Daily Market Reports | Jun 10 2010
By Rudi Filapek-Vandyck
US based trader Dennis Gartman summed it up quite succinctly in yesterday's edition of The Gartman Letter. He included a price chart of the Dow Jones Industrial Average, while pointing out that no matter how drew the trend lines, they were always broken to the downside in the present downturn.
In addition, argues Gartman, US equities are now trading below the 200-day moving average. They are obviously finding it tough to return back above these trend lines. This is not a good sign.
States Gartman: “We draw everyone’s attention then to the chart of the Dow Industrials [..]. Note yet again that the market remains well below its 200 day moving average. We cannot and we will not emphasize this fact enough, for we and others believe that the 200 day moving average is the demarcation line between bull and bear markets.
“Given that the market is itself below its 200 day is sufficient to push us to the sidelines if bullish, or to push us bearish of we were previously neutral. However, once the market is below that moving average and once the average itself is moving lower, then we shall have no choice but to err bearishly, selling rallies to become short.”
As far as yesterday's price action goes, momentum traders were pleasantly surprised by a leak of Friday's China data to a journalist at Reuters, which helped Australian shares turn around in afternoon trade yesterday.
If the leak proves accurate (and we'll know for certain on Friday) then Chinese inflation will print around 3%, but exports will have surged by 50%, well above market expectations.
The positive momentum from the Chinese leak, in combination with plenty of market rumours spinning around in Asian markets yesterday, followed through in the European session. Commodity markets, as one would expect, in particular took the “news” as another reason to surge higher.
The DJ Euro Stoxx 50 increased 1.8% to 2557, the German DAX increased 2.0% to 5985 and the UK FTSE was 1.1% higher at 5086.
By the time we had landed in the US session, however, German chancellor Angela Merkel managed to spoil the party with some comments about how present austerity measures are both a necessity and only a temporary solution. Given "Europe" is the main reason why global risk assets are in turmoil, this was hardly helpful.
US equities thus saw another reason to deflate, and so they did. Comments about ongoing economic recovery by Fed chairman Ben Bernanke had triggered buyers back into the market the previous day. Yesterday, his prediction during Congressional testimony that circa 3% economic growth in the US was to be expected for the foreseeable future, which is not enough to reduce unemployment, was taken as a negative.
At the closing bell, the DJIA was down 0.4% to 9899, the S&P 500 lost 0.6% to 1056 and the Nasdaq was 0.5% lower at 2159.
Note: the DJIA is finding it difficult to remain above 10,000 – the level seen as key by many a technical chartist to keep the “bull bias” alive.
Crude oil rose as equity markets strengthened and the USD weakened. WTI futures contract for July 10 increased 2.7% to US$74.00 a barrel.
Spot gold declined on profit taking and expectations that a rebound in global stock markets would decrease investor demand for the safe-haven asset. Spot gold decreased 0.3% to US$1,232.70, despite a weaker greenback.
Traders on the London Metals Exchange used the China data leak as an opportunity to start buying. LME copper rose 2.8% to US$ 6,340/tonne, while zinc, aluminium, lead and nickel increased 1.2%, 0.4%, 5.0% and 4.3%, respectively.
US sugar rose 1.9% on expectations that supplies would ease from Brazil. Wheat fell 1.0% as farmers began harvesting in US. Soybeans rose 1.3% on expectations that inventories would be tighter than expected in the US. Corn gained mildly to 0.3%. Palm oil futures were 0.6% lower.
Another reason why US shares lost momentum was the release of the Fed beige book, which provides insight into how the various economic regions are performing. Yesterday's beige book update stated the US economy improved modestly in April and May. Consumer and business spending increased and tourism rose, but there were concerns about the impact of the Gulf of Mexico oil spill and commercial real estate remained weak.
In addition, market speculation about the financial health, or even the ultimate survival of BP, are running hot. Yesterday BP's ADRs ( American depositary shares) tumbled 16% and this too spooked investors.
Still, some of the Dow's components managed to stay in the black. Among them, Boeing rose 1.1%, while Alcoa was up 0.4% and Caterpillar was up 0.2%. Caterpillar's board authorized a two-cent, or 4.8%, increase to its quarterly dividend payment. As the market closed, the company announced that Jim Owens was stepping down as chief executive.
The USD weakened against the major crosses overnight. EUR/USD opens lower on Thursday morning at 1.1985 after falling from its overnight high of 1.2074. GBP/USD initially strengthened to a high of 1.4608, but later pared back gains to open at 1.4540. USD/JPY opens lower at 91.20 after falling late in the night.
It was a mixed night for the AUD. AUD/USD initially strengthened on the Chinese news, but later pared back gains to open lower at 0.8278. AUD/EUR opens at 0.6905 after a flat session. AUD/JPY opens lower at 75.45 and AUD/NZD pair opens at 1.2350 after paring back gains late in the night.
US bonds rose after the US government sold US$21bn of 10-year notes at a yield of 3.242 % (forecast of 3.252 %), with a bid to cover ratio of 3.24 times (forecast of 2.95 times). Weaker stock markets also lent support. The yield on 2-year notes decreased 2bps to 0.718%, and the 10-year yield decreased 1bps to 3.175%.
Australian bond futures were little changed. The implied yield on 3-year bond futures increased 1bps to 4.73% (price down 1bps to 95.270) and the implied yield on the 10-year bond futures were down slightly with yields up 0.5% to 5.305% (price down 2bps to 94.695).
SPI futures are suggesting the Australian share market is looking towards another lacklustre opening today.
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