European stocks are headed lower on Monday after the story of tension in Egypt over the weekend.  Markets have turned their attention to this as opposed to earnings and this is likely to continue to be the main driver for equity markets today.  But with this in mind, we should remember that earnings season isn’t over yet and markets will be looking again at earnings reports soon.

The problems in Egypt got progressively worse over the weekend and the main source of concern is the question of whether or not these problems will spread into other Middle Eastern countries.  This would cause concerns over oil supply and probably send prices much higher.  Markets are shifting into risk aversion so we will probably see some continued selling in commodities and equities until the problems have been resolved.

Today, we will see an earnings release from Ryanair in the European airline sector.  Earnings Per Share is expected to come in negative, at -0.015 Euros per share against a previous reading of 0.211 Euros.  Sales are expected to have decreased from 1.2 million Euros to 725,000.

Exxon Mobil is expected to come in with an improvement in Earnings Per Share from 1.44 US Dollars per share to 1.63 US Dollars.  Sales are expected to show a similar improvement of 95,290 million US Dollars to 100,124 million US Dollars.  The main argument for this is higher oil prices, but some have argued that the company’s profit will be lifted by the higher volume in its chemical sales, which grew nicely in 2010.

DuPont is Exxon’s main competitor and released earnings earlier this season. DuPont’s release was surprisingly strong so market expectations are for Exxon to make similar improvements.  Adding to this argument is the fact that Exxon has released statements suggesting they expect higher demand for natural gas and oil (35% higher) when compared to 2005.

Technicals:

The Aussie Dollar has broken support at its uptrend line from 0.8050.  Prices have managed to stay above the 0.98 area (which is also the 100 period moving average) but momentum is slowing and resistance at 1.0075 is looking more and more distant.  If we can see a break of support, we could be in for a sizable long term drop, as we are at significantly high historical levels.  First major support on the daily charts comes in at 0.9540.  Daily indicators are at mid levels, so prices have plenty of room to extend.

Gold has now broken major support at 1330, so we are expecting short term players to be sellers on rallies.  We are weary of selling into such a massive uptrend, however, so we are going to play it cautious and wait for a drop to Fib and historical support at 1260.  Any approach of this level could take some time, however, because we are nearing oversold territory on the daily charts.

European stocks are headed lower after the negative Asian session on the news that S & P downgraded Japanese debt to AA-. Japanese bank stocks were sold heavily on the news. But despite this, U.S. earnings reports are expected to come in strong, and this could go far for turning around market sentiment.

Honeywell, in the U.S. industrial sector, will report earnings prior to the U.S. open. The consensus expects earnings per share of 87 cents after a previous reading of 87 cents.  Sales of 8.84 billion U.S. Dollars are expected after previous reading of 8.5 billion U.S. Dollars.  Company management has produced some upward revisions in the fall of 2010.

The company’s stock has seen some heavy buying recently (a rise of 20% since the third quarter when the S & P 500 has risen only 10% during the same period). Honeywell is a competitor of GE and given what we saw the GE earnings release, it would not be surprising if Honeywell was able to beat market expectations.

Ford comes out with its release at 12:00 GMT and the market expects earnings per share of 48 cents after a previous reading of 48 cents. Sales are expected to decrease to 28.5 billion USD after previous reading of 29 billion USD, which would show that margins have shown some improvements.  Trader sentiment towards Ford is strong and many analysts are expecting the best release from Ford since 2000.  The argument here is that Ford has improved its general reputation and this will have brought in some buying activity.

J.D. Power & Associates recently conducted a survey which showed that the perceived quality of Ford cars 90 days after purchase placed Ford at the top of American car producers and 5th place internationally.

Traders will also be watching the earnings release from Chevron, which is expected to be strong given the rise in oil prices. Earnings per share is expected to reach 2.40 USD and sales are expected to come in at 58.8 billion U.S. Dollars.  A statement released by Chevron earlier in the year said that they expect fourth quarter earnings to surpass what was seen during the third quarter (earnings of 1.80 dollars per share).

The argument for this was the improvement in both the extraction of oil and natural gas as well as the company’s ability to refine oil into other products.  This is another company that could push markets higher with a positive surprise.

Technicals:

We have been holding a short position in GBP/USD for a while now even though we have seen some extremely volatile activity in the pair.  Prices are trying their best to respect the downtrend line from 1.6060, so this trade is starting to look more encouraging.  We are still underwater but a break of 1.5850 clears the way for a drop 100 points lower.

We were stopped out at cost in Gold as prices broke through critical support at 1330.  We were expecting this so we will not consider buying again until there is a drop to 1260.  This is quite a ways away and it is entirely possible that we will not see this opportunity but the current drops are looking significant and we must remember that we are still near extremely elevated historical levels.  Our buy zone is in an old high from last May (support turned resistance) and the 62% Fib of the move from 1150.  

European stocks are pushing higher Thursday on the story that the U.S. housing market is improving and the stock market is robust with steady earnings releases that are coming in better than market expectations. H & M, however did not match this trend, as its report fell short at its release earlier today.

Next, markets will be watching Nokia, Proctor & Gamble, Caterpillar and AT&T as earning season continues.

In macroeconomic data today, we will be seeing a series of Eurozone confidence surveys and US Durable Goods Orders.

Yesterday, the U.S. new home sales came in strong with a print of 17.5% on a monthly basis against expectations of 3.5%. Markets are paying particular attention to this data because this came along with the decision by the Federal Reserve to continue its second round of quantitative easing.  This brought some lift to Asian equity markets and European equity markets are likely to follow suit.

Traders should keep in mind, however, that earnings season hasn’t finished and as we mentioned before, there are still many global blue chip names that have not yet put out their releases.

Nokia reports at 11:00 GMT and market are looking for an earnings per share of 0.555 Euros after the previous EPS of 0.660 Euros per share.  For the internals, sales are expected to grow from 40.986 million Euros to 42.174 million, which would show that margins are becoming slimmer.  Problems at Nokia have been well-documented so a number coming in at expectations seems likely.  If we do see a surprise to the upside out of Nokia, traders should position themselves for another rally on the day.

Another important release is Caterpillar, which is scheduled for 12:30 GMT.  Estimates are calling for an EPS of 1.284 US Dollars per share after a previous reading 1.220 US Dollars per share. Sales also expected to rise from 11.134 million US Dollars to 11.548 million per share.  During the third quarter, the company was able to increase sales and earnings and according to company press releases this came as the result of economic growth in emerging markets, China, in particular. The stock price has since risen 18% and with this in mind, it is easy to see how markets might have already priced the strong forecasts by the company’s management.  So we would probably need to have a significant increase past expectations for the stock to gain any type of real traction today.

These reports will be the main drivers for trading today, as they will either help risk sentiment or sent markets running in the other direction.  These reports will offer traders an indication of how the smaller companies will be performing for the remainder of 2011.

Technicals:

Currency markets have been performing in an extremely disjointed way, as the usually strong correlation between the EUR and GBP has broken down in the past few sessions.  GBP broke critical support at 1.5840 but since then we have seen a strong rebound in prices as they begin to pressure the psychological barriers at 1.60.  A violation here would lead many to believe that the previous drop was nothing more than a false break.

Gold has fallen into our buy zone at 1330 and managed to bounce but the rally has been limited and we are starting to worry that the Fib and historical support that we bought into is not going to hold much longer.  We have brought the stop to break even, so it is starting to look likely that we will be stopped out at cost.

IG Markets, an IG Group company, was confirmed as the UK’s leading CFD provider and ranked high in terms of customer satisfaction, according to The Investment Trends 2010 UK Spread Betting/CFD Report.

IG Markets achieved top rankings in several key areas of customer satisfaction surpassing any other provider. According to the report, IG is the best in customer support/help categories: Customer Service, Staff Knowledge and Telephone Service From the Dealing Desk. Customers are also highly satisfied with the trading platform and tools, such that IG Markets also achieved the first position in the categories: Trading Platform, Range of Order Types, Reliability of Trading Platform, Efficiency of Taking Trades, Range of Trading Tools, Charting Facilities, and Reporting of Positions and Transactions. The company also achieved the first position in the category Education Materials Available, reflecting its investment in education, having been running several seminars and training programs for clients.

Besides achieving the first position in the above categories, IG Markets was also ranked in top for several other: Competitive Spreads, Range of Instruments to Trade, Commission Levels, Quality of Mobile Trading, Ease of Account Opening, Consistency of Filling Trades at Prices Quoted, Margin Requirements and Range of Research Tools Available.

We saw an increase in volatility at the close of last week, with the Euro, in particular, making gains on the better than expected IFO numbers out of Germany.  Adding to this was the consumer confidence survey from Belgium, which came in at the highest reading since September 2007 (which was when news of the credit crisis was starting to hit the markets).   Rumors circulated suggesting that the Spanish have developed a plan to rebuild the Cajas, so markets had a few different arguments to justify all the Euro buying to close out the week.

In Britain, we saw some weakness in the GBP after we saw some weak data in the form of the UK retail sales report.  Many analysts are attributing this to problematic weather in the region, which is putting a hit on retail stores and consumer confidence.  BoE board member Posen released some statements that the market is interpreting as being dovish on the economy: “the market has priced in a rate hike in 2011 [but that] does not necessarily mean they will get one”.  So the markets took this info along with the retail sales as an excuse to buy Euros rather than Pounds.

The USD/CHF followed the same trajectory of overall Dollar weakness but the move lower was grindingly slow as recent policy statements from the Swiss National Bank (discouraging strength in the CHF) made buyers a bit more cautious and worried about being caught long at elevated levels.  The CAD was no different in relation to the Dollar, despite some weakness in oil prices.  The USD/CAD dropped to 3 day lows after retail sales rallied higher in the region (a gain of 1.3% monthly against 0.5% expected and we also saw the previous month’s data revised higher).

We didn’t have any fundamental US data to guide markets on Friday and US stock indices finished mixed.  The bond market in the U.S. attracted some buying activity after the Federal Reserve bought $8 billion worth of 10 year debt and this led the dollar index to 2 month lows.  The EUR/USD has now crossed into the 1.36 handle, which is an area we have not seen for some time.  Gains for the week were 1.7% against the Dollar.  IMM data is painting a different picture, however, as far as sentiment projections are concerned.  IMM data suggests this buying is related more to the covering of short positions and less about traders adding new buy positions.

The Asian session has been quiet so far as we begin the week as there is not economic data today to stir the pot.  There were no major releases or statements during the weekend, so at the time of writing, we remain relatively unchanged from the closing levels on Friday.

In Australia, we saw the AUD make an early retracement after fourth quarter producer prices showed slowed to +0.1% quarterly, against expectations of 0.5% and a previous number of 1.3%.  This move in AUD wasn’t major and didn’t have much effect on the other currencies.

Some small news papers in China reported that the economic policy board is of mixed opinion as far as interest rate strategy, so this is leaving markets a bit confused about the possibility of the rate hikes (read: “how many rate hikes”) we will be seeing this quarter.  The reports suggested that the PBoC are seeking a maximum of 900 billion Yuan while the CBRC wants something in the region of 1.0-1.2 trillion Yuan.

There will be some notable data releases during the European session, as we will have Eurozone PMI and German industrial production.  There is no US data but there has been a lot of chatter for the State of the Union address that will be given by President Obama later in the week.  We will also see the first Federal Reserve meeting of the year (on Thursday) and fourth quarter GDP numbers on Friday.