Intraday Market Thoughts Archives

My Video Market Analysis with CMC Markets Charting Jobs, Aussie, Sterling & Treasuries http://youtu.be/cIFTGTuq898

US JOBS ROSE 36K from a revised +121K (total of +40K in Dec & Nov revisions) While the unemployment rate tumbled to 9.0% from 9.4% (lowest since April 2009). The continuous decline in the unemployment rate results from the fell 504K decline in the labour force. Discouragement among job seekers has been largely attributed to the decline in participation rate. As for the weather factor, the Labour Dept. says 4.9 million people were forced to work part-time due to bad weather after 356K in December. GBPUSD SIMPLY COULD NOT regain the $1.63 November High while AUDUSD has yet to break (close) above the $1.0190 high to match the left shoulder from Nov high.

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CANADA JOBS KNOW NO GRAVITY as Jan employment rose by 69K from 22K breaking through expectations of +15K. That is the 4th HIGHEST number over the last 5 years. The unemployment rate rose to 7.8% from 7.6% (highest since Oct 2010). Just to give an idea about the strength; a 69K increase is a near equivalent to about 600K increase in the US. BEHIND THESE NUMBERS, the +69K jump in Canada jobs, FULL TIME jobs slowed to +31K from +44K & PART TIME soared to +38K from -14K.The question then becomes AGAINST WHICH currency will traders want to buy the loonie? EURCAD and GBPCAD are possibilities for the shorts. Going long CADJPY could be considered due to the rally in bond yields (usually yen-negative) and could be especially boosted if the US jobs figures are strong enough to boost risk appetite and equity indices. So watch equity futures and US 10 yr yields and whether it sustains the jump above 3.55%. But as we have learned, we cannot ignore the Egypt Factor, with Friday being a likely occasion for surging protests as the pro-Mubarak supporters growing in numbers. One clear dynamic is the downside in EURUSD and GBPUSD, eyeing $1.3520 (100-day MA) and $1.60 after the double too from November. US Unemp rate seen at 9.5% from 9.4% while payrolls seen at +155K from 113K. Will the slowdown in ADP to 187K from 247K predict a weak NFP between 90 and 110K? More importantly, will it prevent S&P500 from closing above 1307?

BERNANKE CAN BE DOVISH BUT While JC Trichet will continue to acknowledge creeping inflationary pressures without hinting at any rate hike, Ben Bernankes speech (19:30 GMT) shall insist on reiterating the need to preserve QE2 until June. Reporters will likely ask Bernanke over whether QE2 will be completed despite improved economic data. Bernanke will not budge and the US dollar will probably reverse some of the advances posted after London trade. While I mentioned in the previous IMT that fresh pullback in GE-UK 2 year spreads remained a long term negative for EURGBP, WATCH TODAY how GERMAN-US TWO year yield spreads have lost 18 bps 0.65%. AUDUSD refusing to join EURUSD and GBPUSD downside after better than expected trade data as well as current bounce in gold and silver. STAY ALERT for TOMORROWs US jobs report. The unemp rate fell by 0.4 pts to 9.4% in Dec while payrolls rose to 103K from 71K. Will the slowdown in ADP to 187K from 247K predict a weak NFP between 90 and 110K? More importantly , will it prevent S&P500 from closing above 1307? Note how USD pushed higher during US trade despite stocks having finished higher.

THE RENEWED DECLINE IN EURGBP highlights the bearish multi-month outlook for the cross first communicated on Nov 14 Article. The weakness reflects increasingly inflationary UK data and the hawkish shift in the 9-member MPC Committee of the Bank of England. Intermittent EURGBP bounces have primarily resulted from positive euro news flow (decent bond auctions, hawkish ECB talk and receding peripheral bond spreads).

Here is the LATEST EURGBP CHART w/ GER-UK 2-year yield spreads http://chart.ly/6a9ptdf The story from the 2-year yield differentials also illustrates the GBP-positive outlook against euro. German 2-year govt yields minus their UK counterpart have fallen back below zero at -0.07%. The daily correlation between the GE-UK 2-year spread and EURGBP stands at 0.61. Considering markets pricing for at least one BoE rate hike before year-end, the fundamental dynamics appear to be in synch with the technical picture. Lower highs in EURGBP as well as December and January rebounds, which failed to regain the November highs should likely keep the bulls out of the fray. Expect a prelim target of 0.8350, followed by 0.8150 (Aug 2010).

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Thoughts on Egypt ... continued (Part 2 of 2) Markets shall remain interested in the fate of the US aid to Egypt (most of which flows to the Military) and in the Military’s ability to safeguard civic order, security and maintain the functioning of commerce, banks and foreign investments. The subsequent question shall revolve around the true successor to Mubarak. ElBaradei may have credibility and respect but he lacks partisan support as long as he does not start his own party.

The other key aspect is to what extent will uncertainty in Egypt raises concerns about the flow of oil through the Suez Canal (through which 8% of world trade passes). I do not think the events in Egypt will arrive to the extent of endangering the flow of oil in the Suez, but if they ever do, ie if say oil prices arrive and REMAIN above $100 long enough to further drive other commodities higher, then inflationary pressures will filter through the broader economy (input and output costs) and the result would be higher bond yields in the G7, and ultimately premature monetary tightening during in an already austere world. Such an outcome would be dangerous for equity indices.

WHY THE MUBARAK SUPPORT? (part 1 of 2) The pro-Mubarak demonstrators complicate Egypt’s path towards democracy and fuel further civil unrest? Why would Mubarak supporters mount their biggest protests in weeks one day after he announced stepping down before the September presidential elections? These protests are coordinated throughout Cairo and Alexandria. Is Mubarak making a statement “the people want me to stay therefore I will stay”? Or, is it simply an intention to show that he will at least leave with head held high (unlike Tunisia’s Ben Ali). MARKETS ARE MOST CONCERNED with the fate of US aid to Egypt (most of which flows to the Military) and in the Military’s ability to safeguard civic order, security and maintain the functioning of commerce, banks and foreign investments. The subsequent question shall revolve around the true successor to Mubarak. ElBaradei may have credibility and respect but he lacks partisan support as long as he does not start his own party. (Part 2 of 2 in next IMT)

IN CASE YOU MISSED IT, Here is Ashraf's CNBC interview discussing the USD, euro, Aussie & Scandinavian currencies, alongside Simon Derrick of BNY

http://bit.ly/gzWFbj

S&P500 & Dow-30 Flirt OVERBOUGHT SIGNALS http://chart.ly/9rq9njw

Weekly S&P500 Relative Strength Index shows the highest overbought levels since September 2007. Last week was the S&P 500 fell for the 2nd straight week after it had SEVEN STRAIGHT WEEKLY GAINS. Those gains were the longest winning streak since 2007. IS THIS another sign of an impending top. NOTICE in the chart how there was a LAG in the S&P following the RSI decline. HAVE YOU VOTED FOR ME at the TWITTER AWARDS? Please state a reason here so that your vote is counted http://shortyawards.com/alaidi THANKS

Ashraf's CNBC interview discussing the USD, euro, Aussie & Scandinavian currencies

http://bit.ly/gzWFbj

USDs stabilizes from Asia/EU losses after S&P downgraded Irelands credit rating to A-/A-2 from A/A-1 and decision to maintain it its negative credit watch until at least April. Euro watchers await THURSDAY's ECB PRESS CONFERENCE and whether JC Trichet will step up his inflation concerns after the latest CPI estimates hit 2.4% y/y highest since Oct 2008. If Trichet reiterates his preoccupation without reservations or qualifiers, then markets will interpret it as support for at least 1 rate hike this year. We find these arguments misplaced due to the potential upward impact yield impact on struggling peripheral bonds. The short-term reaction would likely boost EURUSD towards $1.40 handle, but a 9% currency strengthening in 4 weeks should provoke verbal reverberations from EU politicians (not bankers). GBPUSD PUSHES UP 3% over the past 3 days after Jan construction PMI regained +50 level. Breaking through the $1.6150 resistance, the path remains open to the next barrier at the $1.63 barrier (Nov 2010 high). Subsequent resistance stands at $1.6420the trendline extending from the Nov 2007 high. US TV AUDIENCES CAN WATCH ASHRAF today on CNBC-US Wednesday at 11:20 Eastern (16:20 GMT) discussing the euro's turnaround, the USD's outlook and the MidEast factor.

Ashraf's latest Reuters Thomson Video on How Far the Rebound in Gold & Silver http://link.reuters.com/cus77r Daily & Monthly Charts

Ashraf will be on CNBC-US Wednesday at 11:25 Eastern (16:25 GMT) discussing the euro's turnaround, the USD's outlook and the MidEast factor.

Commodities remain led by energy prices as last weeks Egypt-oil premium turns to the growth premium, courtesy of fresh multi-year highs in global PMIs. The rise in bond yields is tempering metals rebounds. Reports of Hosni Mubaraks fleeing Egypt remain unsubstantiated but the increasingly people-friendly Egyptian military is helping to restore confidence in global markets as hope re-emerges regarding the establishment of electoral reform ahead of the September presidential elections.

The Egypt and PMIs tests have come and gone and markets have passed them with flying colours. Unless the People's Bank of China upsets markets with a pre-New Year interest rate hike this week, the remaining obstacle would be the US January hobs report. Wednesday's release of the Jan ADP is expected to show a slowdown to 147K from 297K. A weaker than expected figure may slow the current-run up, but the key obstacle remains Friday's job report. BROAD USD WEAKNESS drags USD index to 77, close to the 3-year trendline support of 76.50. A close below 76.00 this week would signify a possibility towards $1.40 in EURUSD and 1.6280-330 in GBPUSD. AUDUSD gains +140 pips for the second straight day to hit a fresh 4-week high at 1.0084. Having broken the Jan 19 high of 1.0070, focus shifts to 1.00 will materialize. A clear break above it could extend towards 1.0180 Nov high.

AUSSIE FIRES AHEAD after the RBA said it would look beyond the floods, whose damage it deemed was temporary, and issuing an upbeat assessment on domestic demand dynamics. The central bank also focused on the inflationary impact of the floods. Private economists expect the RBA hikes to start again in Nov. AUDUSD gains +140 pips for the second straight day to hit a fresh 4-week high at 1.0084. All eyes on whether a close above the Jan 19 high of 1.0070 will materialize. A clear break above it could extend towards 1.0130. Chinas Jan PMI slipped to 52.9 from 53.9 but the PMI issued by HSBC rose edged up to 54.5 from 54.4%. GBPUSD continued its bullishness after the NIESR thinktank announced its prediction of THREE interest rates hikes by the BoE this year, reaching 1.25%. Also boosting GBP is the UK Jan manuf PMI hitting an all time high of 62 (vs. exp 57.9). GBPUSD broke through the $1.6030 resistance, setting its sight towards the Aug 2009 trendline resistance at 1.6150. WATCHOUT for US JAN manuf ISM exp at 58.0 from 58.5, but could easily surpass expectaions after yesterday's release of the Chcagp PMi soared to 68.8 from 66.8 , EURUSD still trying to close above the $1.3755-60 resistance.

THE HISTORIC POLITICAL SHAKEUP IN EGYPT will take time to resolve itself. Aside from the obvious fact of the Street’s resentment with the current regime, uncertainty will rein at least until the September pres elections. Until then, expect intermittent clashes with authorities as long the Street sees no moves progress towards transparency in the upcoming electoral process. In spite of the escalating risks and repercussions emerging from Egypt’s political upheaval, there are is an important comforting element of reality, which would reduce the threat of a full-blown regional crisis and emerging market contagion; The Egyptian Military, principal recipient of US aid and chief safeguard of national security, has clearly kept its hands off the current political transition thereby improving its credibility in preserving civil orde, protecting resources, Suez Canal, banks and key businesses. The Military is aware of the importance of ensuring the smooth operation of the Suez Canal, which is not only a vital source of Egypt’s FX receipts, but also ensures the supply/movement of crude oil. 10% of world trade flows through the Canal and 7% of its annual ship traffic carries crude oil. EGP hit fresh 6 yr lows at EGP 5.85 due to selling from foreign and Egyptian investors holding equity/treasuries. Reports suggest business execs & former politi officials starting to transfer funds abroad. EGP is a freely convertible but remains subject to periodic intervention. EGP is likely erode another 5-7% teaching 6.2. This could prompt foreign investors into reducing their FX exposure in their high yielding bills/bonds investments. ALTHOUGH EGYPTIAN BONDS/BILLS pay a hefty yield (3-mth T bills pay as much as 11.5% and 1- year pay 12.4%), investor selling could ensue to reduce FX exposure. ** ASHRAF’S INTERVIEW on CNBC ARABIA discussing Egypt, political risk, oil and the China question

http://www.youtube.com/watch?v=Ng8KuzTeoCk

CONTRASTING INFLATION RATES: Questions over the credibility of US inflation data should grow increasingly vocal. Just a few hours after the Eurozone released its estimate of Jan CPI at 2.4% (highest since Oct 2008), the US Commerce Department releases its December figures for core personal consumption expenditure index (Feds preferred inflation measure) at 0.7% y/y, the lowest on record. The headline PCE edged up to 1.2% from 1.1% despite double digit growth in each component of the CRB index. By these standards, the FOMC can afford to continue deeming disinflation as the greater risk, justifying QE2 until June. Such contrasting inflation figures (relative to growing inflation in UK and Eurozone) are likely to weigh on the USD from a yield differential stance point. Today, the US-GE 10-year spread drifts to 0.19%, the lowest since December 7th. EURUSD HAS YET to breach over the $1.3750s, highlighted by the 61.8% retracement and the WEEKLY DOJI. AUDUSD remains confined between 0.9970 trendline resistance and 0.9984 high.GBPUSD soars +150 pips with the help of Martin Weale's hawkish comments but seen capped at $1.6060s.

MARKETS NEEDED A CATALYST AND THEY GOT IT. It could well be argued that Egypt's political upheaval may only go so far in impacting G7 equity markets and that in the long-term, these markets will once again pick up due to their own internal demand dynamics as well as demand from emerging markets. But increasingly correlated global markets require the RIGHT TIME and RIGHT PLACE to peak and start to sell-off. Ive explained last Monday that it would be highly unlikely for the Dow-30 to end the week high, because such a development would have made it 9 consecutive weekly gain, something not seen since 1995. And thus, the failure for the Dow to gain on the week would mean 8 consecutive weekly gains, which is the first time since Mar-April, after which the May-June selloff occurred, including the May 6 Flash Crash. Then we saw the VIX posting a 20% increase on Friday, to close above both the 55 and 100-DMA in a single day, something not seen since May (also the month of that Flash Crash). MARKETS HAVE CYCLES, AND CYCLE TURNS ARE TRIGGERED BY CATALYSTS. Whether it was the April 16 SEC announcement of its Goldman Sachs investigation that called the top later that month, Ireland and Spain's debt troubles in May, or Egypt's govt collapse last week, each of these make a good story for investors to sell-off. A CHINESE RATE HIKE this week before the FEB 3rd CHINESE NEW YEAR may well be the date for the next interest rate hike, in which case would further drive up USD against all currencies, DESPITE lofty oil and gold (which remain fuelled by the Egyptian knee-jerk reaction). HERE IS TONIGHTs GAPDOWN CHART in AUDUSD and NZDJPY http://chart.ly/uxlkxv8 , calling for prelim 0.9830 and 62.40. GBPUSD still seen heading towards 1.5640 and 1.5580 after its obligatory noise around 1.5900-1.6050