The last 48 hours we have had so many news and developments in the financial markets that I thought it would good to exchange views.

Market participants with intraday like positions have learned that all good news about the TARP bailout plan is a signal to buy stocks (in particular) and USD (to some extend). Whereas delay or negative news is the signal to sell what we just bought. TARP attract so much attention that all other news are ignored, which should worry as Thursdays data was seriously bearish.

The Japanese Aug trade balance yesterday morning showed the first Japanese trade deficit since 1982, which is fairly important to notice. But with all eyes on US the details are even more important, as the export to US dropped for the 12th straight month (-21,8% y/y – largest decline since 1980). In particular autoparts and large cars slowed significant, which is no surprise but it confirms the ongoing downtrend in US. By the way climbed the export to other Asian countries with 6,7% – the 78th straight month of increase (China is now the biggest importer of goods from Japan ahead of US).

Thursdays US data was depressing. The jobless claims was very high (though 50k caused by hurricane effects, but still too high), durable goods negative (though always a volatile number) and as the bear number of the day, a new home sales number so low that nobody guessed that one.

I respect that all market participants watch the TARP negotiations, and the market is king, but we should not get too focused on this one issue so we forget fundamentals and the underlying trend.

Market impact:

US equities will continue the repricing trend (i.e. lower) when the TARP honeymoon is over. In EUR/USD I regard the 1,4900 area (with a possible spike above 1,5000) as the current top. To establish a new USD bear trend towards 1,6000 would require evidence of a prolonged US economic ice age after the banking clean up. It will take another 3 month of data before this could happen. Another important market trend that creates selling pressure in EUR/USD is the unwinding of EUR/JPY longs from Japanese investors. So I believe in a decoupling between US equities and the greenback. Macro and micro news will pressure US equities (and the same picture in Europe) but the FX market will try to shorten EUR/USD somewhere below 1,5000.

Friday, I noticed that Chinese equities reversed a negative day to end in plus (mainly B indices i. e. foreign buyers). It still feels too early, but when you go for a rebound in an equity market, then place your bet where the peking roasted duck origins from.

I wish you all a great weekend.

Best regards

Peter

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