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Market Essentials - Have Markets Pushed Their Luck Enough?

Last updated 8/7/2012 7:43 PM EST (GMT -5) 0 Comments - Add your comment

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Andrew Taylor

Market Strategist, GFT

Follow @ATaylor_GFT

Markets have continued on with a 3 ^rd straight day of gains on speculation of ECB action the main driving force. Equities, Oil and Copper benefited most albeit it on light volumes which as a result has exaggerated moves.

EU Watch

Germany's Industrial Orders fell -1.7% in June, Italy’s Q2 GDP showed a contraction for the fourth consecutive Quarter, pushing it deeper into recession. UK Manufacturing and Industrial Production showed concerning declines with its recent 50 Billion Pound additional Easing yet to take effect.

European economic data released showed nothing but a region continuing its decline. The markets abnormal reaction to push higher provides evidence that traders are banking on the greater force of Central Bank intervention to override the deteriorating situation at its September meeting. This hopeful outlook has seen both Spain and Italy’s borrowing costs considerably reduce since Friday with Spain’s 10 year yields giving back 12bps overnight to settle at 6.77% at the end of the trading day.

US Watch

Fed official Rosenberg did his best to add fuel to the Central Bank stimulus fire commenting that the Fed should aggressively buy open-ended bonds to stimulate the economy with the aim to lower the unemployment level. Wild statements like this do nothing for markets apart from create elevated levels based on false hope.

AU/Asia Watch

 Japan will release its Current Account figures for June which the market is predicting an increase from 215 Billion Yen (May) to 415 Billion Yen. The recent 61 Billion Yen Trade Surplus was due mostly to a bigger fall in imports against the moderate decline in exports. This net Yen demand from its offshore trading partners adds to the continued upward pressure on JPY.

Australia will release Home Loans data for June with a reversal of Mays unexpected -1.2% print. Expectations are for the number of loans granted to build or buy dwellings to show an increase of +2.0%. This would confirm that the RBA's rate cuts in May and June are having the desired effect on attitudes.

Outlook

Purposeful strong selling in equities and risk currencies at the end of the US session shows a market that does not want to hold onto accumulated day positions overnight. For a three day rise that is based on speculation and stop hunting, smart players know when to stop pushing their luck on the physiological trade.

A sustained upward move in this current economic environment is a big ask even if the Central Banks unleashed the Quantative Easing dogs on the market. Perspective will show that the current rise in price action is a short term play to flush out and test medium term short risk asset positions. With momentum waning, today we can expect to see a positive open on equities to account for overnight moves but the rest of the day will see recent highs hold and pressure to test support levels the most likely path.

Economic Events to watch:

Note: Times are in GMT

2350 JP            Jun Balance of Payments

2350 JP            Jul International Transactions in Securities

2350 JP            Jul Bank Lending

0130 AU          Jun Housing Finance

0400 AU          Aug DEEWR Monthly Leading Indicator of Employment

0500 JP            Jul Economy Watchers Survey

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About The Author

Andrew Taylor's financial markets career started in 1991 in the interbank FX market,where he worked for one of the largest banks in Australia. Andrew then went on to trade on behalf of some of the biggest global banks, working across five of the world's major financial hubs: Sydney, New York, Singapore, Auckland, and Tokyo.

His more than 20 years of experience spans market borders and asset classes, covering global equities, commodities, options and futures. Andrew's wealth of trading experience and ability to communicate with traders of all levels has put him in demand as a first point of contact for clients and the media alike when seeking information and guidance.