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What Will Tomorrow Bring?: 07-01-10

The first half of 2010 is now in the history books. Unfortunately, they will record a weak stock market performance for the opening half of the year. Of course after the strong 2009 some kind of a market correction was expected at some point. This market weakness was brought on by a slew of reasons: the weaker-than-expected economic recovery here in the U.S., the fears of sputtering in the world’s growth engine China and last, but not least, the signs of the growing troubles in Europe. As such, there are significant concerns that market volatility will continue.

Today’s economic numbers didn’t do much toward calming these fears. Various data showed that manufacturing all over the world has been showing signs of slowing. The ISM manufacturing index in the U.S. declined more than forecast, to 56.2 from 59.7 in May. Chinese manufacturing slowed in June, growing less than was forecasted, while data coming from Europe indicated a slowdown in factory output.

Last weekends’ meeting of the leaders of G20 countries didn’t calm worries about the future of Europe; there are still concerns that the proposed austerity measures – and related to them budget cuts from U.K. to Ireland to Spain – will threaten the recovery. Market participants worry that the premature withdrawal of stimulus – or the unwillingness to expand them – will likely result in slower growth than was predicted.Read more...

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Market Update 06-29-10

The leaders of the Group of 20 countries have announced that their response to the most pressing economic issue of today, the European credit crisis, is to cut deficits and require higher bank capital reserves once recoveries occur. Advanced G20 economies (excluding the developing country members of G20) will shoot for reducing their deficits by 50 percent by 2013 and to stabilize their debt-to-GDP ratio by 2016. Each member will be able to proceed at their own pace depending on how quickly recovery takes hold in their respective countries, however, giving the appearance that the resolution is more lip service than commitment with any bite.

There’s also a divergence of immediate approach between the U.S. and its European counterparts. While the U.S. has pushed for more stimulative efforts to prevent a double dip recession, the U.K. and Germany are for spending cuts. The G20 as a group is struggling to balance these differing views, and the result is the half-hearted deficit reduction goal. This underscores how difficult it is to get unanimous agreement among nations to take coordinated global action and highlights the-rock-and-a-hard-place dilemma that the highly indebted developed countries find themselves in. On the one hand, national debt is getting out of hand, but on the other, spending cuts could send their fragile economies spiraling into another downturn.Read more...

Market Update 06-22-10

Over the weekend, after months of, at times, heated contention from both sides, China finally announced that it will revalue the yuan for the first time since the summer of 2008. Its trade partners, including the U.S., have been calling for a revaluation of the yuan for quite some time, citing the unfair trade advantage that an artificially cheap yuan gives to China. China, on the other hand, argued that a stable Chinese currency is needed for its “stabilization” and to support the recovery of its exports. But now, citing increasing signs of stabilization in its economy and the overall global economy, China has relented.
 
With the U.S. Congress threatening to move ahead with a vote for sanctions if the Treasury Department continued to delay the pronouncement of China as a currency manipulator, China was under pressure to act. Chances are, with the G20 summit coming up this week, China decided to loosen its currency exchange policy to extend an olive branch to the other attendees. But the actual move for the yuan will likely be gradual. Once the markets realized that fact, the stock rally, first sparked by China’s announcement, quickly faded.
 
Earlier today, the Chinese central bank set the highest reference rate in five years—the rate is allowed to fluctuate between 0.5 percent above and below that reference rate.
Read more...

Market Update 06-22-10

Stocks kicked off the week Monday with a bang on news over the weekend that the Chinese were once again going to allow their currency to float in a narrow band relative to the dollar. By day’s end that bang had morphed into a whimper.

China’s move has long been anticipated and was no doubt timed to placate other nations ahead of the G20 meeting in Toronto next week. The US had so far held off on labeling China a currency manipulator, but pressure to do so was mounting on Capitol Hill. A stronger yuan increases China’s buying power while reducing the attractiveness of its exports. But while they may be good at issuing sound bites, politicians’ math skills leave a lot to be desired. In practice, the impact of even a 20 percent appreciation of the yuan would have minimal effect on our trade balance. And once realization had sunk in that any revaluation in the yuan is likely to be quite modest—less than 5 percent in the coming year—traders began to cover their long positions. What an appreciating yuan does do for the US is add to inflation.Read more...

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2 reasons commodity prices will rise: Market Update 06-21-10

Short-Term Key: Neutral
Long-Term Key: -6 (Neutral)
 
-------------------------------------
Inside this week's update...
 
***** China floats the yuan.
***** Quantitative easing and commodity prices.
***** Where technology research dollars should be spent.
------------------------------------
 
The big news this past weekend was China's decision to let its currency, the yuan, trade with more “flexibility” - in other words, higher. As you know, we've been expecting such a move for some time, but with more dread than optimism. Nonetheless, this slight change is no reason to panic.
 
True, our long-term opinion on the yuan remains unchanged. A freely floating yuan means a higher yuan and (for Americans) it means higher prices for all commodities, especially gold.
 
The case is straightforward. A higher yuan will make commodities more affordable for China.
Read more...
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Market Update 11-11-09

China’s economy is on a roll. The latest data for October shows that the country’s industrial production and trade surplus grew robustly, indicating that its recovery is picking up even more steam. Industrial output grew 16.1 percent on a year-on-year basis, the sixth straight month of accelerating growth. Through the first 10 months of the year, China’s industrial production has increased 9.4 percent compared to 2008, including growth in all industrial sectors. Meanwhile, the country’s trade surplus nearly doubled to $24 billion sequentially from September as exports continued to pick up.
 
But its not just exports driving China’s growth. Retail sales in October more than 16 percent better than 12 months ago. Auto sales, in particularly, jumped 72 percent year-on-year, thanks to government backing.
 
The world’s third largest economy has so far avoided inflation, despite a tremendous growth in its money supply. The country’s consumer price index, according to the state’s official statistics bureau, fell 1.1 percent (on an annual basis) through the first 10 months of 2009.
 
While banks have lent record amounts of money by far this year, the sum of new consumer loans in the month was also nearly halved on a sequential monthly basis.
Read more...

Market Update 11-10-09

One thing’s for sure about this business, there’s never a dull moment in the markets. No sooner did it look like equities were breaking down than they staged a big turnaround last week. Together with yesterday’s trading they managed to recover much of the ground they lost in the prior few weeks. The advance came despite the greenback weakening meaningfully and commodities moved higher.
 
We had follow-through yesterday by way of a G20 meeting over the weekend, at which finance ministers were tight-lipped on the subject of currency rates. That prompted traders to sell dollars for other currencies. Talk of keeping monetary and stimulus in place at the same meeting put stock investors in a good mood, bidding up the major averages by another 2 percent.
 
While we like to see stocks make forward progress, we’re far from impressed with the action of late. We continue to see the small caps, which were the former leaders, trail the blue chips by a noticeable margin. Volume has remained persistently light, suggesting that while buying is taking place, there’s not a lot of conviction behind that buying.
 
It doesn’t help that the economic data coming in has been mixed, leaving the distinct impression we’re still close to recession rather than well on our way to recovery.
Read more...
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Market Update 11-03-09

In a sharp contrast with most other countries, including our own, yesterday the Reserve Bank of Australia (RBA) raised its key lending rate a quarter point, the second such increase in two months. This action was widely expected, as was the inaction on the part of our own Federal Reserve Open Market Committee, which left the U.S. benchmark rate at its near-zero level at its meeting that ended today.
 
The Fed also said the rates will remain low for longer. Treasury bond prices fell, but gold received an additional boost on the news. The really big move the yellow metal registered earlier this week came on news of India's purchase of 200 tons of the precious metal from the International Monetary Fund (IMF). The purchase, which was one of the largest one-time purchases by a central bank, was not anticipated by most observers. It was also significant because it means diversification away from the weak dollar is taking place. And it confirms to us that gold is only in the beginning of its bull market.
 
Many currencies are also are on the bull run against the dollar. Let’s take the Australian dollar as an example. It has been on a steady climb against the greenback lately. The currency has soared about 35 percent in the last 12 months, the strongest performing major currency over that time period, and it’s now approaching parity with the U.S. dollar.
Read more...

Market Update 10-12-09

Short-Term Key : Negative Long-Term Key : Neutral Read more...

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Gold's gains are only beginning 10-12-09

Short-Term Key : Negative Long-Term Key : Neutral Read more...

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