Friday, March 14, 2014

Day Trading Weekly Recap: Asia & Ukraine take Center Stage

- Soft Chinese economic data and the Ukraine crisis drove a sell-off in global markets this week. 

In Asia, the Hang Seng closed out the week down 4% and the Nikkei was down 6%, while global copper prices plummeted again this week on China growth fears. In Beijing, the National People's Congress closed with a speech in which Premier Li tempered expectations about 2014. Li said the government was looking to raise the "quality" of growth and was more concerned with employment and living standards than GDP, a veiled reference to the "elastic" nature of the 7.5% GDP target set for 2014 at the start of the conference. 

US data was not especially good either....

February retail sales rose a bit more than expected, however the negative back-month revisions to the January and December data more than offset the front-month beat. The March University of Michigan consumer confidence survey unexpectedly dropped to a four-month low, stoking fears that spending may be slow to pick up from weather-related setbacks earlier this year. For the week, the DJIA lost -2.3%, the S&P500 fell -2%, and the Nasdaq dropped -2.1%.

- The situation in Ukraine and Crimea has steadily deteriorated this week, and as of Friday Russia's MICEX index was down 20.4% YTD. The world awaits Sunday's Crimea referendum, when voters will be asked if they want to become independent or join the Russian Federation. There is no option on the ballot to remain part of Ukraine and observers outside of Russia are nearly unanimous in calling the effort illegitimate. Moscow continued to reinforce troops on the Crimea peninsula and also moved a very large force of troops, armor and artillery to Ukraine's northeastern borders.

- USTs saw big gains this week, with ten-year yields dipping 15 basis points to 2.63%, the biggest one-week move down since June 2012. Yields on 10-year UK gilts also dropped 15 basis points to 2.64%, the largest one-week decline this year. Weekly Federal Reserve data showed that foreign central bank holdings of US Treasuries fell to $2.86T, their lowest levels since December 2012. Most of the big move down was ascribed to the Russian Central Bank, which trimmed its holdings by a record $104.5 billion on the week, 3x the prior record.

- Freddie Mac and Fannie Mae shares tanked on Tuesday upon the release of a bipartisan Senate plan to wind down the GSEs and replace them with a new government insurer. The new organization, the Federal Mortgage Insurance Corporation (FMIC), would operate in a manner similar to the FDIC and wrap covered loans with a government guarantee.

- The business of selling US teen apparel continues to frustrate investors. Urban Outfitters shares fell more than 6% after Q4 results missed expectations on the topline and management noted they remained very cautious regarding Q1 performance. American Eagle Outfitters lost 10% after meeting already-lowered Q4 expectations and warning that Q1 SSS would be down in the high single digits. But by far the worst was Aeropostale, whose shares lost 15% after missing expectations in its fourth quarter and offering very weak first quarter earnings guidance.

- Herbalife shares dropped about 10% this week after receiving a Civil Investigative Demand (CID) from the Federal Trade Commission. Reports suggested the announcement took Herbalife executives by surprise, and that it could create a cloud of uncertainty for the company for the next year as the FTC investigates its marketing practices.

- The euro stabbed higher midweek, moving out to 2.5-year highs from around 1.3860 to 1.3970 between Wednesday and Thursday, just ahead of a scheduled speech by ECB's Draghi and the Bundesbank's annual press conference. With the euro close to breaking 1.40, Draghi declared that FX rates were becoming more relevant in assessing price stability. Just hours before, ECB hawk Weidmann had reiterated standard policy lines that the ECB should not react to changes in the FX rate. EUR/USD dropped back below 1.3850 after these remarks, but then made another go above 1.3900 through the end of the week. Analysts suggest that while Draghi's comments are not as big as the "whatever it takes" line two and a half years ago, they represent a material change in the ECB's outlook on currency and its implications for dis-inflation.

- Dollar weakness also impacted USD/JPY. The pair peaked late last week in the 103 handle and has sustained a very steady reversal this week, testing as low as 101.20 on Friday. Outflows from China plus sustained low interest rates are not helping Abenomics. The BoJ's Kuroda said rock bottom interest rates continue to incentivize the yen carry trade.

- Japan revised its Q4 GDP growth figures in the final reading to 0.7% on annualized basis from 1.0% preliminary. The corporate capex component experienced the biggest change in the revision, slowing to +0.8% q/q from +1.3% initial, raising real doubts about the efficacy of Abenomics and underscoring the glaring need for the "Third Arrow" of structural reform. An HSBC economist interviewed after the release of the final Q4 GDP also expressed concern about Japan's rising trade deficits. Despite the revisions, the Bank of Japan did not announce or even hint it would consider expanding its quantitative easing program.

- Soft economic data from China was a big negative this week. The February terms of trade contracted for the first time in nearly a year and included the biggest deficit in two years as exports fell 18.1%. Shipments to the US, EU, and Japan were all down by double digits, although officials were quick to attribute the deficit to distortions caused by the timing around the Lunar New Year celebration. CPI hit a 13-month low of 2.0% on an annualized basis. Other economic data hit multi-year low rates of growth, including industrial production, retail sales, and fixed-asset investment.

- After China's first ever corporate default last week, another Chinese company - Haixin Iron and Steel, the second largest steel maker in Shanxi Province - formally defaulted on its debt this week. There was more focus on the firm link between plummeting copper prices and defaults in China: 60-80% of the nation's copper imports over the past three years have been used as collateral for loans, a situation which could drive an accelerating wave of bankruptcies now that Beijing has signaled it will not swoop in to bail out every firm that stumbles. China Premier Li promised that the central government will not allow systemic risks to arise from defaults even as he called them unavoidable in some cases.

- On Wednesday the Reserve Bank of New Zealand became the first central bank of a developed economy to embark on a tightening campaign this year. The RBNZ justified the hike by warning that inflationary pressures are expected to continue to rise over the next two years and domestic expansion is becoming more broadly based amid very high consumer and business confidence. RBNZ governor Wheeler indicated that rates would likely rise another 75 basis points later this year.

Want to see us trade LIVE?  Click here to register for the Free Trial!
Automated Trading Strategy; Let the Computer do the trading
Are you a Crude Oil Trader? Click here to trade Crude Oil
Are you a Euro Trader? Click here to trade Euro
Are you an E-Mini Russell Trader? Click here to trade E-Mini Russell
Are you a Gold Trader? Click here to trade Gold
Join the Premier Live trade-room as an Advanced Member

No comments:

Post a Comment

Thank you for your comment! Your comment will be reviewed and posted asap, thank you for your patience.