The Dow held up because of International Business Machines Corp.

The market has been needing to sell and today it finally did. The Dow
held up because of International Business Machines Corp. (IBM), but
the S&P 500 and Nasdaq took it on the chin today, especially those
tech stocks in the Nasdaq. Where to start. Let's start with Apple Inc.
(AAPL), the most loved stock on planet earth. It fell hard yesterday
early on when the news came out that CEO Steve Jobs is very sick
again. It recovered beautifully in anticipation of its earnings report
that evening. The earnings were out of this world fabulous. The stock
ran up and was about to move to new highs. With such great news it was
bound to keep running up. Not the case. It snapped down. It closed red
after being up over ten dollars. A topping stick for the foreseeable
future.

This allowed the NDX to fall hard today as many other stocks in the
world of the Nasdaq took it hard to the down side today. Priceline.com
Incorporated (PCLN), Netflix, Inc. (NFLX), F5 Networks, Inc. (FFIV),
and a whole host of others. One by one they blasted lower. That's the
world of technology.

Now on to the world of the financials, and it wasn't pretty. Goldman
Sachs (GS) warned for the first time on revenues for as long as I can
remember. The stock crushed over eight dollars today. It's broken and
will likely soon lose the 50-day exponential moving average. The
Direxion Daily Financial Bull 3X Shares (FAS) got smoked today.
That's the ETF for those financial stocks. Wells Fargo & Company (WFC)
also missed on their earnings report, and it took a hit as well.

Let's now move on to the world of the commodity stocks. Gold failed
with a black candle while back testing its lost 50-day exponential
moving average. Stocks like Walter Energy Inc. (WLT) and Alpha Natural
Resources, Inc. (ANR), big froth stocks, have been crushed over the
past week or so. Today was no exception off their intraday highs.
Everywhere you go you see stocks snapping down. This is the process of
starting a market correction. Not a longer-term sell signal, but the
start of a correction. Bottom line is stocks are snapping, and thus,
you need to be aware of jumping in where you shouldn't for a while.

After hours we saw yet another leader go away for a long time. F5
Networks, Inc., which has a valuation well beyond what it's worth, got
killed. Down over twenty dollars. The price you pay for holding on to
froth in to earnings. Many careers ended tonight. Not worth the
headache. Greed kills. One by one over time these froth stocks go
away. It's incredibly dangerous to own stocks in to earnings, but if
you have to, at least hold stocks that have lower P/E's so you can
take out the risk to some degree. I have no sympathy for anyone who
plays this game from the perspective of greed. No crying when you hold
a massive P/E stock that's pure froth in to earnings hoping to score
the BIG one. You get what you deserve. Too many lose the reality of
what this game is supposed to be all about. Avoid those stocks folks.
Do what you feel is appropriate but understand the risk if you get
smoked.

The market is going to need time to get itself together before it can
make another strong run higher. That just won't happen for a while as
many stocks are broken. They will need weeks to months to repair
themselves. We are losing more and more leaders daily here, thus, you
are all going to need a lot patience if you want to play to the long
side with any aggression. When you lose lots of leaders you are
entering a phase of the market that will need to find new leading
froth stocks, and trust me folks, they will appear.

Good earnings reports are still being rewarded and it's those stocks
that will emerge over the next several months. Patience as that
process takes place. The biggest disappointment this earnings season
is coming from the usual place where we have seen weakness in the
past, the financials. Some good ones but bad reports from leaders
Northern Trust Corporation (NTRS), Goldman Sachs (GS) and Wells Fargo
& Company (WFC) along with Citigroup, Inc. (C) will make it tough for
this sector to do well for quite some time. I wouldn't be loading up
there folks.

Strong support for the S&P 500 comes in at 1269 where you have the
20-day exponential moving average. After that we have trend line
support at 1250. Then we look for the big one at 1240 where we have
the key 50-day exponential moving average. 1227 is next where we have
the November highs. One step at a time and I don't think you'll just
see the market go away. It'll fight as we're in a bull, thus, expect
up days as we slowly, but gradually, unwind very overbought daily and
weekly index charts along with a 35.1% bull to bear spread. I don't
think we go lower than the 50-day exponential moving average as we
correct, but again, you can get killed if you play inappropriately.
Slow and easy in this type of market. Let things come to us.
Source: Fxstreet.com

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Markets on edge as geopolitical tensions rise on Korean peninsula

Economic Data

- (JP) JAPAN NOV NATIONWIDE DEPT. SALES Y/Y: -0.5% V +0.6% PRIOR; TOKYO DEPT. STORE SALES Y/Y: 0.3% V 2.7% PRIOR

- (JP) JAPAN OCT FINAL COINCIDENT INDEX: 100.8 V 100.7 PRIOR; LEADING INDEX: 97.7 V 97.2 PRIOR

- (NZ) NEW ZEALAND NOV PERFORMANCE SERVICES INDEX: 51.4 V 51.2 PRIOR

- (TH) THAILAND NOV TRADE BALANCE: $408M V $1.8BE; Exports y/y: 28.5% v 21.0%e; Imports y/y:35.3% v 16.0%e

- (HU) HUNGARY DEC ECONOMIC SENTIMENT: -7.3 V -7.3 PRIOR; BUSINESS CONFIDENCE: -1.4 V -2.6 PRIOR; CONSUMER CONFIDENCE: -24.1 V -20.8 PRIOR

- (US) Spending Pulse reports holiday mid-season: eCommerce: +13.5% y/y; Apparel: +9.8% y/y; Electronics: +0.4% y/y; Jewelry: +2.6% y/y

Markets Snapshot (as of 12:30amET)

- Nikkei225 -0.8%

- S&P/ASX -0.6%

- Kospi -0.6%

- Taiex -0.5%

- Shanghai Composite -2.2%

- Hang Seng -1.0%

- Dec S&P Futures-0.3 % at 1,234

- Feb Gold +0.9% $1,283/oz

- Feb Crude oil -0.1% $88.51/brl

- Mar Copper +0.4% at $4.17

Overview/Top Headlines

- Asian equity markets are in the red across the board as traders shed risky assets in favor of safe-haven US dollar, treasuries, and gold on renewed conflict concerns in Korea. Originally set to commence on Saturday afternoon, the artillery drill off the disputed Yeonpyeong island began at 05:30GMT. UN Security Council held an emergency meeting but was unable to broker a compromise, as US continued to maintain South Korea's right to hold routine military exercises while China/Russia envoys pushed Seoul for more regional sensitivity. South Korean press reported the island residents have been told to move into air raid shelters, while the North has deployed rocket launchers along the northern border. A separate CNN report saw a former US ambassador to the UN Bill Richardson held talks with the North and has made some progress in bringing Pyongyang back to multilateral talks. Late in the session, Nikkei225, the Kospi, and S&P/ASX were down by over 0.5%. Shanghai Composite led the selloff, at one point slumping by over 3% on fresh inflation-related fears, as China Banking Regulator (CBRC) Chairman Liu warned inflation may continue to rise and reach close to 6% in Q1. In currencies, dollar strength saw EUR/USD test 2-week lows below 1.3130, GBP/USD fell as low as $1.5475, and AUD/USD marked support just above $0.9860. USD/JPY briefly tested ¥84, while spot gold gained over $6 to trade above $1,385/oz.

Speakers/Geopolitical/In the press

- (CH) China Banking Regulator (CBRC) Chairman Liu Mingkang: Inflation may rise to near 6% in Q1 of 2011, but govt is able to control it - China Daily

- (KS) South Korea to raise bank taxes in H2 of 2011 to prevent excessive capital flows into the system - Korean press

- (CH) According to a real estate research institute China Index Academy, property prices to rise at a slower pace of 8-10% in 2011 amid tightening measures by the govt - China Daily

- (AU) Australian Property Monitors (APM): Over 50% of properties offered for auction over the weekend failed to sell - Australian Financial Review

- (KS) North Korea agrees to return of nuclear inspectors as part of agreement with US diplomat Bill Richardson - CNN

- (CH) China Govt: Will consider the impact of any monetary policy changes on the stock market when making decisions

Equities

- JASO: CEO: To expand solar-cell production capacity by at least 30% in 2011 - China Daily

- SNE: Exec: Expects to remain profitable in TV business in FY11/12 with sales above those of FY10/11

- Samsung Electronics: Company's Galaxy S handset sales to reach 10M units, becoming 2nd most popular smartphone worldwide - Korean press

- RHC.AU: Raises FY11 NPAT guidance to 22-24% y/y (guided +13-15% y/y on Nov 16th)

- TLS.AU: A$10.8B National Broadband deal will not be completed before the end of the year due to re-writes of part of the NBN business plan - Australian Financial Review

- LEI.AU: May have to revise the value and write down several of its larger investments - The Australian

FX/Fixed Income/Commodities

- (CH) China Ministry of Land and Resources (MOLAR): Will invest CNY100B over 5-years to stabilize food security; Will add an additional grain production capacity of 10M tons every year over the course of the plan - Chinese Press

- (CH) China fuel reserves for Nov +6% m/m; First increase in 9-months - US financial press citing sources

- USD/PHP: (PH) Philippines Central Bank Deputy Gov: Will allow the peso to adjust to higher capital inflows; Flows have not reached concerning levels yet.

https://www.tradethenews.com/

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The market has found it difficult to find peace and direction

An overview …

Overall expectations and risk scenarios

Overall expectations

The next month will be characterised by the battle of whether will be on the development of US economic indicators or news about the debt situation of the European fringe countries. The week of 13-19 December will be particularly decisive for developments in the FX markets for the rest of 2010, since data for US retail sales and industrial production will be released and an FOMC meeting will be held. Furthermore, PMI data and IFO from Germany will be announced. Attention will be paid to the US indicators in particular, since the latest job data were very disappointing. Market participants will seek information as to whether the US job report was a one-off event or an indication that the US is slowing down again. If the coming economic indicators from the US are positive or if the economic indicators from Germany and Europe are negative, there is no doubt in our opinion that focus will shift to Europe again and result in broad euro depreciation.

The centre of attention in 2011 will still be the misery of the European fringe countries. A lid has not been put on the debt crisis yet, and since we expect stronger US indicators, focus is unlikely to shift away from Europe, at least in the first half of 2011.

From a macroeconomic point of view, we assess that global growth will slow slightly in 2011 compared with 2010. We expect growth for 2011 at 3.8% against 4.5% for 2010. In other words, the recovery continues, and actually the US will have recovered the decline in growth caused by the financial crisis already by the end of 2010. Inflation is still slow in many economies, but we do not expect to end up in a situation with dangerous deflation. To put it differently, we expect a slow change towards a normalisation of the global economy, including slightly rising equity prices and interest rates.

Risk scenarios

In 2010 the financial markets have been characterised by substantial volatility. The market has found it difficult to find peace and direction. To some extent, we expect that this will continue into 2011. Themes such as currency war, Korea war, euro collapse or the sustainability of the US debt burden and the negative budgets for that matter are all themes which have become more likely. True, the likelihood is still quite small, but if market focus shifts to just one of these themes, it will lead to substantial movements in the FX market.

The past month in review…

The development in the markets over the past month

The month in review

In November focus shifted to the euro-zone debt crisis again, including the Irish misery in particular. Uncertainty about the sustainability of the Irish budgets and an ailing Irish banking sector, threatening the country’s economy, sent the euro lower against several currencies, but a rescue package to Ireland from the EU/IMF late in the month calmed things down a bit in the financial markets. The Irish circumstances were not the only thing to put pressure on the euro, and market participants are slowly starting to focus on Portugal and Spain. In other words, the turmoil caused by the European debt crisis is still lurking, and the euro therefore lost 3% at index level in November.

The dollar on the other hand benefited from the fact that the question of quantitative easing was finally clarified, and also from a small improvement in the economic indicators. To this should be added that increased tensions between North and South Korea late in the month prompted investors to search to the US dollar as a safe haven. On the whole, the balance between the euro and the dollar moved to the benefit of the dollar in November, and EUR/USD ended at 130.40 compared with 139.50 at the beginning of the month.

Pound sterling gained ground in November – among other things due to positive surprises in the economic indicators, including the PMI index for the service sector. Furthermore, the inflation report from the Bank of England (BoE) did not signal any changes to the monetary policy, which was interpreted in the market to the effect that the BoE will not implement additional monetary-policy easing in spite of sluggish economic prospects and massive fiscalpolicy tightening. Overall, pound sterling gained 3.8% against the euro in November.

The Swiss franc started at 138 in EUR/CHF in November, but the cross rate quickly fell in the wake of the euro depreciation and not least increased risk aversion in the financial markets. In mid-November, the OECD published a report with focus on the prospects of the Swiss economy. The OECD expressed expectations of fairly solid growth and predicted that the Swiss National Bank (SNB) will be forced to gradual hikes of its key rate as of 2011. All in all, the Swiss franc appreciated from 137.10 to 130.55 against the euro.

The yen started the month at a relatively strong cross rate of 80.50 against the dollar, which could bring about intervention. However, intervention has not been used since mid-September, and was not this time either in spite of sharp rhetoric from the Japanese finance ministry. The dollar appreciation which has been seen after the question of quantitative easing was financially clarified in the US has lifted the USD/JPY rate to about 83.60. Although the Japanese yen has depreciated against the dollar, the crisis going on the in the euro zone and the resultant euro depreciation mean, however, that the fall in EUR/JPY was reduced slightly. EUR/JPY declined from 112 to 109 in November.

The Scandinavian currencies were treading water in November – with relatively significant daily changes though. In the light of the sharp focus on sound public finances in the wake of the European debt crisis, there has been a slight trend towards the Swedish krona and the Norwegian krone taking advantage of fair public-budget surpluses and not least low debt in both Norway and Sweden. In periods when risk aversion was not only anchored in the European debt situation but when it was more broadly based, the Swedish krona and the Norwegian krone did, however, bite the dust. Late in the month, the Swedish krona was, however, supported by positive surprises in Q3 GDP. On the whole, the Swedish krona appreciated by 1.6% against the euro in November. The Norwegian krone could not quite follow suit, but it gained 1% after all.

http://www.jyskebank.com/

Full report: The market has found it difficult to find peace and direction

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Two weeks before Christmas, not the time for big financial decisions

Overview
Chaotic moves in many Treasury markets as thin conditions and a reluctance to purchase sent prices tumbling for, relatively speaking, one of the steepest quarterly back-up in yields and steeper curves in a long time. Mercifully, pressure on peripheral EZ16 bonds abated, in part helped by ten-year benchmark Bund yields rallying to 3.037%, even as ratings agency Fitch downgraded Ireland to BBB+ and Moody’s that of Hungarian bonds to Baa3 with the outlook remaining negative. Not that they are by any means out of the woods yet: Greek benchmark five-year yielding 12.57% while Argentina’s B- rated 2015 Boden yields 9.13%. Germany’s Dax managed another new high for this year at 7,042, also Helsinki (2,591) and Nasdaq (2,535), while Mexico set another new record high (38,119). Front month Nymex Crude Oil hit $90.76 per barrel (spot Brent $93.37), highest since October 2008 and OPEC says it has no plans to increase production ahead of tomorrow’s summit in Quito. Spot Gold inched to a new record at $1,430.95 per ounce and spot Silver soared to $30.68, so that the Gold/Silver ratio dropped to 47, while LME 3-month Copper hit a record $9,069 per tonne. FX sidelined with the US dollar gaining marginally.

Political and Economic Developments
President Obama agreed with Republicans to extend President Bush’s tax cuts for all Americans for another two years, and also extended Unemployment benefit for another thirteen months. Though some Democrats have opposed the bill it is unlikely to be blocked by the Senate.
Iceland’s Sedlabanki cut the official interest rate target by 100 basis points to 4.50% as the country approaches a compromise deal to reimburse the British and Dutch governments for the $5B deposits lost in Icesave. With interest set at 3.30% and 3.00% respectively, the final repayment has been extended from 2016 to 2046 with annual repayments not to exceed 5% of government revenues.

UK Manufacturing grew by a very welcome 5.8% in the year to October, the fastest pace since a blip in 1994, likewise German Industrial Production +11.7% maintaining 2010’s blistering pace. EU harmonised CPI a subdued +1.6% Y/Y to November while Britain’s looks set to regularly exceed its 3.00% target.

Underlying Themes
Bristling construction cranes as landmark ‘iconic’ skyscrapers go up in central London belie the fact that outstanding commercial real estate lending shrank from £228B at the end of 2009 to £215B this year, split between 58 different lenders. Of this approximately £42.8B is in breach of its terms or in default, says a study by De Montfort University, and while banks have been able to restructure, extend and/or take equity stakes in exchange there is an awful lot more work that needs to be done. Similarly with US residential property where the scale of non-performing loans is currently alarming and the overhang of homes available for sale will cloud the horizon for ages. No wonder so many bankers are reluctant to repossess and sell into weak markets, further eroding the value of their assets, preferring to lend and pretend. In fact the savvy mortgage holder’s best tactic is to make small, irregular repayments thus living as close to rent-free as possible. Owners’ equivalent rent might decrease even as many are priced out of mortgages.

What to watch for next week
Sunday parliamentary elections in Kosovo and Monday just UK December Rightmove House Prices. Tuesday Eurozone October Industrial Production, UK DCLG House Prices, November RICS House Price Balance and CPI, Tokyo Condominium Sales, US NFIB Small Business Optimism, PPI, Retail Sales, October Business Inventories, Fed FOMC meeting plus December ZEW Surveys for Germany and the Eurozone. Wednesday Japan Q4 Tankan Survey, UK October Average Earnings and ILO Unemployment, November Jobless Claims and Unemployed, US CPI, Industrial Production and Capacity Utilisation, October TIC Flows, December Empire State Manufacturing Survey and NAHB Housing Market Index. Thursday and Friday Ashura holidays in some Asian nations with December PMI’s for various European countries, UK November Retail Sales, EZ16 CPI, US Housing Starts and Building Permits, December Philadelphia Fed Survey and the Swiss National Bank decides on rates (expected unchanged at 0.25%). Meanwhile EU leaders hold a two-day summit in Brussels to see what they can do regarding bank and sovereign debt pressures. Friday German December IFO, US November Leading Indicators, Eurozone October Construction Output and Trade Balance. Sunday 19th a presidential election in Belarus.

Positioning and Technical Analysis
Two weeks before Christmas is not the time for big financial decisions, just as January is not necessarily the best time to shuffle these around. Beware pundits laying out sweeping macro strategy which lines up exactly with the calendar year and where returns are around 7-10% per annum. Glib assumptions and received wisdom are unhelpful in an environment which is unlikely to improve significantly over the mess that presided in 2010.

Have a nice weekend!
http://www.mizuho-cb.co.uk/

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