Intraday Market Thoughts Archives

S&P 500 closes at lowest since October 2004 (-25% YTD), Dow closes at lowest since October 2005 (-22% YTD). The House of Representatives joined the US Senate in passing the TARP rescue package but markets revert to worrying about the real economy, and will most likely force the Fed into an inter-meeting rate cut. Neither the Congressional Bill, Warren Buffett's purchase of GE stake, nor Wells Fargo's purchase of Wachovia could distract the markets from the emerging fact of a deepening recession. High yielding FX lose 2/3 of their US session gains, to the benefit of the CHF and JPY. This was our prediction in our morning note. Expect coordinated central bank rate cuts as early as next week.

US House of Reps pases rescue package with a 263-171vote, prompting US stocs to erase more than half of their earlier 3% gains. The pre-vote rally in equities emerging on Buy on the rumor sell on the fact is tapering off. USD also loses ground against European currencies and the yen as focus returns to negative fundamentals i.e. deteriorating jobs. Stocks may continue to decline as traders attempt to force an intermeeting rate cut by the Fed and other major central banks.

September payrolls fell by 159K, worst decline since May 2007, while the unemployment rate held at 6.1%. Although unchanged, the unemployment rate is widely expected to breach above the 6.3% rate in coming months, which would be the highest jobless rate since 1994. Our base call of 50-bps easing before year-end is now completely priced in the market, with about 55% chance of the cut emerging before the October 29 meeting. Further dollar losses seen likely against the yen (towards 104.50s) but not against European FX, especially as BoE is widely expected to cut rates next week.

GLOBAL YIELD CURVE WATCH: The latest yield curves of the US, EU and UK in the Analytics Section of the website http://www.ashraflaidi.com/charts/global-yield-curves.asp convey the escalating steepness in the yield curves (as measured by the difference between 10 and 2 year yields). As the spreads increase (curves steepen further) bond markets are pricing higher chances of interest rate cuts by the three central banks. The steeper the yield spread, the more it is indicative of slowing economic dynamics and downside risks because as 2-year yields fall relative to 10--year yields, the 10-2 year spread increases, hence the curve in the chart increases. See Deconstructing Yield Curves for more detailed explanation on how to read the curves. Should you have any questions, please do not hesitate to post them in the comments section of the Global Yield Curves.

One day after we warned clients of prolonged euro and sterling losses despite slumping US data, both currencies extend their plunge against the US currency. Violent euro selling extends EURUSD to 1-year low below $1.3780 as ECB Chief JC Trichet says policymakers discussed a rate cut option at today's meeting despite their decision to leave rates on hold at 4.25%. An important remark by Trichet indicating that the central bank regained control in shaping inflationary expectations, which may be interpreted as a victory on the inflation front, allowing the central bank to move forward in dealing with growth risks. Trichet left the door open for coordinated cuts with other CBs by indicating although the ECB acts only on price stability, it remains in an intimate coordination with other central banks.

EURUSD breaks below $1.3780 as ECB Chief JC Trichet says policymakers discussed a rate cut option in today's meeting despite their decision to leave rates on hold at 4.25%. EURUSD eyes $1.3630. GBPUSD plunges below our stated target of $1.76 and onto $1.7570, now targetting $1.7550. US weekly jobless claims rose 1K to new 5-year high of 497K.

Despite the US SENATE's passing of the TARP bill by a more than 60 votes. European stock futures set to open down and so are US stocks. This reminds players that markets are boosted by earnngs cycles and macrofundamentals and not just by Congressional decisions. Wednesday's awful report (lowest in 6 years and biggest drop since mid 1980s) is a stark confirmation of a US recession, wich should and will likely sput the Fed to cut rates. I know EXPECT CENTRAL BANKS TO PICK THE RIGHT TIME FOR COORDINATED INTEREST RATE CUTS as the only remaining firepower in their arsenal. In the event that equity losses escalate into US trade, we may (10% pribability) expect such moves to occur as early as this week. Markets still await the vote from the HOUSE of REPS. USDJPY seen testing the key support of 105.20, while we revise down GBPUSD down $1.7550.

GBP, EUR and other FX hit session lows vs USD in early Asian Trade, while JPY trades in mid ranges. After early USD retreat in NY session, currency finds fresh bids, dragging GBPUSD and EURUSD to $1.7640, $1.3940. US Senators will begin voting on the Troubled Relief Asset Program at 10 pm EST (2 am GMT)-- a process that takes 15-20 mins. Bill may be passed but will it get the 60 votes to be approved? If passed, the rescue package will go to the House of Reps and be voted by end of week. NIKKEI-225 is up 0.6% or 71 pts. US jobless claims may be ugly tomorrow (+500K) but also watch out from BANK OF ENGLAND and EUROPEAN CENTRAL BANK interest rate decisions at 7am EST and 7.45 am. BoE decision may produce a surprise cut, but we expect decision to be GBP negative regardless. ECB conference at 8.30 am will be key as markets seek dovish talk, which could accelerate EUR losses towards $1.38.

US August ISM plunges to 43.5, worst level in 6 years, undershootng expectations of 49.5. This number is not only recessionary, but underlines the notion that "rescue packages" are merely confidence builders and by no means solutions to the deepening economic slump. USDJPY seen extending losses towards 105.20. Despite these dismal US figures, we maintan our pessimism with the high yielding FX such as AUD, GBP (still seen at $1.76) and NZD. EUR eyes $1.3950. Tune in to my interview in the "Media Section" for my explanation on why the Fed should and will cut rates.

GBPUSD HEADING TO $1.7600. A few hours after we warned of sterling's technically bearish pattern yesterday, the currency lost more than 3 cents from $1.8100 to $1.7750. We expect the pair to sustain further damage in the next 24 hours, extending declines below $1.77 and onto $1.76. Although the Bank of England is expected to hold rates unchanged at 5.00%, the reaction is seen widely negative as markets are increasingly focused on the growth priority of central banks than inflation. GBP losses are even more justifed by an eventual resolution at the Senate. ADP Report on Private Payrolls showed smaller than expected loss of 8K in September vs expectations of -50K, which is also giving USD some momentum.

My Interview on BNN today on "Why the Fed Must Cut Rates".

http://watch.bnn.ca/clip97384#clip97384

Dollar accelerates gains on combination of technical and fundamental factors, with the technicals being dictated by end of quarter position squaring, and pre-London fixing gains giving the euro its biggest single one-day point loss. There are also funding concerns among banks serving as credit counterparts to one another, which is speeding up the moves. Fundamentally, bad news from European banks Fortis, Dexia and insurer Hypo resurface at the expense of the euro. Emerging Market Funds unwinding positions back into USD are also said to prop the greenback. USDJPY gains along with all other yen crosses on overall rebound in IS and global bourses. 106.35-40 seen as key resistance, while EURUSD and GBPUSD eying support $1.4020 and $1.7730.

Sterling had recovered from its $1.7970 lows to as high as $1.8117 after a 4-point rebound in the GfK survey on September consumer confidence. Despite broad market losses in Asia and Europe, sterling bounced off its lows, but upside is seen limited at $1.8130s, which marks a key topping pattern under a classic head and shoulder is forming on GBPUSD 4-hour chart, with the neckline underpinned at the $1.7930s-- the 61.8% retracement of the rise from the $1.7485 low to the $1.8668 high. Head-and-shoulder formations (bearish patterns) have successfully proven their validity with GBPUSD, whether on weekly or hourly charts. Continued selling in Asian and equity bourses seen creating another difficult day in Wall St, which is bearish for high yielding GBPUSD. Overnight USD Libor rate surges to new record highs, USDJPY capped at 105.30, EURUSD seen breaching below $1.43 to $1.4270.

As US Congress shuts for the Jewish New Year on Tuesday, trading volumes will drop below par and the bailout package speculation will give way to US reports on manufacturing activity, consumer confidence and home prices. The 9am EST release of the S&P/Case Shiller home price index composite 10 index expected to show a 0.7% decline in July to 179 from 180.4 m/m and -17.2% y/y. The 9.45 am release of the Chicago PMI is seen showing a drop to 50 in September from 53.0. Consumer confidence at 10 am EST seen at 55 in September from 56.9. COULD THERE BE A REBOUND IN WALL ST. knowing no Congressional resolution is possible until Thursday o Friday at the earliest? Even if US consumer confidence beats expectations on the upside, it's unlikely to garner much interest given its release prior to the escalation of the crises. .

My Interview with CNBC-TV a few hours ago.

http://www.cnbc.com/id/15840232?video=872334404&play=1

House of Representatives reject rescue package, sending the Dow plunging 713 pts (--6%), S&P500 drops 98 pts (-8%). This is now a US-centric problem, sending the dollar plummeting across the board. Yen longs must be warned from a POTENTIAL FED RATE CUT either tomorrow or tonight, whch would send the yen lower. The Fed's liquidity injections have proven without effect. The market contagion will spread to all over Asia, potentially causing runs on banks if the Federal Reserve does not intervene. Gold prices surged to $920 per ozfrom $870, VIX index surges above 40 to highest level since September 11. Lack of any intervention to send USDJPY to 103.30, EURUSD may surge to $1.4580s, but once again ALERT FROM COORDINATED CENTRAL BANK ACTION. We have already warned in last week's article of an intermeeting Fed cut. Stay tuned.

The combination of the bailout of Germany s Hypo Real Estate and slumping economic data from the Eurozone on retail sales and business confidence dragged the euro by 200 points against the dollar to $1.43. Just the dollar rally of 2 months emerged on deepening macroeconomic weakness in Europe , the latest bout of dollar gains escalates on emerging banking woes in the Old Continent. Having broken below the $1.44 support alerted last week, EURUSD aims next target at $1.4270. Upside capped at $1.4430.

The spread of banking failures to European shores is dealing an all assault on global risk appetite, dragging major currencies against the US dollar, with the British pound faring as the largest loser. The US currency is falling nearly 80 points off its 106.90 session high as the Japanese currency overtakes the dollar (and the franc) investors seeking of safety.S&P500 futures down 20 points. Cable eyes $1.7910, followed by $1.7850. USDJPY eyes 105.80.

While much attention focused on the passing of the rescue package (TARP) and the resulting rally in the dollar and US equity futures, traders must also be alerted of the NATIONALISATION OF BRADFORD & BNGLEY, the large UK mortgage lender. Spain's Banco Santancder is said to take the bank off the hands of the Treasury. GBPUSD has tumbled 150 pips in early Asian trade reaching $1.8265.