Once again the emphasis for the week ahead is on inflation, with the US, Europe and the UK all releasing their April figures. In the UK we will see the Producers Price Index, which gives us factory inflation, then the consumer inflation report followed by the Bank of England Inflation report. For the US it is important to watch for the core Inflation figure, as this is what is used by the Federal Reserve as their guide.
We have some key reports due out this week. In terms of the state of the economies we will see the service and manufacturing indexes for both the US and UK. The big report of the week is the US Non Farm Payrolls which is due out on Friday, watch the ADP version of this report for possible direction, this is released on Wednesday.
The surprise prize of last week has to go to the US Non -Manufacturing (Services) PMI, which came in at a record deviation lower than expectation and instead of showing growth.
The BoE did not disappoint and cut the base rate by 0.25%, whilst the UK services PMI showed continued growth, albeit modest.
It would appear that consumers are showing signs of cutting back significantly, as we saw both the US and UK retail sales fall far short or expectations. Inflation rose by 2.1% on an annualised basis for the UK rising by 0.6% in the month. US core inflation increased by 0.2% for the month.
Due to travel commitments, we will keep this week’s update brief.
The markets
The Dow’s phenomenal run continued last week with the support area we mentioned at 13,200 holding. One reason for the Dow’s out-performance is that it is comprised of multi-national companies who have benefited from diversification overseas as opposed to companies in other stock market indexes who rely on more of their income from within the U.S. The Dow finally managed to blast through the 13,500 level after flirting with it earlier in the week and it remains in a firm up-trend. The rising trend-line that crosses the March and April lows is quite some distance away at around 13,250. The Dow will be seen by many as remaining in a primary up-trend all the time it is trading above that line.
Why we need not follow the U.S stock market any more, how do traders handle their fears?
Welcome to the weekly update. For the past century, the U.S stock market has led the world. When the U.S sneezed the rest of the world caught a chill, when it was booming, other stock markets happily played follow the leader. However, the tides are beginning to change. We reported this only a short while ago after the steep sell-off we witnessed in the U.S that was based on fears about an over-heated Chinese economy. The Chinese stock market is seeing incredible growth over the past few months. It is now greater than the rest of Asia and that’s including Japan and it’s also greater than the London Stock Market.
Just six months ago, the Chinese stock market was averaging $5 billion a day, now it’s averaging nearly $50 billion on some days. Its main index is up 300% in the past two years and although it fell 11% in a day in late February, it soon recovered. The market is now trading at 50-times trailing earnings which is obviously very high for an index. Obviously we do not know if it will go on to trade at 100-times earnings but the shear pace of this market is something we should keep an eye on. The next time the U.S stock markets have a large correction, it’s increasingly likely it will be as a result of something that has happened in China than anything home grown.
IX Investor Show, a new paradigm? The return of the Amaranth trader! S&P to new all time highs? And more…..
Welcome to the weekly update. We were at the IX Investor show last Friday and Saturday which was staged at the ExCel Centre in London’s docklands. There were numerous presentations there from traders and exhibitors on topics as diverse as ‘Mastering Forex Trading Strategies’ to ‘10 Steps to Successful Spread Trading.’ Attendees had the chance to meet with brokerage firms, charting software providers, stock market educators and fund managers over the course of the two days.
What are the financials telling us? Where next for the dollar? Taking responsibility, chart of the week and more…
The main financial market indices have been performing well recently with the FTSE and Germany’s DAX hitting new 6 year highs. The U.S indices have also been performing well despite not breaking above their respective February highs as yet. However, one important sector continues to warn us that all may not be well. The financials sector has failed to keep up with the rest of the markets as concerns over a credit contraction-led slowdown remain in investors minds. Traditionally, the financials sector is important in maintaining the underlying health of the markets and these can often lead market moves.
It’s newsletter week! How much were US property prices overvalued? Fear Vs greed based traders, UK interest rate decision on Thursday, and more…
Subscribers please note that the newsletter will be out by Friday. We don’t often comment on housing markets in these updates, preferring to stick to our favoured field of the more liquid asset classes. However, there has been so much news surrounding the sub-prime lending market in the U.S that we feel it deserves some attention. In February, existing home sales rose above analyst expectations which could be seen as a good thing despite the fact that home prices across America are down 1.3% from a year ago. So does this mean we have seen a bottom and that the market is beginning to recover? Anything’s possible, but we doubt we have seen any meaningful low just yet.
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