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Market Essentials - Returning Liquidty Will Re-balance Markets

Last updated 8/19/2012 7:41 PM EST (GMT -5) 2 Comments

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Andrew Taylor

Market Strategist, GFT

Follow @ATaylor_GFT

Better than expected US data and low volumes helped equity markets nudge higher on Friday, capping off a week that had traders questioning whether these were early indications of the world’s largest economy turning the corner. Equity traders seem to buy into this theory more so than currency markets as capital flowed freely from US treasuries into equities. One thing was unanimous amongst asset classes was the reduced chances that the Fed will unveil the contentious QE3 program.

The past few weeks of European headline silence has allowed players to squeeze short positioned markets higher knowing that the usual drip feed of negative information would be noticeably absent over the holiday break. This has swung the pendulum back a tad and has seen a re-balancing the books, however as the leaders and market liquidity returns we are likely to see resistance levels harder to break especially since the only change to the situation fundamentally in Europe is that we are approaching that same can that we kicked down the road a few weeks back.

This week will see European PMI numbers released with the only trading play being the change in ECB action view. The intended beneficiary of this action will see Spain and Italy’s bond markets feature prominently, which by the way, for the ECB to be able to act still requires one of these sovereigns to formally request aid from the EFSF.

Outlook

Markets are right in adjusting for improving conditions out the US that will see the Federal Reserve sit on their hands at the next meeting. This is not to say that the US has turned the corner on one month’s worth of numbers but the improvement in data does need to be reflected in local prices. However, the European region has also found itself at recent highs with no improvement in data; in fact if anything; it has deteriorated which can only mean that the foundation for its current position is the anticipated liquidity injection from the ECB.

This speculative move is about to be tested as leaders return from their break and the headline machines are kicked into gear. The markets are expecting a return of the contradicting and confusing statements that will leave markets as bewildered as they were before ECB President Draghi started stirring the pot a month or so ago . This will re-expose the political fractures within the EU, something that markets have managed to bury for the past couple of weeks. Even if the ECB did deliver on the markets easing expectations, the affects will be short lived, meaning that the current levels in Euro (especially against USD as the improving sentiment continues) and European markets in general should see some questions asked of their current elevated levels as market liquidity returns.

Economic Events to watch:

Note: Times are in GMT

0500 JP             Jun Indexes of Business Conditions – Revision

0500 JP             Jul Steel Production

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Comments (2)

SamHo

August 19, 2012 at 10:05 PM ET

Hi Andrew,

I attended your Intro to AUS200 seminars few weeks ago and found that it was excellent.

Currently, I had a number of open short positions in AUS200.cfd but in order to understand how the dividend adjustIment works for my short position, I have the following questions to ask,

1. Today (20 August 2012) is ex-dividend date for two important stocks in AUS200.cfd - CBA (pay 197 cents) and TLS (pay 14c) so will AUS200.cfd be adjusted down in my GFT account (hence reducing Available Equity) by those dividends tonight at 10pm London time?

2. Is the dividend adjustment of AUS200.cfd be done on the dividend anouncement date of the AUS200 stocks or on the ex-dividend date?

3. At 10pm London time on last Friday (17 August 2012), 22.035 index points of the ex-Dividend Adjustment have been paid-out from my current short positions in AUS200.cfd but could you please advise what stocks are in that ex-dividend adjustment?

Your proper answer to above questions are very vital for me to make the correct decision to close the open short AUS200.cfd today before 10pm London time as we are having a lot of dividend announcements and ex-dividend date for many AUS200.cfd stocks this week and coming weeks in Australia hence it is very appreciated.

Thank you and looking forward to your prompt reply.

Sam

Andrew Taylor

August 19, 2012 at 10:47 PM ET

Hi Sam

I am glad that you got a ot out of the AUS200 webinar series.
Your questions above are of quite a specific nature which I would suggest contacting GFT's Dealing Desk who will be only to happy to provide you with the accurate response you are seeking.
Hope that helps Sam and look out for the Research & Analysis Teams upcoming Special Webinars

Cheers

Andrew Taylor

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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.