June 5 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Yesterday, equities continued to drop, albeit slightly, as the markets come to grip with the fresh batch of disappointing indicators released last week pointing to an increasing global economic slowdown. Investors were also anxious about the political and banking meetings scheduled for later this week that will focus on addressing the deteriorating European debt crisis. The slight downward movement on Monday followed in the wake of last Friday’s collapse which saw the stock markets literally erase their entire 2012 gains. Speculation was ripe yesterday that new policies were being considered aimed at resolving debt contagion and preventing a Greek exit from the Eurozone. However, as nervous investors are struggling to cope with so much uncertainty, they are currently stampeding out of riskier assets, such as commodities and equities, and heading as fast as they can towards the shelter of more secured government bonds.
Another poor US economic indicator was published yesterday, following a spate of others, showing that the new orders for U.S. factory goods recorded a decline in April making it the third fall in four months. In detail, the Commerce Department advised that orders for manufactured goods slumped by 0.6% which was much worse than the 0.2% increase predicted by most analysts. The March figure was also revised downwards. Back in Europe, the European Commission and France voiced their backing yesterday for a new determined strategy aimed at utilizing the Eurozone’s bailout funds to suppress the intensifying crisis. Such a facility is exactly what the Spanish premier, Mariano Rajoy, is striving to obtain in order to rescue his nation’s severely troubled banking sector. In addition, the German Chancellor, Angela Merkel, stepped her campaign by demanding much more intense policies, such as the formation of a central body to oversee the Eurozone’s finances.
The euro climbed by about 70 pips against the USD yesterday driven by rumors, that European governing bodies were devising policies that will produce greater financial integration in the Eurozone as a method to suppress the intensifying debt crisis. Many analysts were also projecting hope by stating that European politicians possess a track record of coming up with the goods when situations become extremely dire. Another supportive factor assisting the Euro on Monday was the fact that investors were positioning themselves for the ECB to potentially introduce later this week further monetary easing as well as even announcing a surprised interest rate cut. With the EURUSD enjoying some support in the short term, consider buying the pair if price breaks above 1.2554.
This pair spent most of yesterday in a comatose state by trading a very tight range of about 80 pips. This was primarily due to investors grappling to assess the effects on the GBPUSD of the slowing global economy, a very disappointing US labor report and the deteriorating European debt crisis. There are a number of major economic indicators scheduled for release this week from the UK including the Construction PMI (Wednesday), the Official Bank Rate (Thursday) and PPI Input (Friday). The markets will be scrutinizing this information carefully in order to determine the depth of the new UK recession. The pair is currently trading within a very strong bearish trend which looks set to continue for some time despite the fact that it may enjoy a brief respite in the very short-term. Consequently, look to open a new PUT currency option using the GBPUS as its underlying asset if price drops beneath 1.5348.
The pair managed to rebound higher after hitting a low of 0.9640 during yesterday’s Asian session. The AUDUSD climbed by over 70 pips later in the day to close near 0.9720. Australian will be releasing a number of key economic indicators this week including Cash Rate (tomorrow), GDP (Wednesday) and Employment Change (Thursday). Investors will search this data for clues to determine how the Australian economy is faring following the release of a recent spate of disappointing data from China. Although the pair is trading in a deep bearish channel, it could enjoy a brief respite after the release of last Friday’s very weak US labor report. As such, look to open a new CALL option with the AUDUSD as its underlying asset if price can achieve a sustain break above 0.9799.
The CHF tracked the performance of the Euro against the USD very closely yesterday with the USDCHF dropping by almost 70 pips to finish the trading day at about 0.9610. Although the pair is presently trading within a very strong bull channel, the USD weakened on Monday as investors re-evaluated the probabilities of the Federal Reserve introducing new stimulus measures to boost the flagging US economic recovery following the release of the dismal US labor report last Friday. Although such an action would devalue the USD in the short term, the bull trend is expected to dominate the directional movements of this pair over the long-term. However, analysts are expecting the CHF is gain a breather from the USD pressure over the next day or so at least because of the new Fed speculations. Consequently, look to open a PUT option using this pair as its underlying asset if price can break beneath 0.9595.
Gold experienced a modest drop yesterday as a result of profit-taking following Friday’s 4.3% surge. Basically, investors took the opportunity to cash in on their gold gains in order to offset their stock market losses arising from the Europe’s debt crisis and U.S. economic slowdown. The precious metal has recently managed to break its correlation of trading with riskier assets by attaining a 3.5% appreciation in value last week. However, despite this encouraging sign investors are still not convinced that gold has fully recovered its status as a safe-haven asset. Nevertheless, as this commodity is enjoying a new buoyance, look to open a new CALL commodity option with gold as its underlying asset if its price can break above $1,619.10 per oz.
The price of oil inched upwards yesterday fuelled by investors seeking bargains and hopes that the Eurozone will not disintegrate. However, with a strong bearish sentiment still prevalent, consider selling this commodity if its price drops below $82.29 per barrel.
As a result of poor fiscal results and a recent power struggle, major shareholders of Chesapeake Energy Corp announced yesterday that they intend to take control of the board of directors. Billionaire, Carl Icahn, will replace one of the present 9 committee board while Southeastern Asset Management will gain 3 of the other seats. Chesapeake has been under intense pressure since April following Reuter reports insinuating that chief executive McClendon had used his personal shares in thousands of the company’s wells to acquire loans in excess of $1 billion. Following the release of news yesterday, the shares of Chesapeake appreciated by 5% late in the session.
In a report published yesterday, the liquidators of MF Global Holdings advised that in the future, clients should be provided with the use of a fund that is able to guarantee their balances to predetermined limits. MF Global applied for bankruptcy late in October 2011 following customers and investors expressing serious concerns about the company’s $billion bets on European debt.
Both Apple and Google shares appreciated in value yesterday with the former climbing by 0.59% to $564.29 and the latter rising by 1.33% to close at $578.59. However, despite these encouraging results, the markets are still stifled by a strong bearish bias as a result of the European debt crisis. Hence, look to sell Apple if its share price plummets beneath $563.32 and consider selling Google if its share price slumps below $576.88.