Key Market Moving Trends for the Trading Week: Stocks, Bonds, Commodities, Forex, Earnings

Key Market Moving Trends For The Coming Week:

US Earnings Economic Data Outweigh EU Debt Crisis Concern For Now.

EU Debt Crisis: Greece aid request seen as bullish, though sentiment could change quickly as EU struggles with implementation, and long term outlook remains unresolved.

IMF and World Bank Meetings Insofar As They Contribute To EU Debt Crisis Resolution.

Bullish Evidence of Ongoing Recovery From US Earnings And Key Weekly Economic Data.

UK GDP Weakness May Boost Tories and GBP.

STOCKS

Global stocks remained at or near 52 week highs on:

• Positive US earnings, durable goods and home sales data
• Receding fears about banking sector troubles arising from the SEC’s fraud charges against Goldman Sachs
• Greece’s formal request for aid, seen as final acceptance of the need to comply with EU/IMF demands for further austerity measures and virtual takeover of Greek economic policy by EU and IMF officials.

• As noted in previous articles, while we believe the IMF portion of the plan will get Greece through May, we believe optimism will fade as difficulties arise in getting funds to Greece in time to avoid default later in 2010.

• The greater concern is that if the Greek rescue raises doubts about the EU’s ability to aid other PIIGS members, the resulting erosion of confidence in the EU will cause yields on PIIGS bonds to stay at current high rates or move even higher, forcing others to seek EU/IMF aid and overwhelm the funds currently committed to the rescue package.

Most major stock indices at strong resistance of 200 week moving average as additional headwinds along with already high prices and EU debt event risk.

Major Earnings Announcements

Monday: Canon (CAJ), Humana (HUM)

Tuesday: 3M Company (MMM), BP Plc (BP), Celanese Corp (CE), Corn Products Int. (CPO) CTS Corp (CTS), Daimler AG (DAI), Enterprise Products Partners LP (EPD), Ford Motor Corp (F), Kyocera (KYO), Newmont Mining (NEM), Office Depot (ODP), UAL Corp (UAUA), United Parcel (UPS), US Steel (X), US Airways (LCC), Valero Energy (VLO)

Wednesday: AOL Inc (AOL), Baidu (BIDU), Barrick Gold (ABX), Corning (GLW), Honda Motor Co. (HMC), JetBlue Airways (JBLU), Dow Chemical (DOW), Visa Inc (V)

Thursday: Bristol Myers Squibb (BMY), ConocoPhillips (COH), Dentsply Int’l Inc. (XRAY), Dominion Resources (D), Eastman Kodack (EK), ExxonMobil Corp (XOM), France Telecom (FTE), Metlife (MET), Motorola (MOT), Seimans AG (SI), Weyerhauser (WY)

Friday: ITT Corp (ITT)

BONDS

The most important market this week as PIIGS bond yields soared to new highs and forced Greece to seek aid via the EU’s rescue plan. As in the past months, the key data to watch for the market’s sentiment on the crisis will be PIIGS block credit default swap spreads (the difference between yields on the various PIIGS block sovereign bonds and those of the ultra-safe German bonds) which reflect the cost of their borrowing in the open market. As these rise for a given nation, it is less able to cut its deficit and more likely to both seek EU/IMF aid and/or default.

COMMODITIES

Until Friday’s news on Greece, commodities (also risk currencies and bonds) were not reflecting the higher risk appetite shown in stocks, a bearish sign for stocks. These other assets typically turn down before stocks.

Energy

Following risk appetite overall. Crude oil price rallied Friday as driven by strong US home sales data. Moreover, gains in equities and weakness in USD also made oil more appealing. The front -month contract for WTI crude oil surged +1.7% to settle at 85.12 Friday. On weekly basis, the contract gained +2.26%.

Precious Metals

Settling at 1153.7, the yellow metal gained +1.48% over the week.

Compared with crude oil and other members in the precious metal complex, gold’s rally was mild and directionless. We believe investors are still gauging the impact of Greece’s situation on gold. While we are impressed that gold advanced despite weakness in the euro – the single currency plunged -0.89% last week, another wave of sovereign crisis in Greece and/or periphery European countries will dampen risk appetite and reduce commodity investment.

Although we believe global deficit problems should eventually drive gold buying, this will happen in the longer-term, rather than immediately.

Another risk is the Fed’s tightening schedule. Although verbiage of keeping the policy rate low for an ‘extended period’ will appear in next week’s FOMC statement, improvement in economic data and stronger consumer confidence should spur speculations of a Fed rate hike sooner than later. Such anticipation should keep the dollar strong, hence weakening gold.

FOREX

US Dollar Weekly Outlook: Rise Threatened by Greek Bailout Relief

US Dollar Bias: Bullish

• Key Events - Wednesday: FOMC rate statement; Friday: advanced Q1 GDP (expectations low for this, leaving room for upside surprise or no reaction unless much worse than expected).
• As the 2nd ranked safe-haven currency, the USD will move opposite optimism on EU debt crisis.
• Thus likelihood of struggles to implement rescue for Greece, others will boost the USD, as will increases in CDS rates for PIIGS bonds. Rising CDS spreads are first indications of eroding confidence in EU/IMF, will help US as safe haven demand rises. Falling spreads will cause the opposite.
• Watch for statements out of IMF and World Bank meetings this past weekend--expect supportive words that will pressure dollar, though lack of concrete steps to deal w/ entire PIIGS block will ultimately add uncertainty and boost the USD.

Euro Weekly Outlook: Moving With News On Greek Bailout Progress, PIIGS bond CDS spreads.

Euro Bias: Bullish if Greek rescue proceeds smoothly, Bearish if not

• Key events - News on the Greek bailout or PIIGS block CDSs/bond yields remain THE potentially biggest market movers. Tuesday: French consumer confidence, German GfK confidence and German import prices; Wednesday: German CPI Thursday: Euro-zone consumer confidence and German employment; Friday: Euro-zone employment and French PPI.
• Euro surprisingly resilient despite growing risk surrounding Greece, bottoms on Friday news of Greek aid request.
• Formal Greece request for IMF/EMU bailout nonetheless forces declines, more likely as implementation difficulties from plan ambiguities scare markets.
• Inaccurate accounting only heightens stress on Greek bonds as markets price in unknown bad news.
• Key Question: Can EU/IMF succeed in keeping Greece solvent through May? After that, can they do it smoothly enough to show enough resolve needed to calm markets, lower rates on other PIIGS bonds so that other PIIGS block members don’t seek EU/IMF plan aid and overwhelm it’s funds – an event that would likely spark wave of sovereign and large bank default.
• No matter what the outcome, EUR to suffer from new spending either for PIIGS bailouts or bailouts to big banks holding PIIGS bonds (biggest holders of Greek bonds are France and Germany).
• KEY POINT: Temporary Greek rescue unlikely, which will pull down yields on 3 year bonds used in rescue plan--that will require a longer term rescue currently not on the table.

Japanese Yen Weekly Outlook: Will Be Prime Beneficiary of Risk Aversion From Greece Crisis

Japanese Yen Bias: Bullish

• Events - Tuesday: Retail trade; Thursday: Manufacturing PMI, employment, consumer prices and industrial production; Friday: The BoJ rate decision and housing starts.
• High inverse correlation to stocks means further JPY gains if stocks pull back, losses if they gain, makes JPY potentially biggest gainer on EU woes, biggest loser on positive Greek news.
• While we expect some optimism on Greece, especially once IMF funds get it through May, both near and longer term will favor safe-haven currencies like the JPY, especially if EU fails to convince markets it can deal with further Greek and other PIIGS funding needs.
• Japanese Trade Surplus Widens on Exports but Outlook Vulnerable.
• Speculative Sentiment Points to Clouded Japanese Yen Outlook.

British Pound Weekly Outlook: Range Trading Ahead of UK Elections

British Pound Bias: Neutral

• Events - Tuesday: Home loans; Thursday: Consumer confidence.
• GDP disappoint may boost GBP if it lifts Tories.
• Hung Parliament may not be big problem as all parties agree spending cuts needed.

Swiss Franc Weekly Outlook: May Remain Under Pressure As It Moves With Euro

Swiss Franc Bias: Neutral

• Events - Tuesday: UBS Consumption Indicator; Friday: KOG Swiss leading indicator.
• Swiss producer & import prices stopped falling in March for the first time since 2008.
• USD/CHF – Swiss franc appears vulnerable as USD likely to gain on EUR in coming months.
• Prior trade balance report shows growing export demand from China, UAE and US. Over time that would be positive for the CHF and allow the SNB to be less sensitive to gains against the euro.
• As EUR drops from money printing bailouts to PIIGS or bailouts to banks holding PIIGS bonds, SNB likely to intervene to push CHF lower at pace with EUR.

Canadian Dollar Weekly Outlook: Weighing Rate Hike Speculation Against Data

Canadian Dollar Bias: Bearish

• Events - Wednesday: House Price Index; Friday: GDP m/m for February.
• Better growth from underlying economy and highest likelihood of most interest rate gains for coming year have pushed CAD to new highs as the strongest currency recently.
• However, as a risk currency, CAD moves with oil and stocks, both of which in turn will move with news on EU debt crises.
• Consumer-level inflation unexpectedly cools, slowing interest forecasts.
• USD/CAD attempts to capitalize on a hold of 0.9950.

Australian Dollar Weekly Outlook: RBA Dovish Comments Pressure the AUD

Australian Dollar Bias: Bearish

• Events - Tuesday: NAB Business Confidence, PPI Q1; Thursday: Conference Board Leading Index
• Australian dollar drops as Reserve Bank of Australia casts doubt on further rates hikes, saying rates are “close to average,” suggesting slowing or finishing run of rate hikes for now.
• AUD will rise if risk appetite stays, will wilt on rising fear.
• There is technical evidence for possible Australian dollar reversal.

New Zealand Dollar Weekly Outlook: Risk Appetite Best Hope – Consumer Price Index Report

New Zealand Dollar Bias: Bearish

• Events - Wednesday: NBNX Business Confidence, Official Cash Rate, Trade Balance; Thursday: Building Permits.
• RBNZ widely expected to keep dovish policy for several on months.
• Retail Spending Unexpectedly Contracts in February.
• New Zealand Manufacturing Expands at Faster Pace.
• House Sales Fall the Most in 13-Months.

Disclosure: No Positions