May 7 Weekly Market Review
Financial Market Overview
The keenly anticipated US non-farm payrolls posted last Friday produced a result that gravely disappointed the Markets. The Labor Department stated that US companies had hired only 115,000 new employees during April which was much lower than the forecasted 170,000. On a more positive note, the unemployment rate declined by 0.1% to 8.1% hitting a three-year low although analysts quickly advised that this improvement was primarily a result of a decrease in the number of people seeking work. Friday’s labor report did advise that previous guesstimates for payroll growth for both February and March had been reassessed higher by a total of 53,000. After the release of this disappointing news, concerned investors sold-off U.S. stocks and government bonds yields.
During this week, the markets will have to evaluate the on-going consequences of last Friday’s disappointing labor report. For instance, the impact needs to be assessed of the increasing likelihood that the Fed will introduce additional QE sooner now than later especially if US companies persist in failing to create at least 200k+ jobs per month. Consequently, the speeches scheduled from Ben Bernanke and other Fed members this week have gained more significance as investors will be attempting to determine if last Friday’s poor figures will alter the Fed’s near-term policy decisions in any way. As there will not any major market-moving economic releases from Europe this week, analysts will be concentrating their attention on evaluating any ensuring impacts resulting from the French and Greek elections. In addition, there is an important bond auction to be held in Italy this coming Friday which will be scrutinized carefully by investors especially if its PMI posting produces a disappointing result as this will be indicative that Italy is entering a deepening economic contraction.
Investors will now have to assess the impacts of the elections held in France and Greece over last weekend as they could have a significant bearing on the performance of the EURUSD in the days ahead. The fundamental question is can the Euro withstand the increasing pressure emulating from the Eurozone’s debt crisis or will its lower trendline just finally ‘caves-in’. Such an outcome does appear increasingly more likely as the region’s deteriorating PMI figures released last week strongly indicated that Europe was declining into a deeper recession. This viewpoint was further endorsed by data showing that the unemployment rate in core members, such as Germany, was rising. Even though the President of the European Central Bank, Mario Draghi, issued optimistic statements stating that the economy will improve as 2012 progresses, unless supportive elections emulate from Greece and France then the Euro will suffer further weakness. Consequently, a SELL position will arise if price can break below 1.3015.
On Friday, as a result of the poor US labor report, the pair fell by nearly 135 pips finishing the week at 1.6155. The British pound started to weaken against the dollar last week as a result of the recent release of its Q! GDP indicating that the UK had regressed into a new recession. As investors are now nervous about the reaction to this event by the Bank of England and whether it will now reassess its viewpoint on further stimulus measures, they are more reluctant to support the GBP. There are a number of important economic releases scheduled this week from the UK including manufacturing production and the PPI figures. Investors will be analyzing these parameters to identify any possible clues about the BOE’s near-term policy decisions. As the full impact of the new UK recession has still not been felt, there is room for further GBP weakness. Consequently, a good selling opportunity for this pair will arise if a price can achieve a sustained break below 1.6125.
The Australian dollar did not fare well last week by falling by a total of almost 300 pips to finish the week at 1.0174. The main reason for this turnabout in the performance of the AUDUSD was the decision of the Reserve Bank of Australian (RBA) to cut its interest rate by an unexpected 50 basis points instead of the expected 25 points. This announcement stunned the markets causing the AUD to plummet back inside its previous bear price channel as displayed on the chart below. In addition, disappointing employment data from both the USA and Europe last week enticed investors to seek safe-haven assets at the expense of the Aussie. As the markets now have the view that the RBA is seriously attempting to revive its economy by instigating new stimulus measures, the AUD is very likely to weaken further in the short-term. As such, a good point to sell the AUDUSD will occur if price can break below 1.0080.
USD/CHF: The USD/CHF climbed significantly last week by nearly 100 pips closing at 0.9180. One of the prime reasons for this development was the warning from the Swiss National Bank that it intended at any time to take aggressive measures to restrict the ever-increasing strength of the Swissie as it was hurting the growth of the Swiss economy. In addition, poor employment reports released from Europe and the USA as well as further deterioration in the Spanish debt crisis caused the USD to appreciate against the CHF. As traders are evidently concerned about European debt contagion and also because the full impact of any SNB actions have not been felt yet, the CHF could well weaken further over coming weeks. Consequently, a good opportunity to buy the USDCHF will arise if price can break above 0.9200.
Gold prices rose in value last Friday as weak US labor figures increased the possibilities that the Fed will instigate, sooner now than later, additional quantitative easing in an effort to enhance the present anemic US employment recovery. As a result, investors sought safe-haven options on Friday, such as gold, causing its value to surge by 0.64% to finish at $1,645.20 an oz. Consequently as this trend is very likely to continue today, a good opportunity to buy gold will occur if price can climb above $1646.90.
Silver also rallied strongly on Friday by 1.41% finishing the day at $30.43 per oz as it too benefitted from safe-haven traffic. After the posting of Friday’s poor unemployment figures, the price of oil plunged to February lows by closing at $98.49 per barrel. Consequently, a good opportunity to sell oil will be if price can break below $97.50 per barrel.
After LinkedIn Corp announced that it was elevating its 2012 earnings forecasts due to an increasing demand for its staff employment services, its shares rocketed upwards by 10% last Friday. The company impressed the markets by stating that it had acquired 16 million new subscribers during Q1 of 2012. LinkedIn has recently become a symbol representing the success of professional and social networking sites. Much less impressive was the performance of the shares of InvenSense on Friday which plummeted by 25% after the company announced that it would have to adjust its Q1 sales outlook lower. The Markets were very disappointed by this development especially as investors had only just helped drive the share value of this firm to a record high in the preceding week.
Apple shares tumbled in unison with the US major indices last Friday by 2.46% to close at $565.25 as a direct result of the poor US labor report. As the markets have yet to absorb the full impact of this disappointing release, the shares of Apple are very likely to weaken further today. Consequently, a good sell opportunity will occur if price falls below $560.28. Google’s shares also suffered the same fate on Friday and, as a result, a good opportunity to sell its shares will arise of a price break below $ $596.08.