Friday, August 12, 2011

Market Outlook 8/11/11

The markets are undergoing a major reversal this morning as equities were higher to start the morning in Europe and in the US but that has now turned negative and looks like risk-aversion is back on the table.

The focus has shifted back to the European banks this morning and the ECB monthly report came out earlier this morning and said that downside growth risks may have intensified and economic uncertainty is “particularly high”. This obviously does not bode well for the European economy in light of the attacks the European banks are facing. 

While French bank Soc Gen has repeatedly denied it is in trouble and facing liquidity problems, the markets have a short memory as Lehman issued denials as well right up until the day it collapsed.  I have no knowledge of this situation but must treat it as a “where there’s smoke, there’s fire scenario” as it could become a self-fulfilling prophesy if there is a run on the bank.

Today’s early forex action has been interesting from the safe-havens, as SNB officials are floating rumors that they may attempt to peg the Swiss franc to the Euro in an effort to keep it from appreciating any further.  In Japan, a curious move at the European open of Yen crosses may have been the BOJ actively selling Yen in the market, though not a formal intervention.  A Japanese MOF official declined comment when asked about it.  (See chart of the day below).

Overnight, the unemployment rate in Australia was higher to 5.1% from 4.9% as there was an unexpected net loss of jobs when 10K jobs were expected to be added.  Nevertheless, the Aussie traded higher in early action.

US initial jobless claims are due out later this morning, with the usual 400K expected to lose jobs. 

Market volatility has been intense over the past week as the ranges have been expanded and the moves somewhat violent.  This can at times throw the technicals for a loop and the market can behave irrationally for some time.  Case in point; yesterday gold traded briefly above $1800, an all-time nominal high.  The CME just imposed higher margin requirements to stem the rapid appreciation of the precious metals by speculative buyers.

There is still great risk in the marketplace so the individual fundamentals are largely meaningless.  This means we are in a constant risk-on/risk-off environment where the markets can be easily spooked by rumors or announcements.

So trade cautiously and always use proper risk management techniques!

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