collateral question is also one problem that wont go away after their finance minister refused to back down on the agreement reached with Greece. With Greek bond yields continuing to hit record highs there are fears that the current divisions between European members regarding collateral and the demand by Finland will scupper the bailout and bring the while euro castle crashing down.

Japanese inflation for July continues to remain benign, but it did improve on Junes -0.4% coming in at 0.2%. For all the recent strength of the yen and loose monetary policy it would appear that Japan could be starting to see positive effects in regards to fighting deflation. In the meantime Prime Minister Kan resigned paving the way for a new leader next week and Japans sixth Prime Minister in five years.

US Q2 GDP is due just before the US open and markets will be looking for some improvement ahead of Ben Bernanke's big speech at Jackson Hole this afternoon where a year ago he set the scene for what turned out to be QE2. It is doubtful there will be a repeat this year.

All eyes shift to Federal Reserve Chairman Ben Bernanke's speech at the Kansas City Fed's annual Jackson Hole symposium, due at 10:00 EST, 14:00 GMT, 15:00 BST. Considering Bernanke's recent speeches and the 3-man opposition at the FOMC to maintaining dovish language and keeping rates until 2013, it is NOT at all certain that he will give any strong hints regarding outright asset purchases (QE3). Any signals to QE3 from the speech would likely take the form of phrases which keep the door open for further "easing", "steps" or "measures" in the event of further economic deterioration/market tensions. Here are the latest PREMIUM TRADES ahead and after of Bernanke's speech http://ashraflaidi.com/products/sub01/access/?a=483 Non-subscribers click here http://ashraflaidi.com/products/sub01/

Ashraf Laidi

Early optimism on Thursday was wiped out by a mysterious plunge in German stocks and a second look at Warren Buffetts investment in Bank of America. CHF and USD were the top performers. GBP and AUD lagged. Comments from RBA Governor Stevens will be closely followed in the Asia-Pacific session. The big event remains Friday's Bernanke speech. Ashraf's Intermarket Insight trades remain in progress. A new set of trades will be added in mid morning Friday Asia.

Stocks rose early in US trading after Buffet agreed to buy $5 billion of warrants in Bank of America at a strike price of $7.14 with a yield of 6%. Shares of the company rose nearly 10%. At first the news was seen as positive but once the terms were revealed the market became concerned that financials are undercapitalized. Just last week, BoA was saying it didnt need any capital.

Around the same time, the DAX fell 4% in 15 minutes on a pair of rumours. The first was that Germany was about to be downgraded. The second was that a short selling ban was about to be implemented on DAX futures. Officials from the ratings agencies and exchanges quickly denied the rumours and the DAX closed down 1.7%.

Economic data also weighed as US initial jobless claims rose to 417K compared to the 405K expected. After climbing as high as 1190 in early trading, the S&P 500 reversed and fell 1.6% to close at 1159 creating a bearish outside day pattern on the daily chart.

Gold moved in the opposite direction, after falling as low as $1702 in early US trading, it rebounded to $1770. Silver rebounded even more aggressively, closing above $41.

FX moves followed the risk trade. Weale sparked a slump in GBP, saying the BOE has to be prepared to support the UK economy if needed. USD/JPY closed at the highest since Aug 8.

Japanese CPI data +0.2% y/y in July as expected, ex- food & energy slowed to +0.1% from +0.4%.

Euro continues to shrug off weak data and remains strong. GBP is the relative strength loser. Market is likely to calm ahead of Jackson Hole Symposium.

Euro continues to be strong despite yet another disappointment from Germany. GfK Consumer Confidence Survey for September came fell from 5.3 to 5.2 showing the worst print since October 2010.

Todays data from Switzerland is not any better. ZEW Economic Expectations survey saw 5th straight monthly decline in August when it dropped to -71.4 from previous -58.9. Last time the sentiment was this poor was at the end of 2008. CHF weakened about 30 pips after the announcement but it is likely that the overall sentiment will be more important for the future direction of the CHF.

4 NEW PREMIUM TRADES were issued on Wednesday night, (2 on EURUSD, 1 on USDJPY, 1 on EURGBP and one on SILVER) DIRECT ACCESS HERE: http://ashraflaidi.com/products/sub01/access/?a=481 NON-Subscribers click here: http://ashraflaidi.com/products/sub01/

UK CBI Realized Sales suffered the biggest fall in a year when they dropped from -5 to -14. GBP is the relative strength loser as it could not rally even when Euro was rallying nearly 100 pips. GBP continues to trade in a narrow range and consolidates yesterdays losses. A break below yesterdays low would open a way for a test of a support at 1.62 which coincides with 50% fib. retracement of a rally from 1.5779 to 1.

6443.

New York session will bring weekly unemployment claims due at 8:30 am that are expected at 403K from previous 408K.

The FX market is likely to calm down a bit as traders are unlikely to want to open new positions ahead of Ben Bernankes 10:00 am ET Fridays speech at Jackson Hole Symposium. Rising consumer and producer inflation decreases chances of an announcement of QE3 so his speech is likely to only reaffirm pledges that rates will stay at current levels with the possibility of capping yields should it be warranted. Equity markets have been anticipating additional stimulus so the lack of an announcement could see a market selling off.

Gold and silver continue to drop after a margin hike announcement. Gold lost almost 200 USD since peaking at 1912 just three days ago. The situation in silver is similar as both metals trade below yesterdays lows. Silver trades right above the 39 mark.

Euro shrugs off Greek bailout tensions, France announces a new austerity budget with tax rises, sterling slides ahead of CBI sales data , gold continues to fall after margin hike, US weekly jobless claims. 4 New Premium remain progress.

The single currency continues to remain immune to the soap opera playing out in various countries around Europe, with respect to not only the Greek bailout, but also increasing tightness in the credit markets within Europe. The euro also shrugged off some very disappointing economic data suggesting it is becoming somewhat Teflon coated.

The ECB was rumoured to be once again buying Italian bonds yesterday, which if they were didnt do too much to alleviate the downside pressure on yields, finishing as they did higher on the day above 5%.

The German president even waded into the row surrounding the ECB bond buying program, following the Bundesbank lead in questioning the legality of the action. Continued calls from with the German government of the need for collateral in exchange for any new Greek loans continue to highlight the divisions within government and point to a very rocky road ahead.

German Sep Gfk consumer confidence slipped to 5.2 from 5.4 vs. expectations of 5.1

France yesterday announced a new austerity budget of 11bn worth of tax rises in an attempt to try an reduce its budget deficit to 4.5% of GDP by next year and 3% of GDP by 2013. The French PM also downgraded the 2011 growth forecast from 2% to 1.75% in the wake of the last quarters disappointing GDP numbers.

4 NEW PREMIUM TRADES were issued on Wednesday night, (2 on EURUSD, 1 on USDJPY, 1 on EURGBP and one on SILVER) DIRECT ACCESS HERE: http://ashraflaidi.com/products/sub01/access/?a=481 NON-Subscribers click here: http://ashraflaidi.com/products/sub01/

Despite all this negativity the euro powered higher against the pound which has slid back all week, despite some fairly encouraging data from the CBI, with today seeing reported sales for August. This month could well be a disappointing number given the possible fall-out from this months riots with expectations of a fall to -10 from -5. Elsewhere Nationwide reported that UK consumer confidence fell in July to a 3 month low, but still came in above expectations at 49.

Later in the day MPC member Martin Weale is scheduled to give a speech in Doncaster, where the markets could well find out his reasoning for changing his vote at this months meeting of the MPC, from voting for a rise in rates to leaving them on hold.

Gold continues to fall overnight after the surprise 27% margin hike by the CME after the close.

After yesterdays positive durable goods data investors will be hoping for some positive weekly jobless claims with expectations of a fall from last weeks slightly worse than expected number.

Gold plunged more than $100 as demand for safe havens eroded on Wednesday. The pound lagged, falling to a one-week low while USD and JPY led. Early in Asia-Pacific trading New Zealand retail sales beat expectations and Steve Jobs resigned from Apple. Premium Trades Below.

Atypical market dynamics prevailed throughout the session as risk currencies slumped despite a rally in stocks and selloff in bonds. The S&P 500 gained 1.3% to 1177.

Precious metals were the major story as gold fell $102, or 5.5%, to $1759 and silver fell 6.2% to $39.71. It was the largest percentage decline in gold since March 2008. The CME hiked gold trading margins by 27% afterhours and many traders (including us) believe the announcement was leaked.

Cable began to slide mid-way through European trading and selling accelerated as last weeks low of 1.6420 gave way. The pair closed on the lows at 1.6360 leaving a negative bias.

EUR/USD was relatively stable spending most of the session above 1.44 despite a run on Greek two-year bonds that pushed yields to 44% because of Finlands threatened bailout non-participation.

Economic data aided broad sentiment as durable goods orders ex-transport rose 0.7% compared to the -0.4% expected. The report was solid and it will add an upward bias to Q2 GDP revisions but seasonal adjustments may have played a part and orders data points to a slowdown. Lately, there has been a disconnect between sentiment data and hard data. The general rule is that sentiment leads and data lags.

The other release that buoyed sentiment was from the CBO which said the US will have $3.487T in deficits over the next 10 years, about $3.3T lower than its previous estimate. The CBO noted that its growth estimates (which include an unrealistic 2.4% rate this year) were made in early July, when the landscape was different. We believe the deficits will be much higher but the CBO has a difficult job at the moment with so much of the political landscape is in flux, including taxes, revenue and spending.

The New Zealand dollar rose in early Asia-Pac trading after retail sales rose 0.9% in Q2 compared to the +0.6% expected. The rise matches the gain in Q1. Core sales climbed 1.4% compared to the +0.7% consensus.

At the same time, Steve Jobs said he could no longer meet his duties and expectations and announced his resignation as CEO. He plans to stay on as Chairman of the Board but the news will likely weigh on Apple shares and the broader market in the day ahead as the co-founder and CEO since 1997 exits.

Ashraf has issued 4 premium trades on his travel schedule. Premium Subscribers: http://ashraflaidi.com/products/sub01/access/ Non members can subscribe here: http://ashraflaidi.com/products/sub01/

German data disappoints again. Eurozones Industrial Orders decline. Market turns to Durable Goods Orders.

Euro is higher after Finnish Prime Minister Katainen who threatened earlier to withdraw support for Greek bailout specified that Finland will continue to talk with Greece and other countries to find a solution to the collateral payments issue that was rejected by Germanys chancellor Merkel. In this issue, Greece has agreed to provide extra collateral to Finland. Finnish prime minister said that a series of solutions are being discussed.

Data from Germany continue to disappoint as the IFO Business Climate index for August declined to 108.7 from 112.9. The Expectations component dropped to 100.1 from 105 nearly breaching the key 100 level that distinguishes between positive and negative outlooks. Eurozones debt problem and a significant slowdown of German and Eurozones economies are blamed for a poor number.

Industrial New Orders in Eurozone declined in June by -0.7% after a considerable rise of 3.6% in May highlighting growth concerns and worries about the industrial sector. Year over year print slowed to 11.1% from 13.8%. Germany, which is the largest economy in the Eurozone, has recently seen a string of weak data that points to a disappointing future Eurozone releases.

The New York session will bring July Durable Goods orders at 8:30 am ET. Orders are expected to increase by 2.1% after they dropped by -1.9% in June. Core measure is projected to show a decline of -0.3% from previous 0.4%. This indicator shows high degree of volatility so large swings are common.

CAD traders should pay attention to Crude oil inventories due at 10:30 am ET that are expected to show 0.7M barrels from previous 4.2M barrels. Low print would underpin crude oil which could subsequently support the Canadian dollar.

Divisions in Europe continue to dominate as collateral becomes the latest hot topic, Finland threatens to withdraw from Greek bailout, German IFO set to fall further, Japanese rating cut to Aa3, US dollar remains under pressure ahead of US durable goods, metals extend decline.

If Angela Merkel thought trying to convince financial markets about her commitment to Europe was a tough act, she didnt reckon the intra-Eurozone divisions as well as within her own government. Finlands recent announcement that it had agreed a collateral arrangement with Greece in return for its bailout funds has prompted similar demands from other European countries. Ratings agency Moodys has warned that such arrangements are problematic and should not be adopted, and Angela Merkel has herself called for the agreement to be overturned. Finland for its part has threatened to withdraw from the bailout if it is forced to give up its agreement.

In a separate development, German labour minister called for all bailout countries to give up their gold reserves as collateral in return for bailout funds, and there now has to be a real concern that the Greek bailout could fall apart as respective governments grow concerned about pouring more money into a fiscal black hole.

Yesterdays worse than expected ZEW number was a bit of a shocker, coming in at -37, the third monthly decline in a row, and this has prompted concerns that the German economy could well grind to a halt in the third quarter. If todays IFO data for August is similarly bleak then we could see the single currency tumble quite quickly. Expectations are for current assessment data for August to slip back to 119.8 from 121.4 in July, while current expectations are expected to decline to 102.8 from 105.0. Business confidence is also expected to decline from 112.9 to 111.

Earlier this morning, Moodys cut Japans credit rating from Aa2 to Aa3 with a stable outlook, citing weak growth prospects. At the same time Japanese finance minister Noda announced a further package of measures to curb the recent strength in the yen including a $100bn emergency credit facility to help support Japanese companies. Also announced was new monitoring which requires all financial institutions to report on all FX positions held by traders throughout September.

The US dollar has continued to come under pressure ahead of this weeks Jackson Hole symposium with expectations that Ben Bernanke will announce further measures to stimulate the US economy. This belief could well be misplaced and markets could well be lining up for a major disappointment. The reality is the bar is a lot higher now, notwithstanding the different political landscape, higher inflation and divisions in the FOMC.

US durable goods for July is up in the afternoon session and investors will be hoping for an improvement after yesterdays disappointing Richmond Fed and home sales data.

Gold slid back overnight posting a key day reversal which suggests we could well see further declines in the short term, within the broader medium term uptrend.

Gold fell nearly $90 after hitting a record high early on Tuesday as broad sentiment reversed and stocks soared. NZD and AUD were easily the top performers while CHF and USD lagged. There is no top-tier data on the docket in the Asia-Pacific region but New Zealand trade balance and Australian construction work bear watching. Ashraf's Premium trades will be issued later in the day as he is on travel schedule. He will shed light on the latest metals' decline.

Gold at $1831 after touching $1917/oz. Silver posted a similar percentage decline, falling to $41.90. The losses came as the S&P 500 gained a whopping 3.4% to close at 1162. A minor, magnitude 5.8 earthquake in Nth East of the US spooked traders but only for several minutes.

There were several reasons for the rally: 1) Speculation is growing about Fed action, or more likely the hint of action, when Bernanke speaks Friday from Jackson Hall. 2) Financials improved on a rumour that JPMorgan will take over Bank of America with government support. An analyst also helped by saying BoA is well capitalized -- this reminds us of Financial Crisis Part One. 3) A short squeeze.

BUT HOW CAN STOCKS' RALLY when the Richmond Fed Index hit 2-year lows & new home sales continue to drift below the 300K mark? Can this rally more nothing more than buying on the dips?

The gains came despite some downtrodden economic news. The Richmond Fed fell to -10 compared to the -5 expected and -1 prior. New home sales fell to the lowest in five months, slipping to 298K compared to the 316K consensus.

Canadian retail sales rose 0.7% in June compared to the +0.6% expected. Excluding autos, sales fell 0.1% compared to the +0.4% expected. CAD handily underperformed the other commodity currencies. Despite the miss, the trajectory of sales in Q2 as it climbed at a 3.0% annualized rate.

Currency trading flowed alongside the broad risk trade but EUR/USD continues to be an exception. The disconnect is likely due to central bank and Chinese buying. On Tues, EUR struggled after pushing to 1.4499 but failing to break 1.45. Former Fed Chair Greenspan weighed on the euro as well as he pointed to the possibility of a breakup.

Asia-Pacific Preview

New Zealand is expected to show a NZD$99 million trade deficit in July after a $230m surplus the prior month. The past four reports have missed by more than $170 million and NZD will rise/fall approx 20 pips on a similar miss.

At 0130 GMT, the second quarter report on Australian construction work done is expected to show a 1.1% q/q rise after a 0.7% rise in Q1. This report is unlikely to drive AUD trades.

Euro is rallying despite German ZEW index that dropped to levels not seen since the end of 2008. Eurozone PMIs disappointed as well. Market turns to Canadian Retail sales and US housing and manufacturing data.

USD is weaker across the board in a session filled with disappointing data releases. The situation in Germany continues to deteriorate as August ZEW Economic sentiment dropped to -37.6 from previous -15.1 which is the worst print since December 2008. Slowing GDP growth likely contributed to such a poor result. Other news from Germany showed that Manufacturing PMI stayed unchanged at 52.0 and Services PMI dropped to 50.4 from 52.9

Data for the whole Eurozone also disappointed as Manufacturing PMI dropped to 49.7 from 50.4 confirming a manufacturing sector contraction. Services PMI came out lower at 51.5 from 51.6 and ZEW Economic sentiment dropped to -40 from -7 also showing low numbers not seen since the end of 2008.

The rally in Euro is attributed to PBOC advisor Xia Bin who said that China is worried about the safety of its currency reserves which suggests continued interest in diversifying out of the USD.

The New York session starts at 8:30 am ET with Canadian Retail Sales for June that are expected to grow by 0.6% from previous 0.1%. Core measure is projected to slow to 0.3% from previous 0.5%. The recovery in oil underpins the CAD so positive surprise in sales should help it catch up with other majors.

July New Home Sales due at 10:00 am ET should increase slightly to 313K from 312K which is well within the range seen over the past four months.

Richmond Manufacturing Index that is also due at 10:00 am ET is expected to show yet another decline and drop to -7 from previous -1. The recovery seen at the beginning of the year has completely reversed and the projected result would be the lowest since April 2009.

French PMIs German and EZone ZEW survey, Swiss exports could show further declines raising prospect of further intervention, Chinese HSBC Manufacturing PMI slides further provoking further concerns about a slowdown, Richmond Fed

Fears of a double dip recession in Europe could gain further traction this morning, if in the wake of recent disappointing growth figures in the core countries, the latest flash PMI data for France, Germany and the Euro zone continue to point to a further slowdown in services and manufacturing.

French manufacturing PMI data for August is expected to slip back to 49.7 from 50.5 in July, while its euro zone equivalent is expected to also contract to 49.5 from 50.4. Even German data is expected to come in weak at around 50.6 from Julys 52 reading.

Economic sentiment in Germany is also expected to weaken further according to the ZEW survey, with expectations of a further slump to -26 from -15.1 in July, further raising questions of the ability of Germany to backstop any euro bond even if it wanted to.

Notwithstanding all of this further disappointing data out of Germany could well sour sentiment further with respect to willingness to bail out the peripheral economies, especially in light of the latest Bundesbank report which questions the democratic legitimacy of the recent bailouts under the current EU treaty.

Concerns about new central bank intervention from the Swiss National Bank are likely to increase if Swiss exports for July show increased declines due to the strength of the franc.

Fears of a slowdown in China have diminished slightly after preliminary HSBC Manufacturing PMI, despite contracting again in August, recovered from last months figure coming in at 49.8. This recovery has raised hopes that China is not heading for a significant slowdown in the wake of last weeks disappointing data from Europe and the US.

After last weeks shocking Philadelphia Fed numbers, attention is expected to turn to this afternoons Richmond Fed for August, where it is hoped that the Philly numbers will be shown to be a one-off. US new home sales for July are also due out.

Gold has continued its recent surge higher again making new highs against the US dollar, euro and the British pound.

Kyle Morison

Early optimism in US trading was wiped out on fears of cash shortfalls and legal troubles at US financial institutions. NZD was the top performer on the day followed by AUD; the laggards were CHF and JPY. The upcoming session features data on New Zealand inflation expectations.

Revelations that Bank of America will not be able to sell its full stake in China Construction Bank renewed the markets flight-to-safety after early optimism sent the S&P 500 higher by 20 points at the open. Sentiment worsened in the final minutes of trading on a report that Goldman Sachs CEO Blankfein has hired a high-profile defense lawyer. The S&P 500 gave up all its early gains to close flat at 1124. FX risk trades followed a similar arc as they peaked at the US open. Gold and silver were the beneficiaries of the uncertainty as gold touched a fresh record only a few cents below $1900 and silver gained 3.3% to $43.85.

The worries about Bank of America are based on analyst research suggesting the embattled bank must raise $40-50 billion. The failure to sell assets in China may mean BoA will have to break itself apart and sell parts of its core business or dilute shares.

The possibilities from the Goldman Sachs news are endless. It may be nothing, but at worst it is part of an agenda for US prosecutors to go after credit-crisis era fraud.

Moves in the forex market were small, partly due to the summer slowdown and partly because the financial news is unlikely to affect the underlying US economy. The lone data point was MBA mortgage delinquencies, which rose 8.44% in Q2, higher than the 7.76% expected and 8.32% in Q1.

The euro gave back its earlier gains and closed at 1.4360 after Greeces finance minister said the economy will contract more than expected this year, endangering austerity. Output is now expected to fall 4.5-5.3% compared to the -4.5% previous estimate.

USD/JPY traded in a 15-pip range throughout New York trading and it appears more than likely that someone is working to minimize volatility.

The lone economic data point in the Asia-Pacific region is inflation expectations from the Reserve Bank of New Zealand. The prior was 3.00% and there is no consensus. The outsized move in NZD Monday makes us suspicious of a high reading.

Chancellor Merkel reaffirms her opposition to Eurozone bond. Gold and silver continue to rise. Market turns to Mortgage delinquencies.

USD is mixed since London open. It is stronger against the GBP, CHF and JPY and weaker against the other majors. After a brief consolidation, risk currencies continue to press higher, currently nearly 100 points off their respective lows.

The sentiment towards the common currency could worsen as German Chancellor Merkel said she would continue to resist the idea of Eurozone bond as a way to solve Eurozones debt crisis. Markets were hoping to hear that such an option is still on the table but it seems that German opposition to the common bond continues to grow. Merkel also said that she will not let financial markets dictate policy and that euro bond are precisely the wrong answer to current debt problem.

Gold continues its relentless ascent and trades 40+ USD higher above Fridays close reaching the high of 1895. Previous reports that gold will struggle to hold above 1800 were proven false as there are still many buyers. The price action on silver is similar to gold as it trades near 44 from Fridays close at 42.99.

To read Ashrafs premium piece on Silver click here: http://ashraflaidi.com/products/sub01/access/?a=480 Non members can subscribe here: http://ashraflaidi.com/products/sub01/

The only fundamental data release for todays New York session is MBAs Mortgage delinquencies for Q2 due at 10:00 am ET. In Q1, delinquencies rose slightly to 8.32% reversing a downward trend that started in May 2010. This lagging indicator provides valuable data about the general health of the housing market as delinquencies are correlated with home inventories.

Currency concerns dominate central banks with Bank of Japan eyed regarding yen rise. Swiss National Bank also in focus despite recent CHF weakness, ECB set to continue bond buying, while Fed eyed as Jackson Hole looms. Gold rises and oil weakens. Ashraf's latest 8 Premium trades, including extensive charts for silver.

Last weeks new high in the Japanese yen has prompted further speculation that could see the Bank of Japan embark on further stimulus measures to try and weaken the yen, certainly the brief drop below 76.00 against the US dollar prompted some very rapid short-covering suggesting markets remain nervous about the prospect of intervention. Finance Minister Noda has stated that the government will take decisive action if needed in FX markets maintaining that he is concerned about the currency's continued appreciation.

The Swiss National Bank is expected to continue its recent attempts to weaken the Swiss franc, though the best they can probably hope for is to slow it down, given that the Japanese have been trying for years to weaken the yen without too much success.

The ECB is also expected to continue to buy Italian and Spanish bonds in an attempt to keep the borrowing costs down for these vulnerable countries, but it is not being helped by continued fragmented leadership from Europes leaders. On Friday Olli Rehn said that the EU may look at drafting legislation for a euro bond, while Belgium and Italian ministers called for the implementation of such a measure. Angela Merkel, on the other hand remained strongly opposed stating that euro bonds would require European Union treaty changes that would take years and would probably be illegal under the German constitution.

The disappointing economic data in the US last week has prompted fears of a significant slowdown in the US economy and even fears of a double-dip recession, with further downgrades in the growth forecasts for the US economy late on Friday when Goldman Sachs downgraded its forecasts for the third time in a month, for 2011 and 2012. Following on as it did from downgrades from Morgan Stanley, JP Morgan and Citigroup, attention is switching to this Fridays Jackson Hole Symposium with some market participants hoping for further stimulus measures from the Fed. This could well be wishful thinking with inflation rising and last weeks shocking fall in Philadelphia Fed activity, the odds of QE3 are starting to look very slim indeed.

There is also growing political opposition within the US which could well make Bernankes job a lot harder in that respect, not to mention opposition within the FOMC.

8 NEW PREMIUM TRADES are up. Premium members click here: http://ashraflaidi.com/products/sub01/access/?a=480 Non members can subscribe here: http://ashraflaidi.com/products/sub01/

Gold prices continue to hit record highs against the US dollar as investors continue to speculate about this weeks meeting at Jackson Hole and events in Europe. Oil prices could well show further weakness as recent events in Libya continue to unfold.