Risk On Tones Despite Deteriorating Fundamentals

Global stock markets continued to rise again last week as the ‘risk on’ tone continued to be in rising asset valuations.

The big question of course if as to whether these gains can be held onto, given the deteriorating fundamentals across many markets. A triple dip recession?

The key new items this week are the rate decisions due for release in both Europe, Australia, New Zealand and the UK. This could lead to some volatility in the currency markets. However the reality is that little is expected to change with rates liable to be held.

Markets are broadly expected to continue in the same vein as the previous week with further gains in riskier assets. However expect some consolidation at these levels before another leg up.

Key News  This Week

  • Monday – EUR – Spanish Unemployment change, AUD – Trade balance, Rate statement
  • Tuesday – GBP – Services PMI, USD – Non-manufacturing PMI
  • Wednesday – NZD – Employment change, Rate, AUD – Employment change Unemployment rate. NZD – Rate statement
  • Thursday – GBP – Bank Rate, EUR – ECB Press Conference (Rate), JPY – Current Account
  • Friday – CAD – Employment Change, Trade Balance, Employment rate, USD – Trade Balance

In Focus – Gold

call on gold

CALL – Again the precious metal bounced from support but has made limited real gains. Gold remains above a long term rising trend line from May 2012 and I continue to look higher.

Pullbacks to the rising trend line and 50% Fibonacci level have so far proved good daily levels to go long.

Currency Majors

EUR/USD – The pair charged through the 2012 and when faced with a weakening dollar there is little to suppose that further gains cannot be posted. The biggest dangers are risk appetite and this week’s rate statement.
USD/JPY – Last week I suggested going long on the pair, expecting a break of 91.50 by the end of the week. It exceeded this level and ended at 92.80. Despite the Yen being oversold I would stay long while above 91.80
USD/CHF – The pair continues to hold above the larger term falling trend line from May ’12. Continue to look higher while above 9285.
GPB/USD – The rate decision will be the key focus for the GBP this week, but the long term outlook for Sterling remains weak. Bias remains lower on any short term rallies.

Major Indices

DOW – Strong gains on the DOW saw the Index approach the 14,000 level. Provided sentiment remains ‘risk on’ even a pullback to 13500 should be seen as a buying opportunity.
NASDAQ – A little indecision on the Nasdaq last week s the market digests some of  the big earnings reports coming through. However broadly it is likely that more gains will be seen. Further gains are likely if the market stays above  2720 support.
FTSE – Further gains were posted on the FTSE. However with fundamentals deteriorating in the economy and rate risk this week. Bias is on the downside.

Commodities

Oil – I expect Oil to move higher this week  though it is unlikely to see the impetuous need to break 100.00. I would go short from any highs around 99
Gold – See above

Stocks

Notable stocks to look out for that are reporting earnings this week include BP (Tuesday), GlaxoSmithKine and Time Warner (Wednesday) and Vodafone and Coca Cola Enterprises (Thursday).

Of these Vodafone could be an one of the more interesting plays, with the expectation that results may come out at the top end of expectations.