Trading and Investing

Financial Newsletter - 10th November 2008

anna — Tue, 18 Nov 2008 18:24:38 +0000

“Regardless of how you feel inside, always try to look like a winner. Even if you are behind, a sustained look of control and confidence can give you a mental edge that results in a victory” Arthur Ashe: 1943-1993.
While the 2008 US Presidential Election campaign will be discussed and forensically analyzed for many years to come, there is no doubt that a powerful combination of youth, first time voters as well as a spectacular harnessing of the internet (in particular Web 2 tools) were ultimately responsible for Barak Obama’s win.
The Obama Presidency also heralds a seismic shift for traders and investors as the heady days of laissez faire free market capitalism comes to an end and a more regulated, less speculative landscape emerges.   Stock markets around the world were momentarily energized by this momentous victory. In Europe most indices had risen substantially by the 4th November. For example the Dutch AEX, having fallen to 231.50 on October 27th surged to 291.13, a reversal of over 25%. The German Dax rallied from a low of 4014 on October 24th to a high of 5301 on November 4th, a gain of 32%. The London FTSE too rallied from its low of 3665 on 27th October to a high of 4639, a gain of almost 27%. However, by the end of the week all had fallen back by an average of 10%. Optimism may have entered the markets but volatility was far from dead.
Market volatility was even more pronounced in Asia and the Pacific Rim. The Hang Seng of Hong Kong posted a one week gain of 43.5% from its multi year low of 10,676 on October 27th to a high of 15,317 last week. India’s Nifty too gained over 43% during this same period. Japan’s Nikkei too gaining over 30% but like the European indices these too failed to consolidate these gains and fell back almost 15%. The US markets too rallied but like all the others failed to capitalise on their gains. Hardly surprising as the October US Non Farm Payroll numbers on Friday put the US job market squarely into recession. The speed and magnitude of the decline in the lack of new jobs underlines both the severity of the September credit crisis and the magnitude of the task facing the new President.
Elsewhere market falls were also the result of dramatic interest rate cuts. In the UK the Bank of England cut base rates by unprecedented 1.5% while the ECB restrained itself to a 0.5% as central bankers and governments all try to avert an economic meltdown and attempt to steady the financial ship.   Neither cut in interest rate did much for either the British Pound or Euro. The carry trade continues to unwind and investors and traders bail out of anything which smacks of speculation, hence the continued falls in oil and other commodities. As has been mentioned before the worst is far from over for either the UK or Europe, with Asia and the Pacific Rim now catching the tail of this worldwide financial hurricane.
An interesting take on the entire credit crisis has been suggested by Liam Halligan whereby he suggests simply locking away all top bank executives regardless of type and refusing to let them out until they fess up to each other, admit their mistakes and reveal what toxic investments they are actually holding. An AA meeting for addicted bankers – ie bankers addicted to debt and risk using other people’s money.    We can but hope!
In the meantime what of the future and how to profit from the enormous changes which will result from this Presidency?   If, as expected, governments bring in more stringent regulations for markets and financial instruments in an effort to avoid future asset bubbles traders and investors may have no choice but to look at conservative asset classes such as bonds and simple deposit accounts.    Calm, orderly market conditions with no volatility can appear seductive but dangerous as traders and investors soon become frustrated with little or no return from their safe haven investments. Ironically it is at this point that many turn to trading and investing in more volatile instruments in an attempt to achieve higher returns.
Trading Tip:   It is often tempting when shares prices are falling (or in this market plunging) to be tempted to rush in and buy because they look cheap. Beware and do not be tempted to rush in too soon – even though the likes of Warren Buffett and Anthony Bolton are now saying that this could be the time to buy. The likes of Warren Buffett have such deep pockets he can afford the market to take a further turn for the worse. He also takes a very long view. Shares are always cheap for a reason. Panicky investors have pushed prices down to unprecedented levels – the CBOE VIX recently reaching 80 while others are just plain rubbish.
Two classic tests for a cheap stock are a low price/earnings ratio (P/E) and a high dividend yield. Falling equity markets quickly throw up “buys” on both measures.   For example a share priced at 100p with a full year dividend of 5p per share and forecast earnings per share for the next year of 10p, then the share price is 10 times forecast earnings, so the p/e ratio is 10 while the dividend yield – the annual dividend as a percentage of the share price is 5% (5p/100p x 100%). However, if the share price suddenly collapses to 50p with earnings and dividends remaining unchanged, the P/E halves to 5, while the dividend yield doubles to 10% (5p/50p x 100%). The stock now looks much cheaper in relation to forecast earnings – a low P/E – but also offers a higher income return, but is it a buy?. Not necessarily, as investors in supposedly cheap, high yielding bank shares, have been finding out to their cost.
The moral of the above is that when markets are in such turmoil and upheaval even tried and tested indicators are suspect and cannot and should not be used in isolation.     Patience is the virtue as we wait for the dust to settle on the fallen.
Good luck and good trading.
Anna

Financial Markets Newsletter - 3rd November 2008:

anna — Tue, 18 Nov 2008 18:11:32 +0000

“Revenge is often like biting a dog, because the dog bit you” Austin O’Malley
Last week’s markets were characterized by an element of exhaustion as de-leveraging eased, allowing many instruments to bounce from extremely oversold levels while keeping volatility high. For example the German Dax bottomed Friday October 24th at 4014 yet by Friday 31st October was up to 5066, a rise of 26.5%. In the Americas both Brazil Bovespa and Argentina’s Merval fell to 29,435 and 819.36, their lowest in 3 and 5 years respectively, yet by the end of the week they had rallied 20%.   By the end of the week, India’s Nifty was back to 2921 for a gain of nearly 30% within the same week. Commodities continued to make new lows as oil completed a 60% decline since its $147 dollar high back in July.   Silver fell to 840 on the overnight market on October 28 yet 2 days later was back up as high as 1064, a 25% gain over 2 days.
It was against this background that the ambush (or short squeeze to give it its correct term) of hedge funds by Volkswagen, Porsche and probably the German government was an extraordinary event. Over 100 hedge funds collectively lost a staggering £24 (approx $40 billion dollars) on a doomed gamble that Volkswagen shares would continue to fall because of the global economic downturn. It was the “safest play in town. In fact Porsche had been secretly building up a 75% stake in VW via intermediaries which must have been particularly galling to the “hedgies” given Porsche’s iconic status as the car of choice for many in this industry.
Regardless of the legality of the move by VW and Porsche there was scant sympathy for the hedge fund industry who many have blamed for contributing to the current financial problems, not least in their aggressive shorting of financial shares.
However, whilst hedge funds can certainly be held to account for contributing to the current financial meltdown the reason it has all gone so horrible wrong is that most so called experts in this industry do not really understand risk and have been using (and still use) inappropriate mathematical tools and models to measure and manage risk. These tools and models are all based on the statistical device of the bell curve where the focus is on the norm, and any major departure such as a 1000 point drop in an index is seen as a rare event and its effect therefore negligible.   Listening to an investment banker earlier this year explaining that the reason their housing price model failed was because it did not take into account housing prices ever falling, was sufficient evidence that this approach is now wholly inadequate.
For me one solution has come from the world of fractals and in particular the work of Benoit Mandelbrot and Nassim Nicholas Taleb, the latter being the author of “The Black Swan” which many traders and investors may have already heard of.   Commonsense tells me that all markets are much more volatile than the experts would have us believe and that this past year has not been a “once a lifetime event” but something which can happen at any time.   We have to accept that conventional measures of risk are not only outdated and outmoded but severely underestimate potential losses. For better or worse our risk exposure to huge losses is actually much bigger than we think it is. One only has to look at the risks when trading on margin where losses can exceed initial deposits to see this in graphic detail. Professional traders (or at least those who should know better) are often horrified at the leverage offered by most forex brokers. The maximum for retail traders should be around 1 to 5 or a maximum of 1 to 10 and yet the average offered by most brokers is around 1 to 100, up to a suicidal 1 to 400. If you are trading anywhere near these levels I would strongly suggest you stop and reconsider.
Trading Term: De-Leveraging: After a long period of loose lending by institutions who should have known better (some banks lending at 40 to 1 by using little understood financial instruments and fancy paperwork and then moving the details of their financial misbehaviour off their balance sheets where regulators could not see it) the reduction of this debt is now a number one priority and will be the cause of continuing turbulence.    This has had a big impact on the currency market as many of the debts were incurred in dollars and yen. It is estimated that US investors alone were holding $5 trillion of foreign equities which are now being repatriated.   It is this which has contributed to the recent surge of the dollar.
As more and more investors and traders enter the currency markets in an attempt to find better and faster returns it is important to understand that this market is going to be even more volatile and unpredictable. Also as it is also largely unregulated it is vital that anyone thinking of participating truly appreciates the extent of the dangers and risks inherent within it.
Good luck and good trading.
Anna

Trading Investing Newsletter - 27th October 2008

anna — Tue, 18 Nov 2008 18:06:54 +0000

So when and where did it all go wrong? If you are a fan of Henning Mankell’s eponymous hero, Inspector Kurt Wallender, as I am, it was the day we all stopped learning how to darn our socks!! Dysfunctional and irrational markets continue and I have already said will continue until the end of this month as the need to raise cash and prop up various institutions intensifies. Valuable assets will continue to be dumped as the financial chaos extends into unimagined and surprising parts of the global market. The past week saw every major index make new multi year lows apart from the Swiss SMI and the Dow Jones. However, it is not the fact that we are hitting new lows it is the extent of the decline which shows absolutely no immediate sign of ending. This is hardly surprising given the extent of the bull run from which markets are now retreating. There were also stunning declines across the board: silver falling to $865 on Friday, a loss of nearly 60% in value from the 2115 level posted in March. Gold dropped to $681, down $367 from its all time high of March 18 and crude oil falling to $62.65, totally ignoring the OPEC threat of a cut in production. Numbers this week will simply reinforce the view that the global economy continues to head south. Forget a recession – the key word is depression and a new era has arrived.
The debate as to how and why we arrived at this state has started and will, no doubt, continue for many years to come. Since last year the blame for the current mess has been levied at the door of the poor sub primers, the bankers who lent them the money in the first place, regulators too stupid to understand what was going on, hedge funds profiting from the fiasco, outright speculation and just about everyone else for being just plain “greedy” – so there. Whilst there is an element of truth in all of these and sub prime mortgages may have been the trigger the seeds of destruction for this disaster of epic proportions were sown by the policy makers and their economic advisers some years ago.
You may also have read that Bill Clinton is the latest culprit to be named when back in 1994 he implemented the “The National Homeownership Strategy: Partners in the American Dream” Clinton’s repeal of the Glass Steagall Act has also been indicted as a possible cause. Also add in Alan Greenspan’s recent confession that he “may” have got things slightly wrong when interest rates were kept too low for too long!
However, the best explanation I have found so far and one I would like to share with you is the wholesale adoption of an economic theory known as New Keynesianism. At its heart stands the so called dynamic stochastic general equilibrium model which nowadays is the main analytical tool of central banks around the world. In this model, money, credit or a financial market play no direct role. The model’s technical features ensure that in the long run financial markets have no economic consequences. Central banks are told to ignore headline inflation and focus on core inflation excluding volatile items such as food and oil. The model also ignores asset prices and only deals with the consequences of an asset price bust. An economic model in denial of financial markets seems to me, not only totally bizarre, but is only going to continue to perpetuate the cycles of boom and bust which have brought us to this state in the first place. It also ignores the global nature of the financial market and seems hardly fit for the 21st century.
If our current troubles are to be laid at the door of New Keynesian thinking then surely repeating those steps which got us into this mess in the first place: negative interest rates, a rapid expansion of money, bailing out banks and an ever increasing national debt will simply ensure that we will be doomed to repeat this cycle ad infinitum. I will be dealing with market cycles in future newsletters and in particular, how to profit from them.
Trading Tip. The Baltic Dry Index and why we should understand its significance? This is the key barometer of global freight activity and therefore world trade. The index fell 11% in just one day last week. The reason, aside from a drop in demand, has been the total breakdown of trust between banks which is essentially what we mean by the credit crunch. The shipping market has crashed because it is built on trust and credit which has completely dried up. Many ship owners cannot get banks to issue letters of credit (trade finance) particularly on cargoes on price volatile commodities as they no longer look like adequate collateral. Even those who can get letters of credit are finding that their counterparties may no longer trust the credit rating of anything other than large, well established banks, many of which are now charging huge premiums. Letters of credit now cost three times the going rate of a year ago. This is leading to grain cargoes piling up in ports in the Americas and has even led Brazil to use its foreign exchange reserves to increase credit lines for exporters in a bid to keep to keep trade moving.

Good luck and good trading.
Anna

Weekly Trading Calendar

anna — Mon, 17 Nov 2008 11:41:59 +0000

Monday November 17th:

UK - 00:01 - Rightmove M/M.
EU - 10:00 - Trade Balance.
US - 13:30 - Empire State Manufacturing Index.
US - 14:00 - FOMC Member Duke Speaks.
US - 14:15 - Capacity Utilization Rate.
US - 14:15 - Industrial Production M/M.

Tuesday November 18th:

UK - 09:30 - CPI Y/Y.
UK - 09:30 - Core CPI Y/Y.
UK - 09:30 - RPI Y/Y.
US - 13:30 - PPI M/M.
US - 13:30 - Core PPI M/M.
US - 14:00 - Core PPI M/M.
UK - 15:30 - MPC Member Besley Speaks.
US - 18:00 - NAHB Housing Market Index.
EU - 18:30 - ECB President Trichet Speaks.

Wednesday November 19th:

UK - 09:30 - MPC Meeting Minutes.
UK - 11:00 - CBI Industrial Order Expectations.
US - 13:30 - Building Permits.
US - 13:30 - CPI M/M.
US - 13:30 - Core CPI M/M.
US - 13:30 - Housing Starts.
US - 14:00 - FOMC Member Kohn Speaks.
US - 15:35 - Crude Oil Inventories.
US - 16:00 - FOMC Meeting Minutes.

Thursday November 20th:

GE - 07:00 - PPI M/M.
UK - 09:30 - Retail Sales M/M.
UK - 09:30 - Prelim M4 Money Supply M/M.
UK - 09:30 - Public Sector Net Borrowing.
US - 13:30 - Unemployment Claims.
US - 15:00 - Philly Fed Manufacturing Index.
US - 15:00 - CB Leading Index M/M.
US - 15:35 - Natural Gas Storage.

Friday November 21st:

FR - 07:45 - Consumer Spending M/M.
FR - 08:00 - Flash Manufacturing PMI.
FR - 08:00 - Flash Services PMI.
GE - 08:30 - Flash Manufacturing PMI.
GE - 08:30 - Flash Services PMI.
EU - 09:00 - Flash Manufacturing PMI.
EU - 09:00 - Flash Services PMI.
EU - 13:00 - ECB President Trichet Speaks.

Trading Investing Weekly Update

anna — Mon, 17 Nov 2008 11:39:35 +0000

World stock markets took another tumble last week with the major US indices penetrating the October lows intraday. The FTSE finished the week down around 4%, but it was UK plc that took a battering. The Pound fell to record lows against the European single currency, even breaking through the synthetic Euro/ Deutsche Mark lows from 1996.The weeks action was all the more damning considering the Eurozones admission that it too is in a recession. The Euro managed to end the slightly down against the dollar, but the pound plunged through the 1.5000 level for the first time since 2002. However there is still some way to go before the low of 1.3685 from 2001 is breached.

Financials were amongst the worst performing companies as Libor broke its 23 day decline. 3 month Libor increased to 2.15% and overnight Libor also pushed higher. The main catalyst was Paulson’s announcements of changes to the Troubled Asset Relief Program. As this originally was seen as getting to the heart of the matter in terms of offloading toxic assets, investors are confused as to what this means for future prospects for financial firms in the US. In the US, the insurance giant AIG had its earnings estimates cut, as did Wells Fargo. Much worse are the rumours that Fannie May may have to tap into US government cash to avoid liquidation. Previously unaffected stocks such as HSBC were also down hard after poor results, and there was speculation that it too may need to follow Santander’s lead in raising money through a rights issue. Until very recently HSBC and Santander were seen as being at arms length to the current crisis due to their relatively low exposure to the US housing market. However, with news of the UK property crash worsening and Asian markets faltering, HSBC is coming under increasing pressure.

More than anything market participants hate confusion or indecision, with the common reaction being “if in doubt, get out”. This is reflected in the performance of financial shares across the globe. Even when the wider market attempted a rally, financials were weighing on sentiment, like a ship trying to sail with its anchor still deployed.

Although last weeks UK unemployment data and sales projections from various companies fell below consensus, European markets didnt revisit the October lows and US markets managed to rally from beneath them . Despite the economic outlook arguably looking bleaker than it did just two weeks ago, markets havent capitulated. The optimistic interpretation of this scenario is that the bad news is starting to be priced in by the stock market. As markets are forward looking by at least 6 months, they could be discounting the slowdown that virtually everyone is predicting, and are looking for what happens after that.

The pessimistic interpretation of the current scenario is that markets are as over optimistic now as they were a couple of months ago. The default reaction to any impending disaster is in most cases denial then panic. The pessimist would argue that investors are still too optimistic about companys future growth prospects, and so further falls are likely. The reality is that markets are flipping from optimism to pessimism almost by the hour and remain entrenched in a choppy mess. After repeated failed rallies over the last few weeks, the bulls would be forgiven for giving up the ghost.

The coming week kicks off with some middle tier US industrial production figures and Treasury secretary speaking late on Monday evening. On Tuesday there is a raft of UK and US inflation numbers followed by Fed chairman Bernanke testifying as US markets open. Wednesday sees the release of the last MPC meeting minutes and with Gordon Brown calling for further rate cuts, these minutes will be poured over closely for hints of future decisions. Later that evening the FOMC release the minutes from their last meeting and although many argue they are done for now, Wall Street is still calling for more cuts.

There have been many comparisons between current market action and the great depression of the 1930s, and in many ways these comparisons are valid. The last time markets were as choppy as they are today was indeed the 1930s. The world is a very different place to how it was 70-80 years ago, but the current extremes were seeing point back to this period as being a strong likeness. According to Rob Hannah of Quantifiable Edges, the stock market only recovered from this decade long malaise, once it switched from chop mode to trending mode. If a long period of chop is the worst we experience over the next few months, even years, although frustrating, there may be worse things that could happen. Ironically, a smooth decline which bottoms out to form a smooth rally may be the real harbinger of a recovery. This may be a moot point as we are still far from seeing smooth rallies or smooth declines.

Weekly Trading Calendar

anna — Mon, 10 Nov 2008 10:41:41 +0000

Monday November 10th:

FR - 07:45 - Industrial Production M/M.
EU - 09:30 - Sentix Investor Confidence.
UK - 09:30 - PPI Input M/M.
UK - 09:30 - PPI Output M/M.
EU - 15:30 - ECB President Trichet Speaks.

Tuesday November 11th:

FR - ALL - Bank Holiday.
US - ALL - Bank Holiday (Veteran’s Day).
UK - 00:01 - BRC Retail Sales Monitor Y/Y.
UK - 00:01 - RICS House Price Balance.
GE - 07:00 - German WPI M/M.
UK - 09:30 - Trade Balance.
UK - 09:30 - DCLG HPI Y/Y.
GE - 09:30 - ZEW Economic Sentiment.
EU - 10:00 - ZEW Economic Sentiment
US - 15:00 - IBD/TIPP Economic Optimism.

Wednesday November 12th:

UK - 09:30 - Claimant Count Change.
UK - 09:30 - Average Earnings Index Q/Y.
UK - 09:30 - Unemployment Rate.
EU - 10:00 - Industrial Production M/M.
UK - 10:30 - BOE Inflation Report.
US - 16:00 - FOMC Member Kohn Speaks.
EU - 18:00 - ECB President Trichet Speaks.
US - 18:00 - FOMC Member Stern Speaks.

Thursday November 13th:

GE - 07:00 - German Prelim GDP Q/Q.
FR - 07:45 - French CPI M/M.
EU - 09:30 - ECB Monthly Bulletin.
US - 13:30 - Trade Balance.
US - 13:30 - Unemployment Claims..
US - 16:00 - Crude Oil Inventories.
US - 17:30 - FOMC Member Plosser Speaks.
EU - 18:30 - ECB President Trichet Speaks.
US - 19:00 - FOMC Member Stern Speaks.
US - 19:00 - Federal Budget Balance.

Friday November 14th:

GE - 07:00 - Final CPI M/M.
FR - 07:45 - Prelim Non-Farm Payrolls Q/Q.
FR - 07:50 - French Prelim GDP Q/Q.
EU - 10:00 - CPI Y/Y.
EU - 10:00 - Core CPI Y/Y.
EU - 10:00 - Flash GDP Q/Q.
US - 13:30 - Core Retail Sales M/M.
US - 13:30 - Retail Sales M/M.
US - 13:30 - Fed Chairman Bernanke Speaks.
US - 13:30 - Import Prices M/M.
US - 14:55 - Prelim UoM Consumer Sentiment.
US - 14:55 - Prelim UoM Consumer Expectations.
US - 15:00 - Business Inventories M/M.
US - 15:35 - Natural Gas Storage.

Trading Investing News

anna — Mon, 10 Nov 2008 10:35:54 +0000

Last week the Bank of England hit the headlines with an unexpected 1.5% rate cut. The move was largely pre meditated as a shock tactic to boost the ailing UK economy ahead of the all important Christmas period. Spreading the cut over a number of months would have had much less of an impact as it can take many months for the benefits of such a cut to filter down to consumers. This is especially the case now with banks being slow to pass on any benefits to customers. The MPC have sent out a message that they are prepared to treat the threat posed by the global slowdown very seriously. Unfortunately this message is a double edged sword, the euphoria that immediately met the rate cut was short lived and the FTSE soon rolled over and headed back towards the lows of the day.

There is also the possibility that last weeks announcement might make it less likely that the MPC will cut again in the near future. Experts had been calling for cuts of this magnitude over a number of months, but the MPC may have bundled all their planned rate cuts in one dramatic roll of the dice. It may be some time before they cut again, preferring to let the dust settle on the biggest single cut in a generation.

Friday’s US payroll figures were ugly by any measure, with the reported loss of 240,000 jobs slightly worse than expected. The worse data point to come out was actually the downwards revision to Septembers payroll figures, which pushed September payrolls down from -159,000 to -284,000. This means that so far in 2008, over 1 million jobs have been lost, most of these have been in the financial sector but the slump is prevalent in virtually every US sector.

On the face of it, it was perhaps surprising to see equity markets rebound so strongly on Friday, especially in the face of accelerating unemployment in the world’s biggest economy. However, the reality is that financial markets are forward looking, which means that most of the time the bad news is already taken into account when it comes. Fridays payroll figures could have been even worse than they were and judging by the rebound we’re seeing, a significant part of the falls on Wednesday and Thursday may have been traders rushing in to sell ahead of Fridays numbers. The net result is that the preceding two day sell off appears to have overshot slightly.

On the credit markets, libor and credit default swaps continue to improve for the worlds largest financial firms. The cost of insuring against companies defaulting on their debt is still very high by historical standards, but they have still come down a long way in the last few weeks. Morgan Stanley and Goldman Sachs still remain a concern while the UK’s HSBC currently has the lowest CDS of the remaining major independent banks and brokers. In short, things have most certainly improved since the dark days of October, but there is a long way to go before we can say safely say that this credit crisis is over.

Weekly Trading Calendar

anna — Wed, 05 Nov 2008 23:06:10 +0000

Monday November 3rd:

EU - 09:00 - Final Manufacturing PMI.
UK - 09:00 - Manufacturing PMI.
US - 15:00 - ISM Manufacturing PMI.
US - 15:00 - ISM Manufacturing Prices.
US - 15:00 - Construction Spending M/M.
UK - 16:00 - BOE Governor King Speaks.
US - 14:00 - New Home Sales.

Tuesday November 4th:

US - ALL - Presidential Election.
EU - Tentative - ECOFIN Meeting.
UK - 09:30 - Construction PMI.
EU - 10:00 - PPI M/M.
US - 15:00 - Factory Orders M/M.
US - 15:45 - FOMC Member Fisher Speaks.

Wednesday November 5th:

UK - 00:01 - Nationwide Consumer Confidence.
EU - 09:00 - Final Services PMI.
UK - 09:30 - Manufacturing Production M/M.
UK - 09:30 - Services PMI.
UK - 09:30 - Industrial Production M/M.
EU - 10:00 - Retail Sales M/M.
UK - 10:30 - BRC Shop Price Index Y/Y.
US - 12:30 - Challenger Job Cuts Y/Y.
US - 13:15 - ADP Non-Farm Employment Change.
US - 15:00 - ISM Non-Manufacturing PMI.
US - 15:30 - CB Leading Index M/M.
US - 15:35 - Crude Oil Inventories.

Thursday November 6th:

UK - 00:01 - NIESR GDP Estimate.
GE - 11:00 - Factory Orders M/M.
UK - Tentative - MPC Rate Statement.
UK - 12:00 - Official Bank Rate.
EU - 12:45 - Minimum Bid Rate.
EU - 13:30 - ECB Press Conference.
US - 13:30 - Prelim Nonfarm Productivity Q/Q.
US - 13:30 - Prelim Unit Labor Costs Q/Q.
US - 13:30 - Unemployment Claims.
US - 15:35 - Natural Gas Storage.

Friday November 7th:

US - 00:00 - FOMC Member Warsh Speaks.
GE - 07:00 - Trade Balance.
FR - 07:00 - Gov Budget Balance.
FR - 07:00 - Trade Balance.
GE - 11:00 - Industrial Production M/M.
US - 13:30 - Non-Farm Employment Change.
US - 13:30 - Unemployment Rate.
US - 13:30 - Average Hourly Earnings M/M.
US - 15:00 - Pending Home Sales M/M.
US - 15:00 - Wholesale Inventories M/M.
US - 15:00 - Consumer Credit M/M.

Trading News Weekly Update

anna — Wed, 05 Nov 2008 23:02:42 +0000

Last week global equities finally managed to finish the week with significant gains, but October was still a very poor month overall. Barry Ritholtz of The Big Picture highlighted just how volatile the last month has been. October was the worst month for the S&P 500 since the 1987 stock market crash, not only that, it was also the most volatile in the markets 80 year history. There was also volatility on the currency markets as the Dollar managed to reverse most of the weeks early losses against the Pound and Euro. This volatility is partly a function of the unwinding of the global carry trade, and a rapid depreciation in most other western currencies. Many have attributed the recent rise of the Dollar to confidence in the strength of the US economy. This may not be the case, recent currency movements may be primarily a rebalancing act, as currency traders adjust their positions to factor in European and UK rates plummeting to nearer 2% over the next 6 months. America and Japan already have the lowest rates in the western world, but other western nations are set to follow with further deep cuts. Last weeks volatility was a function of continuing speculation of how quickly and how far the MPC and ECB will go in following the FOMCs and BOJs lead. Last weeks rally is all the more impressive as it came in the face of more gloomy economic news. At times, this wave of poor economic data has kept a lid on any sustained buying. US house prices are down 16.6% year on year, having slumped over 30% since their peak in 2004. In the face of a continual erosion of the value of their homes, and the ever present warnings about the biggest slow-down since the great depression, it is little wonder that US consumer confidence figures came out at record levels. Todays reading of 38.0 is the lowest in the indicators history going back to 1967. Interestingly consumer confidence if often a timely contrarian indicator in the medium term and if last weeks rally is anything to go by, it may be again.

Markets were still extremely jittery as evidenced by Tuesdays wild ride on Volkswagen, which temporarily became the worlds largest company by market capitalization. It overtook ExxonMobil for a short while when it rose above 1,000 Euros in the morning. Just two days previously, it was trading at 200 Euros. Porsche increased their stake in the company to 75%, but the real reason for the huge spike was the squeeze on short traders. Volkswagen has the highest short interest of any stock on the German DAX index. Although shareholders in Volkswagen are rather happy right now, last weeks spike is more a symptom of the lack of liquidity in todays market place. The German DAX index massively outperformed other markets, with the Volkswagen spike having a disproportionate effect on Germanys benchmark index.

This week has a busy economic calendar, starting with UK and US manufacturing numbers on Monday. BOE Governor Kings speech in the afternoon may provide clues as to the likely size of Thursdays expected interest rate cut. Analysts are anticipating a cut from 4.5% down to 4.0%, but a cut of larger magnitude may not be out of the question. Wednesdays ADP Non farm employment change will provide clues as to the likely outcome for the weeks hottest trading ticket, Fridays Non farm payroll figures.

The rally last week helped ensure that October 2008 was spared the embarrassment of being one of the worst months on record, but we are far from being out of the woods yet. Although October could mark an intermediate term low point, it is highly unlikely that it will be plain sailing from here. What is more likely over the next 3-6 months is continued volatility, with many more days rising or falling by 5%. If, and it is a big if, we can get some follow on buying over the next week or so, we could continue to back and fill higher over the next few months.

Weekly Economic Calender

anna — Mon, 27 Oct 2008 12:33:42 +0000

Monday October 27th:

UK - Tentative - Nationwide
GE - 09:00 - Ifo Business Climate.
EU - 09:00 - M3 Money Supply Y/Y.
EU - 09:00 - Private Loans Y/Y.
EU - 11:45 - ECB President Trichet Speaks.
US - 14:00 - New Home Sales.

Tuesday October 28th:

UK - 00:01 - BOE Financial Stability Report.
GE - 07:00 - GfK German Consumer Climate.
UK - 11:00 - CBI Realised Sales.
US - 13:00 - S&P/ CS Composite-20 HPI Y/Y.
US - 14:00 - CB Consumer Confidence.
US - 14:00 - Richmond Manufacturing Index.
US - Tentative - Treasury Sec Paulson Speaks.

Wednesday October 29th:

GE - ALL- Prelim CPI m/m.
UK - 09:30 - Net Lending to Individuals M/M.
UK - 09:30 - Mortgage Approvals.
US - 09:30 - Core Durable Goods Orders M/M.
US - 09:30 - Durable Goods Orders M/M.
US - 14:35 - Crude Oil Inventories.
US - 18:15 - FOMC Statement.
US - 18:15 - Federal Funds Rate.

Thursday October 30th:

GE - Tentative - Retail Sales M/M.
GE - 08:55 - Unemployment Change.
EU - 10:00 - Consumer Confidence.
UK - 12:30 - Advance GDP Q/Q.
US - 12:30 - Advance GDP Price Index Q/Q.
US - 12:30 - Unemployment Claims.
US - 14:35 - Natural Gas Storage.

Friday October 31st:

UK - Tentative - GfK Consumer Confidence.
EU - 10:00 - CPI Flash Estimate Y/Y.
EU - 10:00 - Unemployment rate.
US - 12:30 - Core PCE Price Index M/M.
US - 12:30 - Employment Cost Index Q/Q.
US - 12:30 - Personal Spending M/M.
US - 12:30 - Personal Income M/M.
US - 13:45 - Chicago PMI.
US - 13:55 - Revised UoM Consumer Sentiment.
US - 13:55 - Revised UoM Consumer Expectations.