Daily Market Briefing

By 20 Oct 2010 0 comments

Fundamentals:

Today, we will see the minutes from the last Bank of England meeting, so traders will gain an understanding of the Bank’s current stance on quantitative easing.  The Bank decided against increasing the asset purchase target amount during its last meeting, but since signs of economic recovery are limited, the BOE may be forced to inject another round of stimulus.  Some analysts have suggested that the BOE will add to their QE strategies with purchases of somewhere between £100 billion to £300 billion.

Yesterday, the People’s Bank of China surprised markets and raised interest rates for the first time since the credit crisis.  Interest rates were increased by 25bps to 5.56% and 2.50%, for the lending and deposit rate, respectively.  Risk appetite dropped on the news, pushing safe-haven assets higher.

The ZEW surveys from Germany and the Eurozone were disappointing releases, coming in at -7.2. This figure does not bode well for growth for the remainder of this year but the present situation index did rise to 72.6, which does lend some positive support for each region.  German growth has been fueled by net exports, but recent gains in the Euro will inevitably have an effect on this at some stage.

Bank of America released a positive earnings report yesterday, contributing to the already strong earnings season.  Bank of America followed J.P. Morgan’s lead by using loan loss provisions to increase earnings.  Statements were made suggesting that the major credit deterioration has finished and, if this is true, there will be positives ahead for the US real estate market.   This level of optimism is surprising, and lends to the argument that the banks are relatively certain that economic stimulus will be coming from the Federal Reserve.

Numbers from Goldman Sachs also positively surprised markets, but consensus expectations have been revised lower recently.  So, a similar print would not have been as impressive if it had been released 6 weeks ago.  Today, markets will focus on earnings releases from Abbott Laboratories, United Technologies, Wells Fargo & Co. and Boeing.

Technicals:

Commodities:

Oil prices took a tumble yesterday and broke range support at $82.30.  The decline stopped at the 50% Fibonacci retracement of the move from $73.60, which corresponds with a previous high near $79.  Short term momentum looks to have shifted, so buy pullbacks to 61.8% Fibonacci support at $77.70.  Resistance comes in at $83.25.

Currencies:

Yesterday we wrote that the USD/JPY looks like it could be forming a base, and this was confirmed later by the break above resistance at 81.70.  The performance after this break has been lackluster but the hourly indicator is turning up from oversold levels, so the bias is up for at least the short term.  Next resistance is at 82.35.

Stocks:

The S & P 500 saw a pullback yesterday but found support ahead of the key 1150 support level at the 100 period moving average on the 4-hour charts.  The uptrend channel on that chart is still intact as long as 1150 holds.  The overall bias here is still positive, we look for a test of 1200 in the medium term.

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