[unable to retrieve full-text content]By Jonathan Chen Benzinga Staff Writer Ben Bernanke should be fired. Yup. That’s right. The Chairman of the Federal Reserve should lose his job. The Federal Reserve has done nothing useful to help maximize employment (one of two mandates), but has certainly increased inflation (controlling it is the other mandate). Since the Great Recession began [...]
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(eToro Blog) The Bank of Canada will make its interest rate decision on Tuesday October 25th at 2pm London time. Analysts are expecting the BOC to keep interest rates steady at 1%. Canada has the ninth largest economy in the world. The energy sector is one of Canada’s most important sectors. Exports account for approximately 30% of Canadian GDP. The United States is her largest trading partner accounting for 73% of exports and 63% of imports. At its last policy meeting, the BOC held interest rates steady at 1%. The bank cited deteriorating economic outlook in Europe and the United States as its main concerns. The BOC was particularly concerned about the American household spending and labor market conditions in the U.S. The bank also noted that commodity prices have declined due to diminished global growth prospects. The bank expects the slowdown in Canadian economic growth to be temporary.
Recent Canadian economic developments to take in consideration:
Canada added 60,700 jobs in the months of September and that helped lower its unemployment rate to 7.1% from 7.3%. Core CPI came in at 0.5% for the same month. The Canadian GDP grew at 2.2% annually. Core retail sales disappointed markets when it came in flat. The latest trade balance figures show that trade deficit increased from $539 million in July to $622 million in August. Imports grew by 0.7% and exports increased 0.5% in August.
Market reaction to last month’s interest rate decision:
When the Bank of Canada announced its decision last month to keep rates steady, the USD/CAD traded in a 25 pip range. As the markets digested the policy statement and realized that the BOC has become dovish, the pair closed lower for the day.
Scenario A: As expected the BOC keeps interest rates steady with no change in economic outlook
In this scenario, we will expect the USD/CAD to trade in a 25 pip range.
Scenario B: BOC keeps interest rates steady with more dovish outlook
If the BOC sounds the alarm on the Greek crisis and the unemployment scenario in the U.S., we can expect the BOC to hold interest rates steady for a longer period of time. This scenario might send the USD/CAD to 1.0300 and above.
Scenario C: BOC keeps interest rates steady with hawkish outlook
This is an unlikely scenario given the dovish environment among central banks. In this scenario the USD/CAD might fall below parity towards 0.9800.
Traders on OpenBook are primarily bullish on the USD/CAD ahead of the rate decision with large concentration of limits around 1.0400 and stops around 1.0000.
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[unable to retrieve full-text content](eToro Blog) Wall Street bucked Monday’s downdraft as financial shares helped equity markets recoup some of this week’s losses. Investors’ sentiment was mixed in the technology sector as IBM announced disappointing earnings, which put pressure on the Dow Industrials. The technology giant reported that the company’s 3rd quarter revenue fell short of expectations, and the [...]
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This was an amazing week! Besides the fact that we got to see some green on the board, the week was totally eclipsed by the latest off Broadway version of “The Mouse That Roared” as Slovakia took the world to the brink and for one bright shining moment held the fate of the world in its hands. On Thursday, October 13th somewhere in the second act, Slovakia approved Europe’s enhanced bailout fund completing the ratification process across the 17 euro countries and all was right with the world.
There is just one small little baby hic-cup.Europe is toast! The likelihood of Europe surviving grows slimmer every day. Let’s get this straight right away. Europeans are not happy with the Euro and the common citizens feel the whole creation of the European Union was a big mess. The European politicians don’t see this as a political problem but rather as a logistical one because they have to somehow sell the consolidating of the bonds to the public.
If the European Union is going to survive it has to make the hard choice. It must consolidate all of the existing national debts into one “Eurobond.” The simple fact is that the failure to do this will cause the banks to fail and then we get to see the man behind the curtain. The truth about the accounting will rise to the surface.
The lack of mark to market accounting that was installed as a quick fix following 2007 has only severed to make the bank’s balance sheets even more obtuse. Remember Collateralized Debt obligations (CDO’S) and Credit Default Swaps (CDS) – that’s the man behind the curtain.
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(eToro Blog) The Producer Price Index in the United States rose 0.8% according to latest data from the Labor Department. Analysts were forecasting a growth of 0.2%. The core PPI which excludes food and energy printed at 0.2% versus the 0.1% expected. The PPI index captures the change in the price of finished goods and services sold by producers. The rise in wholesale prices in September was attributed to higher energy costs. However, economists expect inflationary pressures to come down as demand slows down in China and Europe. If inflationary pressures remain, it will make the job of the Federal Reserve difficult in providing economic stimulus to the economy. Adding stimulus contributes to inflation in the broader economy.
Economists and policy makers around the world are ignoring inflationary data and focusing on growth amid concerns of a Greek default. A default by Greece would cause a slowdown in economic growth due to fears of contagion. The increase in PPI was attributed to 4.2% increase in gasoline, 10% rise in food and 0.6% rise in truck prices. The cost of finished consumer goods rose 0.6%. According to the last Federal Reserve policy meeting, policy makers expect core and headline inflation to head below the 2% target rate in the next few months. The Fed, like other central banks, is more focused on growth and said, “With stable inflation expectations, significant slack in labor and product markets, slow wage growth, and little evidence of pricing power among firms, inflation was likely to decline moderately over time.”
According to the Treasury International Capital (TIC) data released today, foreign residents increased their holding of long term securities in August to a net of $66 billion. At the same time U.S. residents increased their holdings of long term foreign securities by $8.1 billion. The net foreign purchase of long term securities stands at $57.9 billion.
U.S. markets are clawing their way back into positive territory with the Dow up 0.5%, the Nasdaq up 0.6% and the S&P 500 up 0.8%. Traders on OpenBook continue to remain bearish on the U.S. markets with a ratio of 10 shorts for every long on the S&P 500 (SPX500). The shorts have their limits around 1140 and stops around 1250.
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(eToro Blog) Cautionary comments made byGermany’s policymakers compelledU.S.equity markets to turn tail, and generated a round of profit taking. Wall Street has rallied significantly during the first two weeks of October, as investors began to price in fiscal integration within the European Union, along with a plan for a broader EFSF.
During this past weekend’s G20 summit, officials discussed the details of European bank recapitalization, the likelihood of a Greek haircut and enlarging the scope of the EFSF. Market participants were hoping that the outcome would provide a cure-all that could eliminate, or at least minimize, the Eurozone’s problems, including both sovereign debt and a banking crisis.
U.S.equity futures were higher prior to the market’s official open until comments made by German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble generated negative trader sentiment. Merkel expects a package of measures towards solving the euro-zone debt crisis to be agreed on October 23, but warned against hoping that all ofEurope’s problems would be resolved.
Stocks were driven lower by the financial sector, which needed to absorb earnings releases from both Wells Fargo and Citi. Wells Fargo reported a profit of $4.06 billion, or 72 cents a share, up from $3.34 billion, or 60 cents a share, a year earlier. Estimates were for earnings of 73 cents a share. Revenue dropped 6.2% to $19.6 billion, missing the $20.24 billion analysts expected. Citi beat estimates by a wide margin, but returns from the Investment banking division were down nearly 20%. Citi released reserves held against funding deposits which easily offset fixed income and equity division losses.
On the economic front in theU.S., Industrial Production rose by 0.2%, with minor gains in manufacturing and a sharp drop in utilities. The NY Fed’s Empire State Manufacturing Index report showed overall production was unchanged in August, revised down from a previously estimated 0.2% increase. The report also showed that capacity utilization increased to 77.4% last month, up from 77.3% in August, generally in line with expectations as economists had forecast a 0.2% increase in output and a capacity utilization rate of 77.5%. Manufacturing production in September increased by 0.4%.
Equities were hit hard, and fear spilled over into the VIX volatility index which climbed nearly 17% to 32% after dipping below 30% for the first time in 2 months on Friday. The VIX had climbed to a high of 48% during the summer, but had since fallen 40%, to close below technical support levels.
The Dow Industrials declined as investors took profits ahead of IBM’s earnings numbers which were scheduled to be released after the closing bell. The Dow touched support levels near the lows seen over the past three trading session, and the 5-day moving average near 11,430. The sell-off was on extremely light volume, which is a sign of potential seller exhaustion. Recent sell-offs have been on above average volume. Resistance on the Dow is seen near the highs seen in August near 11,800.
The S&P 500 Index fell nearly 2% but remained above the 1200 level. Support on the large cap index is seen near 1172, which coincides with the 50-day moving average while resistance is seen near the 200-day moving average near 1275.
The Nasdaq 100 filled the gap made by the upside move on Friday. The tech-heavy index still remains above the highs seen in mid-August and technically is still a breakout. Support is seen near the 200-day moving average near 2292, while resistance is seen near 2450.
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(eToro Blog) According to the monetary policy meeting minutes of the Reserve Bank of Australia, policy makers weighed the uncertainties in the financial markets and on trading partners in their decision to keep rates steady at 4.75%. Australia has one of the highest interest rates among the developing economies. The RBA is concerned about conditions in global financial markets particularly the banking problems in Europe. Consumer confidence has taken a nose dive and could spread to other regions. The RBA is watching for any signs of trouble in Europe to affect China, its major trading partner and on its own banking sector. Economists worldwide are reducing the GDP growth rates of their respective countries in such an environment. Australia relies on strong demand and growth elsewhere to fuel the demand for its natural resources. Prices of commodities have weakened in last several weeks.
Australia is also facing a unique situation within its domestic economy. The areas reliant on mining aere experiencing a boom and increased business investment. In other sectors such as retail and tourism, the high value of the Aussie and low consumer confidence is keeping policy makers concerned. The unemployment rate has increased to 5.3% in recent months. The RBA is concerned about medium term inflation which has increased more gradually than earlier estimates. The yearly inflation currently stands at 2.5%. Policy makers at the RBA said that there is scope for further rate cuts should the inflation outlook improve. There were already some signs of that with housing and business loans declining significantly because of the fall in funding costs.
Despite a dovish stance taken by the RBA at its October 4th meeting, the AUD/USD has risen over 800 pips on increased risk appetite in the last two weeks. The risk rally remains very much dependent on the outcome in Europe. If the situation inEurope stabilizes, the markets might carry the AUD/USD higher towards 1.0750 on renewed risk appetite. On the other hand if the crisis in Europe is stalled, the AUD/USD might head to parity. Looking at trader’s activity on OpenBook we see that they are primarily bearish on AUD/USD. Traders are expecting the RBA to cut rates as inflation cools in the land down under. The shorts have their limits around 0.9700 and stops around 1.0350.
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By Sam Dustin
(eToro Blog) OpenBook top trader Liberty01 caught our attention this week for his consistent returns over the last 12 months. The trader returned over 97% in the last 6 months in comparison to the Dow which fell 6.5% in the same time period. The last three months saw tremendous volatility in the markets with the U.S. debt ceiling debate, the downgrade of U.S. debt, Greece inching towards default and intervention in the markets by the Japanese and the Swiss. This trader returned a solid 80% return during these troubled three months. Looking at his past history we see that the trader has booked an average gain of 12.6% on Gold and 7.4% on EUR/USD. The trader trades mostly during the overlap between U.S. and European trading sessions with a few trades during the European session. The trader is not a short term trader and holds trades from a few days to a few weeks. His average trade duration is 1.5 days. The trader is not only good on spotting good opportunities but also cuts his losses when he realizes that market sentiment is against him. In our opinion, any one looking to trade gold should look up this trader’s profile on OpenBook. We can see more traders following this trader’s strategy in the future.
The trader is holding open long positions on Gold with an average buy price of $1800. While gold has come off its all time high of $1917 an ounce, the pressure still remains to the upside. The factors that led the gold rally still exist today and if the situation in Europe deteriorates further, it is possible gold will make its way back up there. Hedge funds and investors have sold gold in recent days to meet margin requirements in other assets but for those who have the funds to hold on to gold, it presents opportunities. The trader has his stops on average around $1500 and profit target around $1900.
The trader is also bullish on the British Pound. The GBP/USD has bounced off support at 1.5350 and rallied over 500 pips in the last few days. Trader: Liberty01 is expecting the Pound to reach 1.6600 and has his stops around 1.4800.
Looking at a snapshot of all open traders on OpenBook, we see that vast majority of traders are long on commodities. There are 53 longs for every short on gold, 4 longs for every short on silver and similarly 4 longs for every short on Oil. The large allocation of traders to gold indicates that traders are expecting a second rally in gold prices. Traders have also increased their net long exposure by 16% in the past week. Long traders have their limits around $1800 and stops around $1560.
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