BetOnMarkets Market Reports

Erik

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The FTSE is currently indicating a sharply lower opening, as traders are worried that the GDP numbers which are released this morning will come out on the weaker end. A weak number would deal another blow to the BOE which has been fighting a war on two fronts, Inflation and a sluggish economy. The good news is that a weaker GDP might force the hand of the BOE to cut interest rates at the next meeting, which would be a positive move for the FTSE.

Commodities managed to regain some ground after negative news regarding the US new claims data, which showed more then 400,000 new layoffs last week, putting the breaks to the recent strength of the US dollar. Gold which printed a low of under 920 dollars per ounce, is now trading north of the 925 dollar mark. We anticipate that the precious metal will regain more ground today, possibly finishing the day above 935 dollars. Oil which has been the biggest loser this week, managed to stabilize near the 125 dollar per barrel mark, and is currently trading north of 126 dollars. The economic data out of the US should dictate whether the price of oil is going to attempt another shot at 150, or try and break below 120.

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The FTSE is currently indicating a slightly lower opening, as traders are waiting for the release of the UK Nationwide House prices. While analysts are already expecting house prices to fall another 1.1% last month, there are rumours circulating that there is a risk that the number will be much lower then expected. This would put a squeeze on home builders and financial institutions.
Gold halted its losses on Friday finishing the day near 930 dollars per ounce. Gold is rising on speculation the dollar will weaken against the euro, boosting the appeal of the precious metals as alternative investments. In fact some traders are saying that the US dollar rally is on it last legs. This should keep gold above 920 for the rest of the week. Oil is on the defence again, as OPEC increased its output, while consumers are decreasing their demand for this pricey commodity. There is potential for oil to fall below the 120 dollar level.
 
BetOnMarkets Weekly Briefing
Contents This Week:
Economic calendar for week July 28th - August 1st 2008.
Commentary: The week ahead.
Economic Calendar for week July 28th - August 1st 2008

PLEASE NOTE - All times GMT not BST. BST is +1 Hr.

Monday July 28th:

UK - Tentaive - Nationwide House Prices M/M.
GE - 06:00 - Consumer Confidence.
US - 16.00 - FOMC Member Mishkin Speaks.

Tuesday July 29th:

GE - Tentative - Prelim CPI M/M.
UK - 08:30 - Mortgage Approvals.
UK - 08:30 - Net Lending to Individuals M/M.
UK - 10:00 - CBI Distributive Trades Realised.
US - 13:00 - S&P/CaseSchiller HPI Composite-20.
US - 14:00 - Consumer Confidence Index.

Wednesday July 30th:

GE - 06:00 - German Retail Sales M/M.
EU - 09:00 - Consumer Confidence.
US - 12:15 - ADP Nonfarm Employment Change.
US - 14:35 - Crude Oil Inventories.
UK - 23:01 - GfK Consumer Confidence.

Thursday July 31st:

GE - 07:55 - Unemployment Change.
EU - 09:00 - CPI Flash Estimate Y/Y.
US - 12:30 - Advance GDP Q/Q.
US - 12:30 - Advance GDP Price Index Q/Q.
US - 12:30 - Employment Cost Index.
US - 13:45 - Unemployment Claims.
US - 13:45 - Chicago Business Barometer.

Friday August 1st:

EU - 08:00 - Manufacturing PMI.
UK - 08:30 - Manufacturing PMI.
US - 12:30 - Nonfarm Employment Change.
US - 12:30 - Unemployment Rate.
US - 12:30 - Average Hourly Earnings M/M.
US - 14:00 - ISM Manufacturing Index.
US - 14:00 - ISM Manufacturing Prices.
US - 14:00 - Construction Spending M/M.

EU - Europe wide
FR - France
UK - United Kingdom
US - United States
GE - Germany

The week ahead.

Markets endured a volatile week, finishing largely flat despite dramatic 2.5%+ falls on Thursday. In the UK, banking stocks managed to build on the shift in sentiment from last week, but US financials endured further bad news, with Wachovia bank posting a record loss. The beleaguered bank produced an eye watering loss of $8.9 billion for the quarter, slashed its dividend and announced thousands of job cuts. Fannie Mae and Freddie Mac reversed the gains from last week on fears of complications in the proposed bail out. There were mixed results from major US companies, with tech firms such as Amazon impressing and online DVD retailer Netflix continuing its good run of earnings reports. Apples disappointing figures caused some consternation early in the week, but the Ipod manufacturer wasnt beaten down for long. After opening the day down over $10, Apple recovered the opening losses and more, as sales of the new iphone look to be taking off.

Lower energy prices certainly helped ease the pressure on global markets last week. However, this easing has to be taken in the context of slowing demand from the US and China. Oil closed the week around $125, some $20 below its peak just few weeks ago. Natural gas has fallen even further than oil. Gas has dropped from above 13.50 to 9.737 in July alone, representing a huge 28% collapse. Other commodities have also fallen back in dramatic fashion with Corn and Wheat down at least 40% from their peak prices. Gold has dropped, but less than other commodities, falling 7% coming with $10 of $1000. These falls will be welcomed by governments and central bankers alike, but the real test for global economies, will be the lagging effect of spiraling wage demands.
At the centre of the storm, the US economy is also showing sides of further weakness, not recovery as many hoped at the beginning of this week. US initial jobless claims came in worse than expected and 95% of US metro areas experienced year on year increases in foreclosure activity. It is little wonder they are so bad with the average 30 year fixed mortgage in the US now at its highest level since 2002, despite the dramatic rate cuts from the fed earlier this year. Oil is hovering around the $125 mark, but that will be little comfort to Ford who registered an $8.7bn loss, as consumers shun their gas guzzling SUV heavy catalogue of vehicles. The buying from last week is looking increasingly like a suckers rally as traders realise that the worst may not be behind us, and may in fact may appear very soon in the future.

Next weeks first economic announcement of note is the US consumer Confidence Index. As has been the case with many announcements recently, it will be a question of how bad the figures are rather than how good. Wednesday brings US ADP Nonfarm Employment Change figures, followed by US GDP numbers on Thursday. The First Friday of the new month is always the heaviest with the arrival of US Non Farm Payroll figures.
With US Mortgage applications dropping 6.2% again recently, and profit warnings from Toyota and Ford, the US economy may not be out of the waters just yet. However, the Non Farm Payroll figure, or at least the reaction to them, has the potential to spring a surprise in either direction in the short term. Therefore a volatility trade may be the better option over the coming days. An Up or Down trade returns a profit if either of two levels are hit during the specified time period. An Up or Down trade on the Dow Jones (Wall Street) with the levels set as 11000 and 12000 could return 32% over the next 11 days.
 
As London swelters in the summer heat, the FTSE looks to have taken an early holiday this week on a tight ranging, low volume trading day. Most major indices are mixed to negative after a light weekend news flow. In the US two more banks were taken over by the FDIC, First National Bank of Nevada and First Heritage Bank, N.A., but this caused few ripples of excitement across global markets. It is a busy economic calendar this week, but much of the action happens in the latter half of the week with earnings from RBS and Barclays and US payroll figures on Friday. A modest rebound in commodities led by oil has put miners and energy stocks at the forefront, but momentum and volume is relatively weak across the board in either direction.
 
The FTSE is currently indicating a lower opening, as traders are awaiting the release of the UK lending data which will come out around 8.30am GMT. Analysts are expecting another month of contracting mortgage approvals and loan issues as financial institutions are tightening the lending qualification requirements after being burned by the current credit squeeze. Banks have been announcing write downs for 3 quarters totalling more then 250 billion dollars, and some suggest that this is not over just yet. Look for the FTSE financials to take it on the chin this morning if the lending numbers come out worse then expected.

Oil stood its ground yesterday, as traders are waiting to see if demand has returned with what is now called somewhat cheap oil prices. Crude has given up more then 20 dollars since it hit an all time high earlier this month, however oil prices are up more then 75% from its August 2007 prices. If on Wednesday we do not see the return of consumer demand it is very possible for oil prices to dip below 120 dollars per barrel. Gold which lost more then 50 dollars last week due to the strength of the US dollar, seems to be recovering as some experts are saying that the selloff was overdone. We expect for gold to keep creeping up possibly hitting 940 dollars per barrel before Fridays employment numbers out of the US.
 
Stocks are soaring as oil falls further towards $120 on speculation that a slowing global economy will check demand. It will be further bad news for hedge funds who recently endured their worse month for many years as the leveraged oil trades unwound with falling prices. Stalling oil prices are also not helping BP as it pulls back further from the days opening highs. The previous results were impressive, but a significant proportion of those profits come from their Russian joint venture which looks like it will be torn apart over the coming months.

Financials are a mixed bag today with Barclays and RBS falling heavily at the open and struggling to catch up. The US financial sector as whole isn’t having too bad a day despite Merrill Lynch’s write down and plans to raise capital. Merrill is being punished for releasing their announcement less than a fortnight after their earnings figures. Elsewhere the US house price collapse continues to accelerate. The S&P/Case-Schiller Index shows annual declines in prices of existing single family homes of 15.8%. With UK politicians discussing plans to help out mortgage lenders, they would be well served to use the US housing market as an advanced proxy of what could happen in the UK.
 
The FTSE is currently indicating a sharply higher opening, as traders are trying to get their positions in before the release of the UK consumer confidence numbers which are released at 11pm GMT tonight. There are rumours circulating that the number will be higher then expected. Traders are proving that the old saying buy on rumours sell on the news works. Look for the FTSE to stay in the green the whole day.

Gold and oil keep taking it on the chin as both were losers yesterday, oil is on the verge of heading below 120, technicals are indicating that a break of that level opens a move to 110. This could be helped with the employment data from the US which is due on Friday of this week. Gold is giving back all the gains made last week, as the US dollar strengthens against the major currencies especially the commodity pairs (Australian and Canadian dollar). Both have lost ground as gold fell from its 975$ peak. Look for the strength of the US dollar to continue unless economic data shows otherwise
 
The large earnings miss from Lloyds TSB is getting most of the headlines today, but for all the “this is another Northern Rock!” warnings, Lloyds share price is still above the £2.70 low registered earlier in the month. RBS and Barclays are actually enjoying gains of around 4% today as investors cycle back into financials. There has been a lot of uncertainty over bank’s earnings from the likes of Merrill Lynch in the US to Lloyds TSB in the UK. Traders tend to hate uncertainty more than they hate bad news, and although the news from Merrill or Lloyds has been dire, at least market participants can now price in the bad news and start to be able to compute downside risk. This is much more preferable than the unknown and stocks often rise as a consequence.

The release of the news helps to foster the belief that the worst of the credit crunch is behind us, at least from the point of view of being able to estimate future earnings more accurately. The logic behind this can of course be questioned, but it is evident that investors are getting more confident in their bullish positions.

The better than expected US ADP employment report helped boost US markets earlier today as has the continued weakening the price of oil. It is debateable whether we have bottomed or not, but for now the bulls seem in control …… At least until the next big news item.
 
The FTSE is currently indicating a higher opening, while traders are disseminating the worse then expected UK consumer confidence which came out while most traders were sleeping. The confidence index dropped to a record low in July, slipping below the level reached on the eve of the 1990 recession, as house prices slumped and inflation accelerated. We believe that traders believe that these figures will force the Bank of Englands hand and lower interest rates, which would be positive for the FTSE.

Oil found its footing yesterday as a surprise inventory number out of the US gave some traders reasons to believe that crude's slide was overblown and that the drop in gas supplies means prices have fallen enough to nudge Americans back onto the roads. While oil is trading at 126 dollars a barrel, it is still on the lower end of Julys trading range. We believe that oil prices will trade in a tight range until the US GDP figures come out, if the number is lower then expected, we can see oil prices fall below 120 dollars per barrel.
 
The FTSE is currently indicating a sharply lower opening, while traders are awaiting the release of the Manufacturing Purchasing index. Analysts are expecting another decline this month, as the economy has been suffering from high energy prices and the squeeze from not being able to pass all the costs to the consumer. Look for the manufacturing sector to be trading in the red this morning.

Gold will be receiving plenty of attention this morning, especially at 14.30GMT when US releases its employment numbers, traders are expecting a seventh straight month of job losses, and if the unemployment rate comes out worse then expected look for gold to jump possibly hitting the 925 dollar mark before the end of the day.
 
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