June 11 Weekly Market Review
Weekly market analysis by OptionRally.
Financial Market Overview
A very poor US labor report was published last Friday disclosing that only an anemic 69,000 jobs had been generated during May which fell well short of the anticipated 150,000. The combined new jobs numbers for March and April were also reduced by 49,000 while the unemployment rate climbed last month for the first time in 11 months from 8.1% to 8.2%. Even before this news broke, the markets were already struggling because of a spate of dismal economic releases from China, Europe and UK posted earlier on Friday. While Chinese factory activity just about held its hold during May, the UK manufacturing output crumpled to its lowest level in three years. Germany and France also issued weak economic indicators revealing that manufacturing activity in both these nations deteriorated last month. The accumulation of all this depressing news caused the commodity and stock markets to plummet on Friday as displayed by the Dow Jones Index crashing by over 270 points. Basically, anxious investors went on a stampeding binge by desperately buying safe-haven assets, such as the 10-year US Treasury notes whose yields collapsed to historic lows.
With a constant stream of distressing news emerging from Europe on a daily basis, the markets will be anxious to see if any plausible solutions to the debt crisis will be forthcoming from this week’s ECB meeting. However, many analysts expect that although the ECB will continue to help liquidate European banks, it will fall short of attempting to define any new measures capable of resolving the crisis just on its own. Investors will also be keen to learn whether the central bank will cut its interest rate, presently standing at an historical low at 1%, although stern opposition from the German Bundesbank is anticipated should such a proposal be considered. In the USA, attention will be focused on Ben Bernanke when he testifies before Congress later this week. The markets will scrutinize his every word closely in order to glean any insights about the faltering US economic recovery and the deteriorating labor market.
The euro has endured a torrid May collapsing by over 6% during this time against the USD. Although the pair appears to be technically oversold at present it is still very vulnerable to considerable fundamental downside risks. The Euro did achieve a breather from its endless descent following the very weak US labor report released last Friday. The slowdown in both the US jobs market and the US economic recovery could be enough to force the Federal Reserve to introduce new stimulus measures which would devalue the USD. Consequently, there is some scope for a EURUSD pull-back as a result of this FED speculation. However, if the European Union and the European Central Bank fail to produce any plausible solutions to address the debt crisis quickly, then the pressure on the EURUSD will be immense. As such, still look to sell the pair if its price breaks below 1.2364.
The pair plunged below 1.5350 last Friday following the release of a much worse-than-expected UK Manufacturing PMI which registered a severe drop to 45.9 compared to the expected 49.7. This depressing news confirmed that British factory output was in contraction as a value of above 50 is needed to record growth. The markets were so alarmed by this result that the GBPUSD plummeted to lows not seen since mid-January by hitting 1.5266. A rally did ensue later in the day following the publication of the dreadful US labor report helping the pair to close at 1.5342. The GBP is now still under immense pressure from the USD because the UK economy is faring worse than that of the USA and is also more vulnerable to the ravages emulating from European debt contagion. With a heavy bearish sentiment swamping the pair, look to open a new PUT currency option using the GBPUSD as its underlying asset if price can drop beneath 1.5313.
Last Friday, the Australian dollar crash below a major support level at 0.9660 against the dollar to hit an 8-month low at 0.9581. This movement resulted from economic indicators released on Friday confirming the increasing economic plights of Greece, Italy, Spain and China. In particular, China published a very worrisome manufacturing PMI value of 50.4 which was much worse than the expected 52 and only just residing above the 50 level which separates growth from contraction. This result is a major concern because not only is China the second biggest economy in the world, it is also Australia’s main trading partner. The AUDUSD did manage to rally strongly later in the day to close at 0.9673 as a direct consequence of the appallingly bad US labor report. With the AUD under intense pressure from the European debt crisis and the slowdown in the Chinese economic recovery, the directional movements of the AUDUSD are currently dominated by a strong bearish bias. As such, consider selling the pair if its price plunges below 0.9630.
This pair climbed during most of last week although the CHF did receive a breather last Friday following the release of the very weak US labor report. On that day, the CHF gained against the USD amid fresh speculation that the Federal Reserve could be prompted into action at their next meeting later this month to introduce additional stimulus measures to boost the flagging US economic recovery. Switzerland is scheduled to post three important economic indicators on Thursday of this week including its Unemployment Rate, Foreign Currency Reserves and CPI. Analysts will be scouring this information to determine if the Swiss economy is still weakening as recent data has suggested. With no signs of slacking evident in the European debt crisis and the global economic slowdown, the Swissie is expected to weaken further as anxious investors flee to safe haven assets, such as the US dollar. With a strong bullish sentiment prominent, look to buy the USDCHF if its price breaks above 0.9711.
The table below shows last Friday’s performance of OptionRally’s Commodity Options. Gold achieved its largest one-day appreciation in more than 3 years on Friday when it jumped in value by 4%. This dramatic movement was caused by fresh speculation of new US quantitative easing following the third worse-than-expected monthly US labor report in a row. The price of gold rose by almost $60 per ounce after it had dropped during the early part of Friday’s trading session. With investors stampeding away from other riskier assets, gold gain a powerful bid later on Friday helping it to close well above $1,620 per ounce. With a buoyant mood introducing a fresh bullish sentiment towards gold, consider buying this commodity if its price climbs above $1,628.65 per oz.
Oil suffered on Friday after fund managers dramatically reduced their holding in the commodity market amid European worries. With a strong bearish sentiment dominating this commodity, consider selling oil if its price plunges beneath $82.29 per barrel.
The table below shows last Friday’s performance of some of OptionRally’s main Stock Options. On Friday, Wal-Mart Stores informed the markets that its shareholders had re-elected all of its present board of directors as well as introducing Marissa Mayer, who is the Vice President of location and local services at Google. However, some attendees did express serious fears about potential fraud that was recently unearthed by an April report in the New York Times speculating that some Wal-Mart de Mexico managers had stimulated the firm’s growth during the 2000s by implementing bribes in excess of $24 million. Wal-Mart replied to these allegations by re-iterating that it would not disclose any relevant details until all Federal investigations were concluded.
Investors discovered on Friday that a Russian state firm was in negotiations with its trading partner, British Petroleum, about the possibilities of securing BP’s $30 billion share in their Siberian joint project. If successful, this acquisition would be viewed by the markets as a significant move by the Kremlin to gain control over the Russian oil reserves. As a result, BP’s shares appreciated by over 5% on Friday although they surrendered some of their profit later in the day.
In unison with the general plunge in the equity markets on Friday, both Apple and Google shares collapsed with those of the former dropping by 2.90% to $560.99 and the latter’s falling by 1.70% to finish the week at $570.98. With such a strong bearish sentiment presently strangling the markets, consider selling Apple shares if their price breaks below $558.91 while look to activate a new PUT stock option using Google shares if their price slumps beneath $570.11.