Monday’s Futures Outlook

Equity markets are trading higher overnight as a friendly report from China is being treated as another sign the global recession is easing. This news is triggering strength in European and Asian equity markets and is expected to spill over to the U.S. equity markets.

It was reported overnight that China’s manufacturing expanded for the first time in nine months. This could be the result of stimulus money. It will be interesting to see if there is demand for the goods being manufactured especially by the U.S. Overall, traders are happy with the news as this may be a sign that global conditions are improving.

The key reports today are construction spending and pending home sales. Construction spending is expected to come out lower but news that credit spreads are narrowing could provide a surprise. Pending home sales will also be watched closely. Investors want to see if there has been a drawdown in housing inventory. This would be a sign that the logjam which has been holding back the housing industry is finally loosening.

I still maintain that housing and employment are the major concerns for this economy. We’ll find out a little about housing today, but the big report for this week is Friday’s Non-Farm Payrolls Report. Economists do not expect the economy to turn on a dime but do expect to see the rate of decline in the number of jobs lost begin to level off if the economy is bottoming.

A couple of stories from last week have had almost no effect on the markets. These are the Swine Flu outbreak and the Preliminary Bank Stress Tests. Although it was reported that the Swine Flu was spreading globally, many feel that it is not expected to have a major financial impact on the investing community.

The market ignored reports last week that Citigroup (NYSE:C) and Bank of America (NYSE:BAC) may need substantial capital according to the preliminary bank stress test results. A report over the weekend stated that Citigroup may be looking for private equity to help it avoid nationalization. This may be difficult because of the economy and current market conditions. Reports are also showing an increase in the number of shorts against the banking industry. The broad market will be affected by the aggressiveness of these short traders.

The Fed postponed the release of the final bank stress test results from May 4th to the end of this week. Maybe traders are waiting to see what the actual report says rather than speculate at this time.

In Currency trading, the focus will be on the June Euro this week. Over the weekend the European Commission cut its forecast for the Euro Zone. The new report now shows a contraction twice as deep as it estimated close to 90 days ago.

In addition to a contraction of about 4%, the budget deficit for this region is expected to widen to 6.5% while unemployment may soar to 11.5%. News that German Retail Sales fell unexpectedly in March has encouraged selling pressure overnight. All of these reports indicate that an interest rate cut by the European Central Bank to a historically low 1.0% is inevitable.

The market moving news will be the announcement of the ECB’s quantitative easing plan. Traders are interested in seeing how big the plan is and what it encompasses. The Euro could be under pressure if this new plan is bigger than estimated.

Grain traders should continue to monitor the weather. Heavy rains and wet fields have been slowing corn seeding. This news has been driving July Corn higher. Global demand is helping to deplete the soybean inventory. July Soybean traders are expecting soybean inventories to reach a 5-year low.

July Sugar is expected to continue to rise as demand is expected to outstrip supply this year. Most of the demand is coming from India. Speculators are starting to drive this market through 15.00. India may slow down its buying if prices get too high.

July Cotton is expected to continue to piggyback the soybeans, however, low inventories and fewer planted acres are bullish factors this year. Look for the long-term uptrend to continue but wait for dips to go long rather than chase the market.

DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. The value of currencies may fluctuate and investors may lose all or more than their original investments. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from B.I.G. Forex, LLC and Brewer Investment Group, LLC or its subsidiaries and/or affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of positions such as "spread" or "straddle" trades may be just as risky as simple long and short positions. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

Subscribe by RSS Subscribe by Email