Barron’s: Big money poll – the long term stock market view

“After the worst stretch for stocks in decades, America’s money managers say they’re bullish. But do they really believe it? Based on the results of our latest Big Money poll, the pros are hoping for the best, but … hold on! Aren’t those fresh bear tracks in the mud?

“Nearly 60% of our respondents call themselves bullish or very bullish about the stock market’s prospects through the end of 2009, a significant increase from the 50% who proclaimed themselves bulls last fall. Yet, signs of unease abound. For one, just 56% of today’s poll participants think the stock market is undervalued, down from 62% last fall. Thirteen percent say stocks are overvalued, up from a prior 7%. And an alarming 58% say the market hasn’t bottomed yet, even though the Dow Jones industrials hit a low of 6,469 in March, before recovering to a recent 8,100.

“The managers are similarly wary about the outlook for the economy, at least through the end of this year. And they are downright doubtful that the government’s first stimulus package, announced with fanfare shortly after the Obama administration moved into the White House, will be the last.

“Given these and other concerns, only 26% of the Big Money men and women expect to be net buyers of stocks in the next six months, although 66% say they will be putting more money to work in the 12-month span. But don’t look for fresh dough to flow solely to US equities. Just 44% of our respondents think the US will be the strongest market in the next year; 42% expect emerging markets to take the baton and lead. As Keith Wibel, a money manager at Foothills Asset Management in Scottsdale, Ariz., put it, ‘Confidence has been fractured. The psyche is slow to heal.’

“The market isn’t much faster. Big Money’s bullish cohort expects the Dow to end 2009 at 8,676, about 7% above current levels but flat for the year. Things, or at least stocks, will pick up thereafter, with the blue chips rising another 10% or so, to 9,488, by mid-2010. In concert with their short-term-skittish, long-term-sunny stance, more than 40% of bulls predict the Dow industrials will reach or breach 10,000 by the middle of next year.

“The optimists see the Standard & Poor’s 500 jogging to 906 by December 30, en route to 1,003 next June. The popular benchmark closed Friday at 866. Their mean predictions for the Nasdaq Composite: 1,683 by year end, and 1,841 by mid-2010, up from last week’s 1,694.

“Some big money managers are notably upbeat even – or especially – after a global financial meltdown has cut most stock indexes in half. ‘They don’t ring a bell when they announce a sale on Wall Street, but prices are as good as I’ve seen them in my entire career,’ says David Corbin, president of Corbin & Co. in Fort Worth, Texas.”

Source: Jack Willoughby, Barron’s

FX This Week 6-4-09

MAJOR HEADLINES – PREVIOUS SESSION

• US Mar. Change in Non-farm Payrolls out at -663k vs. -660k expected
• US Mar. Unemployment out at 8.5% as expected and 8.1% prior
• US Mar. Avg. Weekly Hours fell to 33.2 vs. 33.3 expected
• US Mar. ISM Non-manufacturing out at 40.8 vs. 42.0 expected and 41.6 prior
• AU ANZ Mar. Job Advertisements out at -8.5% vs. -10.4% prior
• JP Feb. Leading Index out at 75.2 vs. 75.3 expected and 77.2 prior
• JP Feb. Coincident Index out at 86.8 vs. 86.9 expected and 89.6 prior

THEMES TO WATCH – UPCOMING SESSION

• EU ECB’s Bini Smaghi speaks (0820)
• EU Euro-zone Sentix Investor Confidence Index (0830)
• EU Euro-zone PPI (0900)
• EU Euro-zone Retails Sales (0900)
• CA Building Permits (1230)
• CA Ivey PMI (1400)
• US Fed’s Warsh speaks (1700)

Market Comment:

EURJPY bounces off 200-day moving average.
Japan announced overnight that a new stimulus package would be revealed on Friday, worth some 2 percent of GDP, or almost ¥10 trillion. This package comes after a ¥12 trillion of other stimulus measures announced recently. The focus of the package is on relief for small businesses and a safety net for temporary workers. A number of new instruments will be added to the list of assets that the BoJ is purchasing to ease pressure on regional banks and the market can look for tonight’s BoJ announcement for further details on its expansion of non-traditional, quantitative easing policies, though the bank’s moves have been less aggressive than elsewhere considering the dire state of the Japanese economy. The market did not greet the news as JPY positive, as the dam now seems to have burst on the JPY sell-off after 100.00 was breached in USDJPY on Friday’s close. The huge sell-off in government bonds was also a big factor in pushing the JPY over the edge as well as the general environment of risk willingness. The action is getting awfully steep here in many of the JPY crosses and we have a hard time imagining that it can continue at this kind of pace without a sharp correction soon. As well, traders should note that the EURJPY cross has reached it 200-day moving average, a key milestone. Could the BoJ announcements tonight market a pivot point for the JPY sell-off, at least temporarily?

Market themes….
Risk appetite and relative competitive devaluation are still the themes this week, which may see less than normal liquidity as many are on vacation due to the upcoming Easter holiday weekend. As we have mentioned above, the moves have become a bit exaggerated here and we could see a bit of a consolidation this week on the action from last week’s weak USD and JPY moves.

Highlights of Economic data event risks this week:

Tuesday:

• Australia Mar. AiG Performance of Construction Index – Building Approvals are off over 25% from a year earlier as Australia’s housing bust continues and this index is expected to show a worsening contraction in the sector
• Australia RBA Cash Target – the market is very divided on whether the Bank will keep rates on hold yet again or cut by perhaps 50 basis points. Traders of both sides have marshaled comments from RBA officials to support their view. We lean a bit more to a cut than a pause considering the dire weakness and strong non-traditional measures elsewhere. A stronger currency will do the Aussie no good and a pass on a rate cut would possible send AUD sharply higher unless the RBA is lucky enough to see a swoon in risk appetite in the very near future. Either way, the outcome tonight could generate plenty of volatility.
• UK Feb. Industrial and Manufacturing Production – The UK manufacturing sector is suffering along with production everywhere else as shrinking worldwide demand is fast outpacing any potential benefits to the UK manufacturing sector from the devalued sterling.
• US Feb. Consumer Credit – not normally a statistic that is a market mover, but the expected negative number is interesting for the larger perspective: with underemployment in the US economy reaching a record 15+%, is the problem that not enough credit is being extended to consumers, or that consumers are jobless and drowning in debt and don’t need credit, but money? We suspect that the latter is more important than the former for the longer term. There is not easy solution to the credit problem in the US economy.

Wednesday

• Japan Feb. Current Account and Trade Balance – much attention has been focused on Japan’s slide into a virtual deficit nation, though the latest JPY devaluation will offer some powerful medicine. The nation can’t and won’t tolerate the type of JPY strengthening we saw late last year and early this year, even if it sees a strong resurgence on the inevitable next round of risk aversion.
• Australia Feb. Investment Lending and Value of Loans – these data points show how stable the Australian financial sector has been relative to some of its peers around the world. Still, with the economy weakening, the flow of credit should show further contraction soon.
• Germany Feb. Trade Balance – shrinking rapidly and will continue to do so until economies go on a restocking binge.
• Norway Mar. CPI – another country at risk of slipping into deflation. The most recent rhetoric from the Norges bank showed some saber-rattling on too much currency appreciation, so NOK bulls will need to tread carefully – even if we remain positive on the currency for the medium term.
• Canada Mar. Housing Starts
• US FOMC minutes – here we get the minutes from the Fed meeting, in which the Fed announced an all out war on deflation and a direct move into the territory of debt monetization.

Thursday

• Australia Mar. Employment Change and Unemployment Rate – despite the relative calm in the financial sector in Australia, the real economy is beginning to lost jobs at an accelerating pace, especially due to the shock in commodities industries over the last few quarters.
• Switzerland Mar. Unemployment Rate – the SNB is in an all-out war on deflation. Inflation has already turned negative and unemployment is finally beginning to creep higher.
• Japan Mar. Machine Tool Orders – this data point, which represents orders for production equipment, showed a whopping -84% year-on-year contraction in February and could post a similar level for March.
• Sweden Industrial Production and Orders – Sweden’s export machine is suffering tremendously in this downturn with production already off 20% from a year ago and orders down over 30%.  If risk appetite turns south this week, the krona could experience another bout of weakening.
• UK Mar. PPI Input/Output – UK inflation levels have remained far above the worry zone for inflation due to the pound devaluation.
• UK Feb. Visible Trade Balance – the desperately weak pound has failed to positively alter the terms of trade picture for the UK – very worrying for the pound in the long run, even if the market pays little attention to this data release and the pound is doing rather well versus its European counterparts at the moment.
• Germany Feb. Industrial Production – Germany is Europe’s version of Japan as this downturn continues to show that the net producing nations are now contracting faster than the net consuming nations.
• Canada Mar. Unemployment Rate and Net Change in Employment – the Canadian job market is worsening almost as quickly as its US counterpart as the two economies are very much intertwined. The severity of the data will be an important input into the next BoC meeting on 21 April, in which the bank may join the devaluation parade with its own QE-like measures, despite the relatively sound Canadian financial sector.
• UK BoE to Announce Rates – will the BoE make like the Fed and lower rates to zero to a quarter percent versus the current level of 0.50%? The more important question is to what degree the Bank will continue buy gilts in order to prop up the massive fiscal gap that has developed in order for the government to pay for its massive bailout measures, especially in the light of sharply rising yields last week at the long end of government bonds.
• Canada Feb. International Merchandise Trade – Canada has recently become a net importer of goods for the first time in modern memory as its manufacturing sector has imploded and energy prices, particularly for Natural Gas, have collapsed. The worsening terms of trade and current/capital account developments could keep the loonie from strengthening much further versus the greenback.
• US Feb. Trade Balance – the US Trade Balance has shrunk to levels not seen since 2002 with the slowdown in consumption and plummeting energy prices. The trade balance may begin to level out soon considering the relative stabilization in oil prices and the eventual need to restock shelves. This measure is more a measure of demand collapse rather than any sign of resurgent US exports.
• US Weekly Initial Jobless Claims – the weekly reminder here is that we need to see the four week average of this number to begin declining sharply before we can expect and change in the momentum of the US unemployment rate.

Friday

• Japan BoJ Minutes of last meeting
• European and North American Markets closed for Good Friday

Chart: EURJPY
EURJPY touched its 200-day moving average overnight and looks headed for a sharp consolidation if the bearish climax reversal follows through lower. First support is the previous higher around 134.50 and then the rapidly rising 21-day moving average, currently coming in close to 130.00

JPY weaker on end of year gyrations, risk appetite resumption and North Korean threats.

Anything goes today with the end of month fixing circus. Then it’s on to big Thursday and Friday event risks.

MAJOR HEADLINES – PREVIOUS SESSION

• Japan Mar. Small Business Confidence out at 30.4 vs. 24.3 expected and 25.0 in Feb.
• Switzerland Feb. UBS Consumption Indicator out at 0.886 vs. 0.922 in Jan.
• Sweden Mar. Consumer Confidence out at -16.5 vs. -13.8 expected and -14.6 in Feb.
• Sweden Mar. Manufacturing Confidence out at -42. vs. -34 expected and -35 in Feb.
• Germany Mar. Unemployment Change rose to 69k vs. 52k expected and 50k in Feb.
• Germany Mar. Unemployment Rate out at 8.1% vs. 8.0% expected and 8.0% in Feb.
• EuroZone Mar. CPI Estimate out at +0.6% YoY vs. +0.7% expected and +1.2% in Feb.
• Canada Jan. GDP out at -0.7% MoM as expected and vs. -1.0% in Dec.
• Canada Feb. Raw Materials Price Index out at +1.7% MoM vs. +0.6% expected

THEMES TO WATCH – UPCOMING SESSION

• US Jan. S&P/CaseShiller Composite 20 Home Price Index (1300)
• US Fed’s Stern to Speak (1315)
• US Mar. Chicago PMI (1345)
• US Mar. Consumer Confidence (1400)
• US Fed’s Plosser to Speak (1700)
• US Weekly ABC Consumer Confidence (2100)
• Australia Mar. AiG Performance of Manufacturing Index (2230)
• Japan Q1 Tankan Survey (2350)
• Australia Feb. Retail Sales (0030)
• Australia Feb. Building Approvals (0030)

Market Comment:

The JPY was sharply weaker overnight on a number of factors, but most of all probably due to varying end of month/financial year fixing needs after its recent marked strengthening. The headlines touted Aso’s lack of details in requesting a stimulus package as the reason, though this smacks of a search for excuses. It is clear considering the desperate state of the Japanese economy that heavy stimulus measures will be in the pipeline and Aso has asked for a new package by mid month. The bigger question is whether anything can ever be done to stimulate Japanese domestic demand or whether the only hope for the Japanese economy lies in resurgent export markets. Considering the bleak demographics of Japan’s aging population, the latter appears the most likely unfortunately.

A wildcard thrown into the mix overnight for the JPY came in the form of North Korean war threats if Japan made any effort to shoot down the DPRK’s attempted launch of a “communications” satellite. Before calling for a weaker JPY here, we’d like to see the start of the new year and the direction of interest rates and risk appetite. It would seem that the JPY could see at least a brief resurgence in April if all of these factors are supportive (interest rates and commodities falling, risk appetite declining). One might consider expressing the view with a two-three week option trade. Watch out for the Q1 Tankan Survey tonight, which will be the first big data point to kick off the new financial year.

The EUR survived a downgrade by the S&P of Irish debt late yesterday rather well as EUR surged in today’s trade. The ratings agency downgraded the debt to AA with a negative outlook, citing Ireland’s widening fiscal imbalances and still shaky banking system. Looking at the other key intra-Europe bond spreads, we note that this news did not trigger a wider contagion. The so-called PIGS (Portugal, Italy, Greece, Spain) spreads have been relatively stable over the last couple of months. The 100-day moving average in EURUSD proved an important support level indeed yesterday.

Late yesterday, the FT published an article about its interview with Canadian PM Harper, who said that Canadian banks should take advantage of their strong balance sheets with overseas expansion. The strong Canadian banks are both a positive for CAD (less need for massively expansive monetary stimulus/bailouts/competitive devaluation), but also a potential negative due to the potential for strong capital outflows if Canadian banks begin a round of global vulture investing. See the Charts section below for a technical view on USDCAD.

The G20 communique tomorrow may be a bit of an anti-climax considering the degree to which the various proposals have already been leaked and the statements that no major currency-related rhetoric would be included, other than the empty rhetoric that the G20 will refrain from currency devaluations (too late for this, we’re afraid…). The key to the post-G20 environment may simply lie in how risk appetite responds once the meeting is behind us. In other words, will the markets express a strong hope that the G20 stimulus and financial market regulation measures and a reinvigorated IMF will have a chance at stabilizing the stresses in the global economy? It seems very appropriate that equity markets are poised right around the fulcrum of key support (the 55-day moving average that was taken out yesterday in the S&P, but not convincingly as we are about to open the day back above this average) as we go into this big event risk.

Chart: USDCAD
USDCAD saw a remarkable one-day spring higher yesterday as the recent rally in risk appetite suddenly saw a hiccup. Note that the rally stopped right at the 21-day moving average, which has been a key are of contention in recent history. The CAD bears probably need risk aversion and a move back above 1.2800 to rekindle hopes of a more convincing 1.3000 break.

Tricom Today 13-2-09

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The Aussie market is up 32 basically in-line with the 20 point rise predicted by the SFE Futures this morning. Pretty quiet not much news apart from RIOs Chinalco deal and a few results. RIO is down 3.9%. BHP down 0.4%. Resources underperforming this morning down 0.4% on lower metal prices and a drop in the oil price. Oz Minerals announced they will incur writedowns of between $2.3bn-$2.8bn in FY08 accounts, including asset impairments.
Financials up 1.3% – banks all up by 1pm. ANZ up 7.7%after ruling out a capital raising in anannouncement last night noted their tier 1 ratio stood at 8.35%, well above regulatory requirements.Property sector down 2.8%. Westfield down another 4.1%. DXS down 5.8%.Last day to buy the CBA before it goes ex dividend 113c on Monday. Unchanged today at 3095c.The governments $41.5bn fiscal stimulus package has just been approved in the Senate.

Tricom Today 10-02-09

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The market is down 37 underperforming the 27 point rise predicted by the SFE Futures this morning. Property down 0.6% with Westfield and Stockland down 1.3% and 5.0% . one broker cut their recommendation on SGP to NEUTRAL from Buy this morning and price target from 400c to 300c ahead of tomorrow.s results. ING Industrial Fund up 9.1% on asset sales. Financials down 1% with the banks all down . ANZ down 2.3%. Diversified financials down . Australian Wealth Management down 7% after it posted a 1H loss of $131m and declared no interim dividend. IOOF Holdings down 4.5% on their half year results. Henderson Group down 2.4%. Industrials up 0.2%. Tabcorp Holdings down 7% as it goes ex dividend. Cochlear up 3% after reporting 1H net profit up 22% and forecasting 20% growth for the FY. JB Hi-Fi up 13% on their 41% increase in 1H profit and 50% interim dividend hike to 15c. Resources down 1.0% – BHP and RIO both down 0.3% and 3.5% with RIO.s chairman elect resigning over a dispute on how to manage their debt issue. Gold stocks all down on the lower gold price . Sino Gold down 5.2%. Small miners mixed on mixed metal prices. Oil stocks mixed on the lower oil price . waiting in anticipation on the stimulus package being pushing through the Senate in the next day or two.

Tricom Today 9-2-09

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The market is up 36 – up 59 at best this morning – underperforming the 85 point rise predicted by the SFE Futures. Financials up only 0.2% – bit disappointing after the 8% rise in US financials Friday ahead of the Obama Administration’s update on the new stimulus package due Monday. The resources sector up 3.6% on the back of BHP and RIO up 3.8% and 5.6% – following strong performances in the US overnight. Miners all up on the rise in metals prices Friday. Energy stocks mixed on the lower oil price. Industrials up 1.1% – Orica up 7.8% early. Coca-Cola Amatil (CCL) was down 12% on the open as it parent Coca-Cola Co ceased merger talks with Lion Nathan (LNN) over the weekend. LNN up 4% on the announcement.

Dollar firmer on rate cuts support

February 06, 2009 07:45am

THE dollar opened firmer as traders overlooked short-term data to focus on what the Federal Government and the central bank will do to drive an economic recovery.

The domestic currency is expected to firm today as investors read the Reserve Bank of Australia’s (RBA) quarterly statement on monetary policy for clues on future interest rate cuts.

At 7am AEDT, the dollar was trading at $US0.6545/49, up almost one US cent from yesterday’s close of $US0.6455/58.

During the offshore session, the currency traded between a low of $US0.6461 and a high of $US0.6579.

The dollar briefly touched its overnight low soon after midnight AEDT as the highest US jobless claims since October 1982 boosted the US dollar, as traders resorted to blue chip denominations in response.

US Labour Department data showed 626,000 first-time unemployment claims were filed in the final week of January, more than market expectations of 580,000.

The dip in the dollar had been shortlived, as traders looked favourably upon the Federal Government’s $42 billion stimulus package and the RBA’s latest 100 basis point rate cut, which took the cash rate to a 45-year low of 3.25 per cent.

“There’s been a positive tone to the Australian dollar in the last 24 to 48 hours,” Mr Corcoran said from Toronto.

“The Australian Government and the Australian Reserve Bank have been very pro-active … The market has been rewarding that.

“People are certainly looking to get beyond the immediate data release and look to the longer-term outlook.”

The dollar rose to a three-week high against the euro after the European Central Bank (ECB) left a benchmark interest rate on hold at two per cent.

“The market has been punishing central banks who have been sitting on rates,” Mr Corcoran said.

“We saw that today with the ECB leaving rates unchanged.”

In times of prosperity, investors do the opposite by backing higher interest rate currencies for their higher yields.

The RBA’s quarter statement on monetary policy is due for release at 11.30am AEDT.

The dollar was expected to climb above $US0.6600 if the central bank signalled more rate cuts to kick start the economy.