One observation I think it’s very important to have an opinion about, is what crisis is the driver behind the market moves as it will decide your risk considerations and decisions. I have my clear view on this and the consequences which you will find in the comments. Please go down the “Hot Topic” to read more.

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.

Equities

Global comment:

These comments are mainly regarding what we can expect from the markets in the future. Though I think it’s interesting to mention the significant history Dow Jones made last Friday. At the low on Friday, the drop within the week was bigger as the biggest selloff in any week during the famous year 1929. The worst weekly drop ever in 1929 was “only” 9,2%. Not that it helps us, but we are talking about moves of historical dimensions, certainly leading to rescues of historical dimensions as well, maybe also opportunities.

The downside targets in equities have been hit several times now, and after last weeks more than dramatic ongoing selling it’s tempting to go for a rebound. Of course European banks will trade higher Monday, this combined with a general relief rebound should open up for a market with some buyers again.

As mentioned in the “Hot Topic” view is it fair, if the banking rescue makes some to bet on a happy world with higher equity prices.

You know I am bear, and despite the rebound is tempting I stay in the bear camp as mentioned above. The targets are once more lower than the current level (taking into account that US stock will trade 5% higher Monday and Japanese stocks 8% up Tuesday).

USA:

Dow Jones (8451)  S&P 500 (899)  Nasdaq Comp (1650)

In US the quarterly earnings season starts again where I watch JPMorgan, Citigroup, Google, eBay and Intel. The historical numbers are interesting, but all are spotting the comments about the future. If companies would do something good, they should give as much information about the outlook as they can. Despite it looks worse, it might not be as bad as feared in the market, and could bring comfort.

US Fundamentals will bring 2 events for US stocks. Retail sales on Wednesday (expected -0,6%) and the October Philly Fed index on Thursday (expected -9,4). 

Targets: Jones 8.400  S&P 500 890  Nasdaq Comp 1.650

Japan:

Nikkei 225 (8276)  Topix (841)

The failure of a REIT in Japan (thought not to be possible), a life insurance company that went down and serious bad machine orders wasn’t all too happy news. The Japanese Government have stopped selling the banking shares they bought for 10 years ago – at least it reduces the selling pressure. The week in Japan will be dominated by the global market swings.

Targets: Nikkei 225 8.250  Topix 840 

Europe:

Dax (4544)  FTSE 100 (3932) 

Last week I mentioned the bad news for automotives in Europe where Germany has many companies represented. It’s getting clear that demand is dropping so much that some might stop their production for some weeks. Apart from the banking sector based relief rally it’s hard to see the upside for DAX, but UK is even more bleak as usual. Tuesdays ZEW index might have some attention (expected -50,0) but I find the unemployment numbers from UK on Wednesday very interesting (expected 5,6%).

Targets: DAX 4.800  FTSE 100 4.100 

Sector comment:

It’s too early to buy, but for some weeks ago I mentioned a few sectors I would look closer at. On the sector view I now add mid-sized pharmaceutical companies with positive cash-flow plus 1 or 2 patents running for another 7 – 10 years (I these companies will be bought by the large ones) 

China:

Hang Seng (14797)  Shanghai B (111)  USD/CNY (6,8345)

Two important things from China. They have stopped for all IPO’s until end of October, one could argue that it’s no good news for listed companies who needs raise capital. On the other hand, probably only a few companies would try it under the current circumstances. It shows that the government tries to support the stock market with all sort of initiatives.

More worrisome was the long awaited September car sales confirming a second month with a lower sales number. The y/y drop was 1,44% pointing at a growth of 9,7% this year, down from 24,1% in 2007.

In my view it underlines the pressure on the wealth feeling in the middle class income group.

No doubt that the Communist Party is under growing pressure to kick start the domestic economy. Difficult to point at a quick solution, but sending checks out to cash like in US would be an easy solution.

The domestic Shanghai A index actually dropped today, testing the very important 2000 level but rebounded in line with the global market. Same picture for the Shanghai B index, wit a test of 106 today. Below the 115 target, but it feels like we could be close to an interesting opportunity. Given the overall market I set the new target at 105, but I think China starts to be interesting to look very close.

Wild life with Hang Seng, where it rebounded above the target on the downside – it indicates some strength. I keep the target for Hang Seng.

Targets: Hang Seng 15.950     Shanghai B 105

Foreign Exchange

EUR/USD (1,3625)

EUR/USD is higher than last week, but in reality I struggle with my EUR view as the Euro gets hammered every time I am right on the stock market (can’t win them all). Like during the last weeks, the equity markets are everything, so I spend more comment space on that asset class. Friday evening EUR/USD was squeezed down to 1,3275. It might be the Lehman CDS auction / settlement where none of us have an idea about the total volume (but it’s very big) as each bank only know their own numbers. I keep the 1,4250 target with a stop loss again as I think the market movements let us forget how big the problems are in US. I think it will come back in the limelight again. Like for stocks is the fundamental key data this week the retail sales on Wednesday (expected -0,6%).

Targets:  1,4250 with stop loss at 1,3425.

EUR/JPY (137,20) – USD/JPY (100,40)

JPY continues to profit from the ongoing fire sale in shares and the safe heaven status, but fundamental reality for Japan’s economy has become much more problematic lately. Mid term it should give an upside reaction in EUR/JPY, but other forces are currently ruling. The news last week (please see equity comments) are no good so I keep the targets despite they are against the trend

Targets: EUR/JPY 146,50 – USD/JPY 105,00

EUR/GBP (0,7860) – GBP (1,7360)

EUR/GBP went up through the target but is now trading lower again. Fundamentals are less important, but the serious mid term outlook  for UK makes me raise the EUR/GBP target to 0,8050 and leave the GBP/USD target as it is. The unemployment on Wednesday I watch extremely close (expected 5,6%) as very important this week.

Targets: EUR/GBP 0,8150 – GBP/USD 1,7900

Central bank rates

US Federal Reserve Bank: We got the 50 basis points cut, though in a surprise way. Another 50 basis points are in the cards, but most likely split in 2 times 25 basis points. One more time in October and one in November.

Bank of England: I think they will wait and see what happens after the banking rescues before they decide. Rate cuts is a classical help to the profitability at banks, and now that the government has such a big stake in banks it would suit their own position……...

European Central Bank: I thought that it would be 25 basis points in November but the developments forced ECB to something else. ECB for sure want to see what happens before another move.

Bank of Japan: BOJ will stay unchanged at 0,50% rest of this year.

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

Peter

Bookmark It