The wild days continue, though with a relief feeling among some investors. It’s too early to feel relief about anything at all. The true crisis is spreading – recession and countries with large external debt will feel the pain.

The US stock market is so important these days so it’s simply this weeks “Hot Topic” which you will find further below.

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 plus China.

Currency markets:

EUR/USD (1,3305): The Euro is clearly offered again and the stop loss in EUR/USD was reached again. In the currency market US fundamentals doesn’t hurt the greenback, which actually shows how bearish the market is on EUR. Sort of the same song like the past weeks about capital outflow from the Euro Zone, though not only JPY are actively bought, also Dollar. Once again the currency market follows other asset classes, but Euro feels softer than usual, particularly when we consider the more than bad US retail sales numbers last week. Despite we are in the middle of October, I am sorry to say, that it’s hard to find any fundamentals that can move the currency market this week. We will watch the US existing home sales on Friday (expected 4,93 million), but not a true market mover. Basically I still go for a higher EUR/USD again due to serious problems in USA that isn’t priced in now, but it’s against the trend to argue for levels above 1,4000. It looks like a 1,30 – 1,35 range for a period

Targets: Range 1,30 – 1,35. 

EUR/GBP (0,7770) – GBP (1,7140): EUR and GBP are under pressure, but despite the big rescue package that also should support some troubled UK home owners I still go for Sterling as the weakest of the major currencies. Of course are many bad economic news priced in the GBP price, but we have no real idea about where this ends, making GBP soft and myself keeping the EUR/GBP target. Last weeks unemployment data confirmed the worrying downtrend. As most important this week I watch the September retail sales on Thursday (expected -0,6%) – a pretty important number.

Targets: EUR/GBP 0,8050 – GBP/USD 1,7000.

EUR/JPY (135,70) – USD/JPY (101,77): As mentioned above is JPY still in demand as safe heaven, but not as outspoken as before. The greenback is currently gaining in importance even against Yen. In September I mentioned that JPY could weaken in October after the H1 ended in September. Several sentiment surveys are out this week, but they will all be depressing reading which is priced in. Interesting is the stimulus package of Yen 2trln. that was approved by the Japanese Government. Fiscal bills can hurt a currency, but not the first one but the next one could do. My target in EUR/JPY is too far away, but I still like the upside, so I lower it to 140,00 and USD/JPY I keep.

Targets: EUR/JPY 140,00 – USD/JPY 105,00

Global equities:

Nikkei 225 (9006)  Topix (927)  Dax (4835)  FTSE 100 (4283) 

As mentioned under the “Hot Topic” is the US stock market very much the trendsetting market these days. In my view, all other equity markets will follow US to a large extend, that’s why I spend the thought Dow Jones and the US fellows this time.

Regionally in Japan I think the stimulus package mentioned under USD/JPY is good news for Nikkei and Topix to support them short term.

In Germany the car producers, but in particular the contractors in the automotive industry will suffer ongoing. Maybe the pharmaceutical sector will counterpart the automotive declines this week.

In UK, oil, pharmaceuticals should be ok but miners will end the week lower again.

I partly understand the relief regarding the financial sector as some banks are saved from bankruptcy, but I wouldn’t be too optimistic……recession and unpleasant losses normally goes hand in hand.

I have adjusted the targets a touch lower…..again

Targets: Nikkei 225 7.835  Topix 806  DAX 4.206  FTSE 100 3.726 

China:

Hang Seng (15323)  Shanghai B (108)  USD/CNY (6,8340)

Many things are going on in China, but let’s take the hard core sluggish news first. The Q3 GDP numbers were  released Monday with a + 9% y/y growth against expected +9,7% and the +10,2% Q2 y/y growth rate. 9% in growth might seem very nice and is actually in line with the planed growth from the Communist Party. Clear for everybody is the drop in the growth rate that is worrisome.

I will bet a good bottle of red wine, that the Communist Party leaders was well aware about the numbers when they had their senior meeting in the weekend 11^th / 12^th October. No doubt that the pressure to find ways to increase the domestic demand are mounting. When these guys meet it’s unfortunately not as transparent as when G8 meets, so the information flow is slow and partly indirect.

Big decisions were taken, but in disagreement it seems. One initiative that can make 730 million people richer was announced without any headline in the world press. All 730 million peasant farmers in China are now allowed to sell or rent out their “land use right”. In China are peasant farmers given a 30 year “land use right” meaning they do not own the land but just the right to use the land for 30 years.

Making the rights tradable, means that the right holder suddenly owns an asset with a price tag = wealth. As soon as people can quantify wealth it will translate into growth and consumption…..

Very interesting, China last week already open the first exchange to trade “land use rights”, it was opened in Chengdu.

Other related effects out from this decision should be efficient farming leading to higher output (commodities) but also higher demand for products used in the agricultural sector.

A new person on the Chinese arena that might be interesting to keep an eye on is Vice-Premier Wang Qishan. He will head a new committee that is set up to deal with “fiscal uncertainties caused by the deteriorating global financial crisis”.

At the first glance one might think that it sounds reasonable, but Chinese banks and private households only have very limited exposure to the systemic risk like losses the global financial world have had. My concern is that the public Chinese investments (SAFE / CIC) abroad might have created so big losses that it starts to hurt (they will not reduce, but another fundamental buyer of assets / stocks is currently out of the market).

Hang Seng and Shanghai B reached the targets on the downside once more. With today’s Chinese GDP numbers it’s difficult too be extremely optimistic on mainland stocks despite a downturn is partly priced in. Given my continued bearish view on US equities the new targets are lower. I think many bad factors are priced in China stocks, and as always, that Far East will turn upwards first. Based on this thinking the new targets are not as low as for US.

One thing I follow very closely is how the global slowdown expands. Korea is a worry and the governments in Singapore and Hong Kong are alert (their comments shows big concerns). If the problems accelerate I will change the targets

Targets: Hang Seng 14.100     Shanghai B 100

I wish you a nice and successful week.

Best regards

Peter

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