General Market Comments
Markets continue to be focused on the bailout. We will of course get some kind of a deal done this week and calmer heads should ensue after that. We are of now of course seeing banks fail across the pond. With England taking over one of their largest banks it is clear that this is a global issue and as we have mentioned in past issues, not even close to over yet. We expect to see more of these failures in the weeks to come, however in the long run European banks will fare better than US banks and therefore we continue to sell dollars on rallies like we are seeing early this week.
Asia
EUR/USD:
This pair fell mostly in sympathy with the Cable after news of the banks failure. After the “shock” of this is over we expect to see this pair continue to move higher and are therefore buying into this dip.
GBP/USD:
News of Bradford & Bingley failing sent the cable into a free fall. Even so, the British banking system is in much better shape when compared to the U.S. and therefore we are buyers of this dip.
USD/CHF:
This pair is expected to continue to move lower again as the Swissy is a bit of a safe haven, much like gold, in times of uncertainty. We are sellers of rallies this week, and frankly we see parity being tested sometime by early 2009.
Stocks Summary
The markets were closed Monday in observance of Labor Day, and got off to a poor start on Tuesday, with each of the three major indices losing ground. The S&P 500 and the NASDAQ continued the downtrend on Wednesday, while the Dow jumped a skosh. For the two-day period, the Dow surrendered 0.1%, while the S&P (-0.6%) and NASDAQ (-1.4%) incurred much heavier losses.
Then on Thursday, the market cratered. The Dow and S&P each lost 3%, while the NASDAQ gave up 3.2% -- giving the tech-heavy composite three-day losses of 4.6%. Things calmed on Friday, with the Dow and S&P gaining 0.3% and 0.4%, respectively, while the NASDAQ's woes continued, and it fell by 0.14%. For the week, the Dow lost 2.8%, the S&P 3.2%, and the NASDAQ a painful 4.7%.
Tuesday's relatively minor losses to open the week should have sounded an alarm to astute traders. Stocks started out strong, but reversed sharply as volume spiked -- a sign that the smart money was taking profits. That each of the indices could lose ground in such a fashion, even in light of the falling crude prices that provoked the early-day rally, was telling. Then on Wednesday, volume went even higher, with the S&P and NASDAQ losing further ground and the Dow eking out a tiny gain. The stage was set for Thursday's massive sell-off.
Last week, we said to look out for geopolitical and meteorological shocks. Both were largely avoided, as the GOP convention went off without a hitch, the crisis in Georgia abated, and Hurricane Gustav was kept under control, but the market still tanked on bad economic news. On Tuesday, the ISM's U.S. manufacturing index dipped to 49.9 -- indicating contraction. Residential building fell for the 28th consecutive month, by 2.1%, to a nine-year low. Auto sales were also worse than expected, with Ford's sales falling 26.5% year-over-year, and GM's 20.3%.
On Wednesday, the Fed's Beige Book stated the obvious: The U.S. economy is slow. Confirming that statement, there were 444,000 new jobless claims, putting the number of people collecting unemployment benefits at 3,435,000 -- the most since November, 2003. Summer layoffs were the most since 2002. On Friday, it was announced that the national unemployment rate stands at 6.1%.
What's troubling about the current economic picture is that there are several things that should be boosting the economy right now, but aren't. Oil is falling and is now more than 27% off its July highs. The dollar is strengthening against the euro. These two factors would seem deflationary, and yet consumer prices continue to rise. We may be entering into a period of "staglfation," which is among the most difficult environments for traders. The key number to watch for next week is the PPI (Producer Price Index), which will be released on September 12.
Markets continue to be focused on the bailout. We will of course get some kind of a deal done this week and calmer heads should ensue after that. We are of now of course seeing banks fail across the pond. With England taking over one of their largest banks it is clear that this is a global issue and as we have mentioned in past issues, not even close to over yet. We expect to see more of these failures in the weeks to come, however in the long run European banks will fare better than US banks and therefore we continue to sell dollars on rallies like we are seeing early this week.
Asia
EUR/USD:
This pair fell mostly in sympathy with the Cable after news of the banks failure. After the “shock” of this is over we expect to see this pair continue to move higher and are therefore buying into this dip.
GBP/USD:
News of Bradford & Bingley failing sent the cable into a free fall. Even so, the British banking system is in much better shape when compared to the U.S. and therefore we are buyers of this dip.
USD/CHF:
This pair is expected to continue to move lower again as the Swissy is a bit of a safe haven, much like gold, in times of uncertainty. We are sellers of rallies this week, and frankly we see parity being tested sometime by early 2009.
Stocks Summary
The markets were closed Monday in observance of Labor Day, and got off to a poor start on Tuesday, with each of the three major indices losing ground. The S&P 500 and the NASDAQ continued the downtrend on Wednesday, while the Dow jumped a skosh. For the two-day period, the Dow surrendered 0.1%, while the S&P (-0.6%) and NASDAQ (-1.4%) incurred much heavier losses.
Then on Thursday, the market cratered. The Dow and S&P each lost 3%, while the NASDAQ gave up 3.2% -- giving the tech-heavy composite three-day losses of 4.6%. Things calmed on Friday, with the Dow and S&P gaining 0.3% and 0.4%, respectively, while the NASDAQ's woes continued, and it fell by 0.14%. For the week, the Dow lost 2.8%, the S&P 3.2%, and the NASDAQ a painful 4.7%.
Tuesday's relatively minor losses to open the week should have sounded an alarm to astute traders. Stocks started out strong, but reversed sharply as volume spiked -- a sign that the smart money was taking profits. That each of the indices could lose ground in such a fashion, even in light of the falling crude prices that provoked the early-day rally, was telling. Then on Wednesday, volume went even higher, with the S&P and NASDAQ losing further ground and the Dow eking out a tiny gain. The stage was set for Thursday's massive sell-off.
Last week, we said to look out for geopolitical and meteorological shocks. Both were largely avoided, as the GOP convention went off without a hitch, the crisis in Georgia abated, and Hurricane Gustav was kept under control, but the market still tanked on bad economic news. On Tuesday, the ISM's U.S. manufacturing index dipped to 49.9 -- indicating contraction. Residential building fell for the 28th consecutive month, by 2.1%, to a nine-year low. Auto sales were also worse than expected, with Ford's sales falling 26.5% year-over-year, and GM's 20.3%.
On Wednesday, the Fed's Beige Book stated the obvious: The U.S. economy is slow. Confirming that statement, there were 444,000 new jobless claims, putting the number of people collecting unemployment benefits at 3,435,000 -- the most since November, 2003. Summer layoffs were the most since 2002. On Friday, it was announced that the national unemployment rate stands at 6.1%.
What's troubling about the current economic picture is that there are several things that should be boosting the economy right now, but aren't. Oil is falling and is now more than 27% off its July highs. The dollar is strengthening against the euro. These two factors would seem deflationary, and yet consumer prices continue to rise. We may be entering into a period of "staglfation," which is among the most difficult environments for traders. The key number to watch for next week is the PPI (Producer Price Index), which will be released on September 12.
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