Below you will find my weekly view on the very challenging financial markets. In my view it is still too early to enter anywhere with the strategic investments. But please follow the China update every week, this it’s even the Hot Topic so you will find it as a comment below this section. Markets are changing focus to react on fundamental economic data is my opinion. It means up and down for stocks…..

Read more about all the interesting happenings in the financial markets in the outlook here below. I hope you find it interesting to read my private view about the consequences for the stock markets, currencies, China and what to expect from the central banks.

Global equities – it’s too early but watch GPIF.

Nikkei 225 (9.081)  Topix (917)  Dax (5.123)  FTSE 100 (4.514) Dow Jones (8.944)  S&P 500 (930) Nasdag Comp (1.647) 

I have always been impressed about the optimism that seems to be very fundamental in the equity market. Below in the China piece there are more comments on the stimulus package. As mentioned below, it is very positive news for China, but that global stock markets rise 3 – 6%  is simply too optimistic.

In my view it more shows that the actual sentiment in equity markets has turned positive. I have feeling that some buys because others do the same – that might even be enough to turn a trend, but normally not sustainable.

It’s hard to judge how large drops in corporate revenues for 2009 that are priced in at the current level. Several corporates are not able to give earning predictions for next year, so the fair approach is that the uncertainty argues for a discount.

It’s understandable that some Japanese companies went up today on back of the Chinese stimulus package, but the stories about Japan’s Government Pension Investment Fund (GPIF) are even more interesting. It’s so large that it’s worth to study. So far I have learned that the fund possible is in the market buying equities. If they rebalance their holdings of stocks from 9% to 11% of the total assets (11% is the target) it would mean massive buying of Japanese stocks. The holds Yen 120 trillion under management, so the 2% should equal the total assets of the 50 biggest Japanese domestic oriented stock funds. This needs to be followed very close as it could change the whole mid term view.

A bit ironic is that from the start of Japanese financial year 2009 the GPIF fund will be a net seller of assets for the coming 100 years due to pension repayments.

European stocks will be dominated by a mix of impulses from overseas markets, fundamentals and a few earning reports.

On Wednesday the Sep. labour market data from UK is a market mover (expected 5,8%) and the German Q3 GDP numbers on Thursday are more than interesting (expected -0,1%). The most interesting earnings report is from Siemens AG on Thursday.

US will be in the lead again. The Oct. retail sales number on Friday is just so important from the worlds leading consumer nation. The current sentiment is optimistic, but anywhere you look the bad economic news turns up. It would be a surprise if US investors ignore this fully, so I believe the bearish mood to take the lead again.

Until then I keep an eye on a few earning reports. Monday it’s Starbucks (also because they have global exposure with sales in many locations), Tuesday Microsoft and Thursday the long awaited Wal-Mart Stores Inc., though I think that Wal-Mart could surprise on the upside.

One main event is how many investors will withdraw funds from the hedge funds before the deadline this coming Friday 15^th Nov. Many will focus on this, and it should have the biggest importance for the US markets.   

Targets: Nikkei 225 6.683  Topix 697  DAX 3.906  FTSE 100 3.456  Dow Jones (7730)  S&P 500 (820)  Nasdaq Comp (1489)

Currency markets – Fundamentals will come back in the limelight.

EUR/USD (1,2880): The decreasing volatility in EUR/USD is caused by a more quiet JPY trading, but fundamentals will come back in focus.

Friday’s labour market data proved how serious the US situation is, and no relief is in sight. I continue to claim that the downturn in US is steeper than in Europe. When fundamental data plays a role again, the greenback will be sold off short term. After such a long time with capital flows deciding all directions, it’s hard to predict the exact time when economic data is the key driver again, but I think it might be very soon. The EUR will also face more problems, so as mentioned here below, it is against GBP if you want to try a USD short position. I think the payroll numbers from last Friday will come back on the agenda when market needs something to focus at during this week. I watch 2 very important numbers this week, the German Q3 GDP on Thursday (expected -0,1%) and the US Oct retail sales on Friday (expected -1,4%).

Last week we had the sell off in EUR/USD but not down to 1,2400. Based on the above view, I see some sentiment change that keep EUR/USD in a range but with a final break on the upside towards 1,3250.

Target: 1,3250. 

EUR/GBP (0,8170) – GBP (1,5725): ok, Bank of England surprised us last Thursday. For some month ago they got caught on the wrong foot by hiking based on rising inflation in a contracting economy, but they certainly adjusted for that one.

As mentioned last week I think that GBP has become a special case. All the bad factors we can imagine are priced in, so despite the sluggish outlook for UK I go for a rebound in GBP. As mentioned above is my feeling that fundamentals have growing importance meaning volatility will increase around economic data. This week it’s Wednesday with the UK labour market data (expected 5,8%). I prefer to recommend the long STG position against USD, as the greenback will be hurt short term on fundamentals. The perfect entry level in GBP/USD is 1,5500 with stop loss at 1,5200 and target 1,6500. I would go long at the current level with stop loss at 1,5420 and same target. The EUR/GBP target I turn to lower, due to the GBP rebound believe.

Targets: EUR/GBP 0,7950 – GBP/USD 1,6500 / stop loss 1,5420.

EUR/JPY (127,70) – USD/JPY (99,20): EUR/JPY only moves a couple of figures per day now, suggesting somewhat calmer markets right now. The biggest driver for JPY will continue to be capital flows, where I regard this as supportive for JPY. If fundamentals should decide Yen would be sold off – just look at the machine orders we got from Japan this morning. Very interesting, is the trend where private domestic investors withdraw foreign investments as it seems to increase if Nikkei drops. I i keep the USD/JPY target, but increase EUR/JPY to 118,50.

Targets: EUR/JPY 118,50 – USD/JPY 90,00.

Central bank rates

US Federal Reserve Bank: Now Fed is at 1,00%. They might cut again, but going below 0,50% is very difficult as money market funds will create a negative return. This would create too big problems is my view.

Bank of England: They took the market by surprise, let’s be honest. Now at 3,00% and they will take the base rate lower is they find it necessary.  

European Central Bank: Further cuts are already priced in. Some ECB members signalised another 50 is possible, and it seems to happen before Christmas.

Bank of Japan: 0,30% and stable..

I am looking forward to your comments and wish everybody a profitable week.

Peter

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