Wednesday, August 31, 2011

Market Morning Overview - August 31, 2011

Fundamental market overview

EUR: European economic confidence index declines to 98.3

"The risk of recession in the euro area has clearly increased" 

- Daniel Hartmann, an economist at Bantleon Bank AG 

European economic confidence decreased the most since December 2010 in August, the European Commission in Brussels announced on Tuesday. Specifically, the index slid from revised 103 points in July to 98.3 points this month.  

"The risk of recession in the euro area has clearly increased as demand from Asia is flagging and governments' efforts to cut fiscal deficits are curbing domestic consumption," said Daniel Hartmann, an economist at Bantleon Bank AG. "I expect the indicator to decline further in the coming months." 

USD: US consumer confidence plunged in August

Weak US consumer confidence data "paints a picture of underlying demand weakening"  
- Bricklin Dwyer, an economist at BNP Paribas

US consumer confidence dropped to lowest level in more than two years in August as consumers are less optimistic on the outlook of the country's economy, the Conference Board Inc. said on Tuesday. An index of sentiment decreased from 59.2 points in July to 44.5 points in August.  

"This paints a picture of underlying demand weakening," said Bricklin Dwyer, an economist at BNP Paribas. "Consumers are seeing their wealth deteriorate. We've seen a huge decline continuing in the housing market. They've also been hit on the chin by the equity markets." 

GBP: Mortgage approvals rose slightly in July

UK housing market "remains essentially stagnant" 

- Andrew Goodwin, an economist at Ernst & Young's ITEM Club 

U.K. mortgage approvals increased slightly in July as borrowers were attracted by record low borrowing costs. Number of approved mortgages in July increased to 49.2 thousand, up 0.7 thousand from June, the Bank of England announced on Tuesday.

"The market remains essentially stagnant," said Andrew Goodwin, an economist at Ernst & Young's ITEM Club. "We're not going to see any significant change until there is a decisive improvement in lending conditions and that is unlikely to happen any time soon."

CHF: Swiss stocks rise for sixth day in seven 

"Markets are strongly oversold and a relief rally is not surprising" 

- Patrik Scheuber, head of equities at Swisscanto Asset Management AG  

Swiss stocks edged higher for sixth day in seven on Tuesday. The Swiss blue-chip index SMI, a measure of the largest and most actively traded companies, advanced 0.05% to 5,449.16. The broader Swiss Performance Index rose 0.16% to 4,971.48 the same day. 

"Markets are strongly oversold and a relief rally is not surprising," told Patrik Scheuber, head of equities at Swisscanto Asset Management AG. "The expectations of Bernanke's speech were -- fortunately -- not very high. Markets didn't expect anything concrete, so he didn't disappoint."

JPY: Japanese stocks advance for the fourth day

"U.S. economic data have lifted the mood" 

- Ayako Sera, a market strategist at Sumitomo Trust & Banking Co.

Japanese stocks edged higher on Thursday for the fourth consecutive day, as personal spending in the US rose more than expected. The Nikkei 225 rose 1.16% to 8,953.9, while the broader Topix climbed 1.12% to 767.3. 

"U.S. economic data have lifted the mood," said Ayako Sera, a market strategist at Sumitomo Trust & Banking Co. "The market is regaining confidence after Bernanke tried to not stoke pessimism in his speech." 
Market expectations


The Euro-American dollar currency pair has bounced off strong resistance lines at 1.4537 and 1.4580, which triggered a decline, which may extend down to 1.4316, being the 55 day MA. In case the subsequent support at 1.4272 is breached, 1.4055 will be targeted next.


Initial resistance and support lines are situated at 111.81 and 111.05 accordingly. Additional support is provided by 110.39, being an uptrend, and 109.58-July low. From above the price is capped by 112.69 and 112.6.


Both daily and weekly outlooks for the pair are currently neutral, implying movement in a narrow corridor. Near-term resistance is located at 1.6478, ahead of 1.6547 and 1.6572. On the other side, 1.6224 and 1.6140 are likely to halt dips.


Supposing that the bearish movement appears, it will be reversed at one of the supports situated at 76.29, 76.25 or 75.94. Should the price turn bullish instead, resistances at 78.45, 78.66 and 79.57 will be encountered.


The currency pair is anticipated to weaken during today's trade down to the level of 0.7790, being 20 day MA. Afterwards, the price is likely to gain bullish momentum and advance towards resistance, which lies at 0.8252.

Trading signals  

Most important events of the day


European Union struggles to overcome sovereign debt problems of its member states - Greece, Ireland, Portugal, Spain and Italy. Growth of other EU countries remains unstable, with recent disappointing economic data and decline in economic expectations.

German Chancellor Angela Merkel is weighing whether to yield to a demand by some lawmakers for a bigger voice in future debt bailouts as a condition to win her party's approval for a stronger euro-zone rescue fund, as a parliamentary vote on the issue was delayed a week.


Economic slowdown in the USA provokes experts to suggest aggressive means of stimulating the United States, as previously used temperate measures did not prove to be sufficient.

The global economic crisis is leading to a possible "developed economy" recession in the U.S. and Europe, which may be hard to alleviate, according to Pacific Investment Management Co.'s Bill Gross.

Asia & Pacific

Japanese Finance Minister Yoshihiko Noda has been elected as the Prime Minister by majority of the parliament votes on Tuesday. However, analysts believe that the yen may continue to grow against the major currencies during the following week. Despite the new appointment, investors still continue to buy Japanese currency forcing newly elected government to take urgent steps to combat the strong yen and deteriorating trading balance.

Japan's new Prime minister, Yoshihiko Noda, said on Wednesday he held a courtesy phone call with Treasury Secretary Timothy Geithner, but they did not discuss foreign exchange rate movements or other policy issues.