My Diary 598 --- The Uneasy Asset Markets

Trading Diary (July 30, 2009/>) --- The Uneasy Asset Markets

X-asset markets and Macro headlines

Overnight, US posts marginal losses as crude drops & yet another weak auction weighed on sentiment. Headline wise, durable orders was disappointing (-2.5%MoM v cons -0.6%)and a FED Beige Book talking of moderation in the slowdown. But Fed's Beige Book was generally mixed --- retail mixed to down, mfg saw modest uptick, lending stable to down, labor still bleak, real estate mixed with commercial RE hardest hit. In Fixed income and commodity space, UST $39bn 5yr Auction had bid-to-cover ratio 1.92, the lowest since Sept-08. Foreigners once again seeing MoM decline. Crude -6.4% after DoE show a LTE build in crude inventories (+5.1mn v cons -1.5mn) through gasoline saw bigger draw (-2.3mn vs. flat cons). Looking ahead, Jobs report, CPI and household spending will all be watched for signs of life.

In addition, the biggest fear over the last 3 months revolved around USD saw turning around. The EUR is 2% weaker post the US-China bilateral talks. The Gold market is back below the $940 level and in play for $890 again. Oil is closing below $63 bbl down over 6%. Yet US shares didn’t collapse today – they held to a steady down 0.5% despite the weaker durable goods and very beige book. It seemed that many investors are thinking that the China/>/> shares have replaced the SPX for the hope of global growth play. Net-net, the risk sentiment was poor as many asset markets uneasy about the last month’s bull run. 

Hong Kong/> China/>/> News

Many brokers blamed the big -5% sell-off yesterday on A-shares on rumors of stamp duty and RRR hike. But most of my China/>/> contacts think it is unlikely. In fact, one of them mentioned that the trigger for the selling was SSF’s chairman saying that A-shares are at reasonable levels now but doesn't like the index moving up from here as 3000-3400 is his fair range. Some said Social security funds might have redeemed some investments. I think profit taking makes sense as the benchmark has gone up +70% in 5 months plus 3368 is a big technical level if you look at the 2 year Fibonacci chart.  

Hong Kong/> market saw broker catching up and upgrading their targets after HK/China have rallied 50% in 4 months. Yesterday JP Morgan upgraded A-share target to 4000 on back of improved 2H corporate earnings and Credit Suisse moves up H-share target to 17850 (50% upside from here).

Overseas Markets Review

After surging 10% in past 2-weeks, global equity prices edged down for two days now. Overnight, equities slid 0.5% in US and 1% in Ems/>, while stocks rose 0.8% in EU and 0.3% in Japan/>/> . Elsewhere, after oil stockpiles surprised by oil inventory figures, 1MWTI oil slumped $3.88 to $63.35/bbl. Industrial metals also contracted for the second day in a row. 2yr USTs yield moved up 8bp to a five-week high at 1.16%, while 10yr dipped 3bp to 3.66%. USD strengthened against both EUR and JPY, closing at EUR1.405 (from $1.417) and JPY95.0 (from 94.6).