Daily Market Briefing

By 22 Oct 2010 0 comments

Fundamentals:

The German IFO for October will be released today, giving traders an idea of the level of confidence in German businesses.  This number could surprise to the upside after we saw the services and manufacturing PMI data come in better than expected.

Yesterday, we saw the US Philadelphia Fed business outlook manage to barely turn positive, with a reading of 1, but many analysts have suggested that the specific details of the report are not so encouraging.  Prices paid came in at 31.5 from 9.8 previously, leading to the positive reading.  But prices received showed another contraction at -9.0 from -13.9 previously, suggesting that margin expansion is coming to an end.  Inventories also dropped to 18.6 from -16.7 previously, which will inevitably be a drag on growth prospects.  New orders also declined to -5.0 from -8.1 previously, continuing a 5-month negative trend.  U.S. leading indicators increased 0.3% on a monthly basis for the month of September, up from a 0.1% increase in August.

The earnings reports from Nokia and Caterpillar were positive surprises for the market.  This is good news for the global economy and Caterpillar went so far as to raise their yearly earnings forecast on the expectation that interest rates will remain low and emerging markets will create demand for their products.

United Parcel Service (UPS) also released their earnings yesterday and followed the others in similar fashion, surpassing market expectations and raising their yearly earnings forecast.  UPS reported that the main driver behind the positive numbers came from international deliveries (mostly Europe and Asia), which rose 13%.  This lends strength to the argument that emerging markets (particularly India, Brazil and emerging Asia), will continue to me the main source of strength in global GDP whereas Europe and the U.S. will likely see recovery periods that progress much more slowly.

Technicals:

Commodities:

Oil had a quiet session overnight compared to the recent volatility that we have been seeing.  Daily RSI is at mid levels.  The overall bias is up following the break of resistance at $82.90.  Market indecision is typically followed by strong moves, so once $84.40 breaks, we expect the $87 level to be pressured forcefully.

Currencies:

The GBP/USD is showing weakness and is closing in on our buy zone in the 1.56 area.  Stops for this trade may need to be wider than usual given the fact that there are likely to be stoplosses of good size below support at 1.5650.  However, these pullbacks are seen merely as corrective.  The critical break of 1.60 can be seen on the daily charts, and this is the reason for the longer-term bullish bias.  Key support on the dailies comes with the confluence of Fibonacci and historical levels between 1.5280 and 1.53.

Stocks:

The S & P 500 did spike above the previous resistance of 1180, as expected but follow through there has been tepid at best.  The slight pullback to 1167 looks to be more of a shake-out of weak longs than anything else and the bias is still clearly to the upside.  The small drop to 1167 is still showing us a higher low and the 4-hour uptrend channel remains intact.   Key support is still at 1155 (if this area breaks, the short term bias shifts).  Resistance above is not seen until at least 1200.

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