Buying Time

Slapped for the second time this week, the market turned south on Thursday, except the Nikkei 225 index which edged up slightly higher.

ECB President Mario Draghi kept his powder dry as he only offered to buy Italian and Spanish bonds on the bonds market only when the European governments’ bailout fund also starts purchasing the bonds directly under tough conditions. Hence, unlike his predecessor (Jean-Claude Trichet), Draghi opted to wait until the governments’ involvements start before doing his part to purchase bonds. According to Draghi, Jens Weidmann who heads the Bundesbank at the moment is the only one expressing “reservations”, and it would take more time and efforts to persuade Weidmann to accept the bond-purchasing program which was flatly rejected by his predecessor, Axel Weber back in 2010.

It is clear that both the Fed and the ECB are buying time to loosen up the pressure over Spanish and Italian bonds which took the Spanish bond yield beyond the critical 7%. The markets had expected a lot more than what they actually got from both the Fed and the ECB and it’s possible that the only thing that kept it rather resilient during the last few days was the pending release of the U.S. nonfarm payrolls data this Friday. Expected by analysts is that the U.S. economy had added 100k jobs in July, up from 80k jobs added in June. Still, referring to the ADP employment data earlier this week which showed that the private sector had added 163k jobs in July, slightly less than 172k added in June. The market however, had expected it at 120k. Nevertheless, slipped private sector hiring could also mean that the NFP data could be posting figure less than 80k.

And then there’s that paradox where markets cheer dreadful data and in contrast, shrug off good data. A dreadful data could be assumed as pressuring central banks into action (which has been unproven so far) while great data could be assumed as taking away such pressures from central banks.

Other data set for release this Friday is the ISM for the non-manufacturing sector. At the moment, ISM for non-manufacturing sector is expected to slip slightly lower from 52.1 to 52.0. Earlier this week, the ISM for manufacturing sector was released at 49.8, up slightly from 49.7 set in June but lower than the expected value of 50.2. ISM value below 50 shows contraction while above 50 shows expansion.

By: Unknown On 20.22

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Eyes On ECB

After getting squeezed for weeks, BMTR finally came up and resurfaced. The stock broke out of its consolidation to reach 1800 and it looks set to add more gains in the coming sessions. Still, the question remains whether the rally is sustainable as the global outlook remains cloudy. 

Central bankers are the key figures this week as the Federal Reserve’s FOMC meets, followed by the European Central Bank meeting. The recent rally came out of the hope that both central banks will introduce some more incentives to kick-start growth again. The rallies eventually turned out of steam as markets booked profits ahead of the meetings. 

Data coming out of U.S. showed that the manufacturing activities contracted for a second month in a row in July. The ISM index were down from 42.2 to 49.750.2

Elsewhere, the ADP said that US private sector had added 163K workers in July, a good sign that the nonfarm payrolls, which is due on Friday, will show a good number enough to boost sentiment.

The Federal Reserve’s FOMC meeting failed to deliver specific plan to stimulate the ailing U.S. economy. The Fed said that it will monitor the market conditions and provide more accommodative policy whenever needed. As no specific plan was laid out, the market seemed to be disappointed. Still, there is still one more CB event to unfold: the ECB meeting. 

The final key event this week is the nonfarm payrolls data set for release on Friday. We already had the sentiment shot once by Fed’s indecisive decision and we have two more opportunities to provide the needed boost for the market this week. If both also fail to impress, the market will be at risk of collapsing again.

By: Unknown On 19.54

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How Far Can The ECB Go?

ECB's president's spell on last week had sent stocks soaring on Friday. With the Dow scored another rally, the odds for JCI to launch another rally is looking pretty good today.

However, we must not forget that Draghi's words are still have to be put into reality. How far will the ECB go to defend the euro?

ECB's meeting this week will be put under the microscope as the market will look for fresh clues which could back up Draghi's statement last week. Elsewhere, the Federal Reserve will also deliver its policy decision this week. Will the Fed provide fresh clues over what it would do next? Or will the Fed simply repeat the same thing over and over again?

The market's impatience could bump to its ceiling this week should both central banks fail to deliver fresh policy clues. Such impatience could potentially unwind the recent gains and who knows, probably would send the Dow and JCI below its recent lows as disappointments set in. Also, I'm not sure that the ECB will buy bonds indefinitely. Whose money will the ECB use? What happens when the ECB runs out of cash?

How do we know that the woes are returning? We could see that from the yields on Spanish bonds, and Italian too. Last week these yields were soaring until Draghi shot them down.

Nevertheless, for now the stocks are expected to follow up the last week's rally, at least until ahead the central banks' meetings. After rising 1.32% on Friday, the portfolio is still expected to carve up some more gains. BMTR is the closest to light while the rest of the portfolio remains precarious - yet hopeful.

By: Unknown On 18.43

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Whatever It Takes

After got slapped 0.71% yesterday, the final day of the week is expected to be better. The Dow soared over 200 points, thanks to Mario Draghi's comment on ECB's commitment to defend the euro.

The ECB president said that the central bank will do whatever it takes to defend the single currency. Here's what he said:

"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough,"

and...

"To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate,"

Coupled with the words from ECB's governing council member Ewald Nowotny earlier it could be expected that the ECB would finally agree to give the ESM its banking license which will open up the ECB's lending facility directly. Afterwards, the ECB could kickstart new rounds of purchases of Spanish and Italian debts.

Sure, this could work... for a while. But for how long? Europe's problem is more on the fiscal side, not the monetary side. While the markets are buying the ECB chief's words, as time goes by the effectiveness of such ECB actions will be questioned again.

Nevertheless, for now the markets cheer the news and at the moment the JCI soared over 50 points up. Yet again, from the technical perspective, we're not out of the woods yet.

By: Unknown On 19.45

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Contemplating Grexit

The good news was that BHIT is going to be included in the blue-chip index LQ-45. Another good news was that there have been talks over whether the ESM will get a banking license which will enable it to tap into the ECB lending facility. Bad news were the placement of 17 German banking groups into NEGATIVE watch by Moody's following the placements of Germany, Netherlands and Luxembourg into NEGATIVE watch. There was also report that Citigroup has raised the odds of Grexit within 12 to 18 months to 90%.

As usual, the paradox kicked in as the markets eventually cheered bad news as good news. The worse the news, the more pressure will be thrown towards financial authorities in Europe and U.S. to do something. This applied to the slowdown in the new home sales data in June from 382K to 350K.

An interesting point came from Ifo Institute in Germany. Quoting from Reuters:

If Greece become insolvent and quits the euro zone, Germany should expect a loss of up to 82 billion euros, while if an insolvent Greece remains within the single currency bloc it would cost Berlin 89 billion euros, Germany's Ifo economics institute estimates.

Note that while Wednesday's closing level of the JCI was above 4K, the bearish outlook on the daily chart remains alive and well. We're definitely not out of the woods yet. Well, at least so far this Thursday morning the portfolio seems to be performing just okay...

By: Unknown On 19.57

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There's a Storm Coming...

As if yesterday's decision by Moody's to put Germany, Netherlands and Luxembourg under NEGATIVE watch, the rating agency followed it up by putting EFSF provisional outlook to NEGATIVE. Soaring Spanish yield, clueless Fed, risk of Greece exiting euro and potential hard landing in China have been the major factors behind recent global rout. The key question is not whether Italy will join the bailout club as well nor whether Spain will need a full-fledged bailout nor whether Greece will finally exit the euro. The key question is simply whether euro will survive the current storm.

In addition, the Jakarta Composite Index (JCI) chart outlook looks dreadful. Bearish divergence has been formed on the daily chart, volume has been on the rise during the last two down day, and both RSI and MACD formed a head-and-shoulders formation with broken necklines on both indicators have been confirmed. Ready or not, we are staring at 3927.84 as 3996.95 failed to fend off the bears.

Yes, Ms. Kyle. Indeed there's a storm coming. And we better be ready for it.

By: Unknown On 20.45

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