Free Investing

Andrew Wilkinson submits: Should the European economy slip into another recession or should a sovereign debt crisis erupt once more, only seven financial institutions might not make it through the other side. That is the broad conclusion of last week’s report from the Committee of European Banking Supervisors who revealed the government bond holdings of each of the 91 bankers with the exception of the Germans who refused to reveal their portfolios. Analysts are busy carving up the data looking for fault-lines in the hope they can prove their theory that the tests were insufficiently rigorous. Yet even Goldman Sachs was only looking for just three more failures. As bearish investors find one less reason to call for a break up of the Eurozone, the premium in peripheral government bond prices is slowly dissipating today as yield spreads continue to narrow. Complete Story »

Brian Dolan submits:

• Risk rally stalls, more downside likely
• EU bank stress test are results keenly awaited
• UK Inflation debate may be fuelled

Complete Story »

Ralph Shell submits: The British economic data announced today was enough to give the pound a turn around. We had felt that a pull back to the 1.49 handle was possible, but that was not to be. This morning the y/y CPI came in at +3.2%, as anticipated but down from last month's 3.4%. Again this exceeds the Band of England's target of 2% increase. This prompted a Monetary Policy Committee member, Andrew Sentance to again vote for an increase in the bank rate. To fight future inflation, he favors gradual rate increases. The pound traders liked the news from Sentance, but the latest COT report did show that many of the big specs are short. In the complete futures and options report the large traders are short 39,055 contracts, more than the 38,451 contracts in the much large euro contract. The small spec was also short almost 14,000 contracts. In yesterday's lower market the futures open interest did increase 7701 contracts, which would normally be a bearish sign.Complete Story »

Ralph Shell submits: The retreat of the euro which began Friday continued in this morning's trade. The previous pervasive bearishness had culminated with a sell off under the 1.19 handle in early June. Then, the large specs, probably various types of funds, were short 100,558 contracts, futures and options combined, compared to a more manageable 38,451 contracts in the most recent report. The short buying was in part was responsible for the 850 pip run up to the 1.2750 level. Now a diversity of opinions remains, with some analysts looking for a return to 1.35, and others swearing the current rally will be short lived as the pair is destined to trade at 1.15. Later this week there will be some economic reports in the US, Trade Balance, the monthly federal deficit for June, and retail sales. These reports are expected to provide clues how fast the US economy is faltering, and by themselves will not be of sufficient importance to jolt the market. In Europe the bank stress tests and the results seem of paramount importance. We are curious, however. Does the outcome of these tests depend on the severity of the tests as administered by the central bankers? And what is the Central Bankers' goal?Complete Story »

Ralph Shell submits: The economic reports this week for the Canadian economy have been positive. Earlier in the week, the IVY PMI came in at 58.9, less the the anticipated 64.1, but still above a neutral 50. Today the trade was given a pleasant surprise when new employment was up 93.2k, much bigger than the 17.9k anticipated, and the 24.7k in the previous period. This resulted in the unemployment rate dropping to 7.9%, down from 8.1% in the previous period. Housing starts, at 189k, were hearty, though less than the anticipated 193k.The good economic news plus a better global equities market has helped the loonie. Early in the week, the C$ traded at 1.0670 versus the USD, but today's news sparked a rally to the 1.03 handle. This week's price action has given us a tweezers top, and an engulfing candle suggesting there may be more strength forthcoming in the loonie.Complete Story »

Andrew Wilkinson submits: Yields on government bonds diverged to end a week marked by growing speculation that the global economic recovery has come to an impasse. Equity markets had fallen over the past couple of weeks with investors running scared that valuations failed to price in risks of a slowing economy. Barring a late selloff today, the Dow industrials average looks set to close back above 10,000 having reached 9,614 a week ago. Observations of a strengthening European economy from its central bank chief and firm evidence of strengthening labor markets in growth-sensitive nations have left investors to find their own path on Friday. Yields are not exactly moving in tandem and it seems to be a case of ‘each to his own’ for fixed income investors. Complete Story »

Andrew Wilkinson submits: Earlier in the week investor fears about the prospects for a double-dip recession appear to be vanishing into thin air as the week draws to a close. The euro’s rejuvenation continues after the ECB President left the world with an upbeat message at Thursday’s press conference. Meanwhile it appears that the shellacking fared by the commodity currencies over recent weeks was without merit. Following the lead of Australia, a Canadian employment report today proved stellar and has sent the local dollar to a two-week high. The unemployment rate in both nations has now fallen to its lowest since January 2009. Complete Story »

Andrew Wilkinson submits: The appeal of risk aversion quickly lost its way midweek leading to a significant rally in U.S. equities that fed Asian market appetite overnight. The euro reached its strongest point in two months rising in Asia to $1.2687. Risk appetite flourished after a far stronger reading for Australian employment, which caused investors to think twice about slowing emerging market economies. An IMF report today also highlighted the leadership of the so-called BRIC nations as it upwardly revised its global growth forecast. Complete Story »

Ralph Shell submits: On June 16th we published a note 'Japanese Stimulus Plan Unveiled,' and concluded this article by saying:For the past six weeks the USD/JPY has been coiling into a triangle, getting ready for a move......There are many Japanese exporting companies whose profit can be enhanced by proper positioning in the yen, and you can be assured they have technicians studying the triangle chart pattern. Note what happened when the trend line was broken on March 24.... This market, in the futures, is fairly even. A breakout in either direction should give us a nice move. We intend to watch carefully and go with a break out.Complete Story »

Ralph Shell submits: Refreshing it is, for a change, to see the global equities market trading higher. Among the strongest world indexes was the Spanish IBEX 35, up over 3%. Last weeks successful sale of Spanish 10 year paper was cited as one of the reasons for the euro's recovery, but the COT report released late Friday additional insight.This report showed that the large spec remains enamored with the short side of the euro, with the combined futures and delta adjusted options totaling short 66,809 contracts. Despite a market that was firm during the period covered, the large spec increased his short position. Further, when considering the futures only position, the large spec is short 51.8% of the total market. The open interest at the CME was down over 8300 contracts Friday, and today's market action suggests there is further short covering.Complete Story »