US stocks tumble on US, Europe worries

Baltic Exchange slides as cargo activity fades

UK Treasury minister: Challenging times for economy

China state paper urges guarantees for euro bailout

Pivot: 20050

Our preference: Short positions below 20050 with targets @ 18890 & 18600 in extension.

Alternative scenario: Above 20050 look for further upside with 20365 & 20850 as targets.

Comment: the RSI has struck against a major resistance around 70% and is reversing down.

Key levels
20850
20365
20050
19333 last
18890
18600
18165

Pivot: 3000.

Our preference: SHORT below 3000 with targets @ 2650 and 2525 in extension.

Alternative scenario: Above 3000, look for 3200 and 3275 in extension.

Comment: the MT outlook remains bearish below 3000, and the RSI lacks upside momentum.

Trend: ST Consolidation MT Bearish, we have been bearish since 12 AUG 2011 (2836).

Key levels Comment

3275 ** Horizontal resistance
3200 ** Horizontal resistance
3000 * Pivot point
2801 Last
2650 *** Horizontal support
2525 ** Horizontal support
2420 ** Horizontal support

Moody's to conclude Italy review within month

Last week, worries intensified in the markets that Greece will face a default, adding to concerns as global economies, meanwhile, experience a slowdown in growth pace.

Prime Minister George Papandreou, said he will slash one month’s wages from all elected officials and impose an annual charge on all property for two years, to meet the budget deficit targets for 2011 and 2012 which are 17.1 billion euros and 14.9 billion euros, where the new measures will help in reducing the shortfall by 2 billion euros to offset the slowdown in activities.

The Greek government is doing more attempts to become eligible for receiving the next tranches of the EU-IMF bailout to avoid default.

Tensions returned once again to markets with the rise in Greek bond yields and cost of insuring against default, which raised the possibility that the debt contagion could spread to other large highly indebted nations in the region, especially Italy and Spain.

The Italian government sold 3.9 billion euros of five-year notes while the Spain sold 3.95 billion euros long-term sovereign bonds.

Moreover, with speculations that Germany is ready to kick Greece out of the euro area, the unexpected resignation of European Central Bank's chief economist Juergen Stark, no clear action from the G7 in their meeting and expected downgrade to France's top banks due to their exposure to Greek banks, markets went on the rampage.

However, the sentiment started to improve into the week as expectations increased that the ECB bought Italian bonds and the European Commission's President Jose Manuel Barroso said he is close to proposing options on joint euro-area bond sales. 

Merkel and Sarkozy also said they are “convinced that the future of Greece is in the euro zone.” While we saw the flare of confidence gain more and more momentum with the unexpected coordinated action from the ECB along with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to conduct three more US dollar liquidity-providing operations with a maturity of around three months till the end of the year.

This move was preemptive from the ECB to prevent the freeze of money markets with the signs of strain starting to appear after banks started to access the ECB facilities for money as European banks started to struggle in dollar funding.

In the U.K., fundamentals continued to add to worries as annual CPI for August accelerated to 4.5% in August from 4.4% in July. Unemployment in the three months ending July rose by 80,000 to 2.51 million and employment in government jobs fell by a record in the three months through June.

Retail sales with auto fuel slipped 0.1% compared with the revised 0.2% in July, while the reading excluding auto fuel dropped 0.1%, lower than the prior 0.2% rise.

This week, BoE minutes for the month of September will be available with some expecting to see some members joining Adam Posen in calling for an APF increase to boost the sluggish growth.

At the beginning of a new week, investors are looking forward to the Bank of England Minutes, which is the main focus this week, especially after optimism dominated markets after the European Central Bank suddenly decided to provide three dollar-liquidity operations in order to prevent an interbank lending freeze, where the Bank Minutes along with the sectors performance will be the main focus.

The ECB in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank has decided to conduct three more US dollar liquidity-providing operations with a maturity of around three months till the end of the year in order to provide sufficient dollar supply for European banks.

This move came as the European Central Bank attempts to assure sufficient liquidity in the market, as the bank attempts to avoid interbank lending freeze as seen in the financial crisis and also to calm rising debt woes and jitters.

The European finance ministers in their monthly meeting in Poland agreed to delay the decision on the next Greek tranche from the 2010 bailout till October, as Jean-Claude Junker, Luxembourg Prime Minister and the European finance ministers’ chairman said.

Major central banks are attempting to support the slowing pace of growth and also to revive the pace of recovery, where the Bank of England is expected to expand the APF quantity by 50 billion pound in case the country was unable to find other applicable solutions to support sluggish growth.

This week, we are waiting for voting results from the Bank of England in the last meeting when the bank kept the rate and the APF steady.

The monetary policy statement is expected to remain unchanged, in line with the Bank’s previous Minutes, where the vote is expected 9-1-0, which means that the entire Monetary Policy Committee voted to keep the benchmark interest rate unchanged at 0.50%,   after the two arch hawks ended their votes for the motion.

On the other hand, the APF vote is also expected to remain unchanged as   Adam Posen will be the vote for expanding the APF quantity by 50 billion pound as usual. Nevertheless, this meeting we might see the possibility for even a higher call for 100 billion expand in asset purchases in line with his recent comments that the bank should expand the purchases to revive the economy.

Some of the MPC members are willing to raise the APF quantity, however, they think that the current situation and the sluggish growth are not sufficient to do so especially as they coincide with raging inflation.

The Bank of England monetary policy members are caught between a rock and a hard place, where rising inflation above the Bank’s target prevents lawmakers from expanding the APF quantity, in the time slower pace of growth forced them to hold rates unchanged.

The Bank of England is surely turning more dovish, or in other words biased towards expanding the APF program, especially after GDP growth slowed to 0.2% in the second quarter compared with 0.5% expansion a quarter earlier and expected to stagnate till the end of the year, where the U.K Treasury secretary, George Osborne gave the Bank the Green Light to apply further quantitative easing if they see appropriate.

The Asian region is to release a set of important economic data in this week, where all eyes are focused on the most critical fundamentals, with the New Zealand economy second quarter GDP along with the Japan's merchandise trade balance total for August.

We will start with the New Zealand economy that will release its gross domestic product for the second quarter, after the economy expanded by 1.4%. Eyes are on the pace of growth especially after the Bank lowered its forecast for economic growth in the year ending March 31, to 3.6 percent from 4.4 percent.

Moreover, New Zealand's exports slowed during the period with sluggish global growth along with increasing inflationary pressure in China, while the New Zealand dollar accelerated against the US dollar, which had negative results on NZ's products.

Furthermore, the New Zealand manufacturing products dropped for the first time in more than nine months as the nation's meat and dairy sales retreated in the second quarter.

Moving to Japanese economy, Japan is to release its merchandise trade balance for August, where the prior reading showed a surplus of 5.72 billion yen, while Japan suffered from retreating exports because of the yen's appreciation.

We can see that the earthquake and tsunami have affected new motor vehicle sales in Australia due to associated delays in delivery of Japanese manufactured vehicles. The impact from the earthquake and tsunami could continue to disrupt supply of new motor vehicles to Australia.

Japan's government is always working to introduce more stimuli to support the economic recovery after the massive earthquake that damaged the nation on March 11, whereas officials released a 100 billion dollar plan intended to fund loans, in order to help exporting companies cope with the currency’s strength.

Crude oil is currently hovering around $89.22 slightly lower by 0.2% after starting the day at $89.11 a barrel and recording the high of $89.78 and the low of $88.42 a barrel.

Investors remain focused on the sentiment and the debate this week was surely the Greek default chapter. Choppy trading was evident with oil fluctuating between gains and losses with the mixed sentiment yet surely the gains have spread with eased jitters over the debt crisis as EU officials started to act in hopes to contain the crisis.

The gains are surely overrated for crude amid the current state of growth and the slowing recovery across main consuming nations from the United States to China and Europe. The fundamentals confirm slowing growth across the globe and the debt crisis is surely not a closed chapter and that does not justify the upside momentum for crude amid those times of economic hardship.

Overall, the negative pressure on crude is evident for now from the slowing recovery, yet this week the negativity was confined with the ECB’s direct action to ensure ample dollar liquidity among European banks and to prevent a lending freeze, and EU officials surely took their part with Merkel and Sarkozy standing behind Greece and now Finance Chiefs in Poland also assured that Greece is making progress to meet its bailout conditions.

We are not in recession and growth is slowing for now and not contracting and that is what justifies crude holding its gains for now. We still see crude range trading between $70 and $90 a barrel with $80 the median for now and accordingly the gains are likely not to be long lived as we reach the higher end of the range.

Crude still has the potential to gain more upside momentum next week if the Feds do provide convincing stimulus that support growth outlook expectations and dilute the dollar yet sooner than later crude will limit the rally and return to decline to the lower band of the range as bottom line growth is sluggish for now and crude will reflect it soon! 

QE3, Europe and Wall St

 

RHT, FDX, GIS, ORCL, ADBE, LEN

Wall Street is looking for more US Fed action, and clear signs European leaders will follow through on their new urgency to tackle the eurozone debt crisis if US stocks are to build on their best week since early July.

Investors expect the US Federal Reserve to take steps to pull down long-term interest rates when policymakers meet on Tuesday and Wednesday to help revive the persistently weak US economy.

US Fed Chairman Ben Bernanke, speaking in Jackson Hole, Wyoming, on August 26, said the Fed’s Open Market Committee (FMOC) would meet for 2 days in September instead of the scheduled 1 day to discuss ways to boost the recovery.

But even with expectations of more intervention to boost the economy, investors will keep a close eye on developments in Europe.

Any lack of progress or backsliding on efforts to get the currency bloc’s fiscal house in order could renew worries the crisis could seriously damage the world financial system and major economies.

What comes from the US Fed will dominate the action next week, the market has bounced and is set to work its way higher here, as it feels that the European turmoil will not spin out of control.

US Treasury Secretary Timothy Geithner, at a meeting of eurozone finance ministers in Poland Friday, urged them to leverage their bailout fund to better address the debt crisis, there was no agreement on what steps to take.

The S& P 500 index has traded on a 100 pt range over the past several weeks, and it could run into resistance near the 50-Day Moving Average at about 1,221.7, with analysts also pointing to the 1,265.9 mark next, though I do not see any Strong resistance till the 1,334.50/1,349.50 Zone.

Next week’s economic calendar includes reports on the struggling US housing market along with weekly initial jobless benefits claims.

Companies due to post earnings next week include homebuilder Lennar Corp, (NYSE:LEN), Nike Inc,(NYSE:NKE), General Mills Inc (NYSE:GIS) as well as technology companies Adobe Systems, (NASDAQ:ADBE), Red Hat Inc (NYSE:RHT) and Oracle Corp.(NASDAQ:ORCL)

FedEx Corp, (NYSE:FDX) the # 2 US package delivery company, seen by some as a proxy for how the economy is performing, is also scheduled to report Quarterly results.

Earnings are hold up very well in the face of a sluggish US recovery, and some analysts worry this might not last if the financial system suffered the shock of a Greek debt default, but I do not believe that Greece is very relevant in the scheme of the Global economy’s growth. It’s importance is being blown out of proportion by the financial media IMO>

The media noise and cast Greece’s problems as the Wild Card because Europe’s they are casting the EU’s problem in the same light as the US’ in Y 2008. They are not the same, but they are complex. Stay tuned