Global Macro Markets Outlook: July 2, 2012 – July 6, 2012

Dear Reader,

Toronto Stock Exchange is closed on Monday – NYSE is closed from Tuesday at 1 p.m. through Wednesday for Independence Day.

United States

The Dow closed up +1.89% on the week, w/Monday -1.09%, and +2.20% on Friday – volume at or above 1mm shares traded/day.  The index reflected improving domestic expectations for economic growth going forward. Real wages are sustained by mitigated inflation as deflationary pressure has been subsequently mitigated by the underlying demand for commodities, which is a function of demand created by growth.  Orders for basic materials used for industrial growth have increased as well as demand for the earnings of the underlying companies as seen through demand for stocks & ETF’s that cover basic materials. An improved outlook for the eurozone from global markets may be somewhat short-lived given the current index valuation however the index should not close below 12500 on Friday.

The NASDAQ closed up +1.47% for the week, with Monday’s close -1.95%, & Friday’s close +3.00%; with >1B shares traded/day. The support of underlying growth of the U.S. economy to buttress a hot and potentially overheated tech economy as a function of current valuation metrics does support the index at current levels. Therefore, the downside volatility of the index going forward into the summer against the Dow/S&P500 should not be excessive to which upside volatility should outpace either index. The earnings for tech going forward is expected to be propelled by Apple in the fall which indicates the index will have plenty of room to run in the coming months.

The S&P500 closed up +2.03% for the week, following the selling (shorts) on Monday -1.60%, w/covering and long positioning on Friday +2.90%. >3B shares traded/day. Earnings for the S&P have been adjusted downward by analysts b/c of the strategy of decreasing price as a function of increasing volume to increase total sales and effectively raise revenue. The economies of scale decrease when volume of sales increases. At the end of the day, the net effect is that more real dollars are entered into the economy given the increase for the demand for labor employed (which many not increase the labor demand for the unemployed), which means more hours worked in overtime. That is very similar to the Clinton economy. My personal opinion is of a devaluation of earnings by analysts b/c of their belief that net profit per sale decreases as price per sale decreases, and their belief that total volume in sales as a function of decrease in price per sale will render a net profit margin below that offered by the maximum price per sale. I expect the quality of earnings w/in the S&P500 to improve over the summer to which any QE move will cause the market to soar.





Central & South America

The IPC closed up +2.89% for the week w/gradual buying from Monday through Thursday & upside volatility on Friday’s trading (+1.42%). At least 150mm shares traded/day. The growth story remains for Latin America as U.S. exports of fuel is expected to increase south of the border to which the central banks of the Latin American economies must continue to curb inflation against rising growth and the itch to lower interest rates to in conjunction with the $4B of easing expected by the Brazilian Central Bank by October 2012.

The IBOVESPA closed down -1.96% for the week as selling on Monday (-2.95%) was more significant than the buying throughout the week, as well as on Friday’s upside tail-risk (+3.23%). The index sold off long positions and was sold short on Monday to which the market cleared the shorts on Friday leaving the long positions down approximately a net of -1.96%. The index should close higher on Friday’s close given the expectation of increased growth going forward & the demand for rare earth metals and other resources specific to basic materials.

The Merval closed up +0.22% on Friday’s trading (+3.46%) after Monday’s sell off of (-2.29%). The story for growth as a function of natural resources as well as the improved outlook for underlying risk taken by banks pushed the index into the net positive. The index will move higher on central bank easing as well as on improved sentiment for global growth. The total volatility of the index should be less than the IBOVESPA & IPC for the coming week.


The IBEX35 closed up +3.29% for the week after Monday’s selling (-3.67%) followed by marginal buying Tuesday through Thursday (+1.47%), and upside tail-risk volatility on Friday (5.66%). Volume range of 205mm to 445mm shares traded/day. A resolution to the eurozone sovereign debt & banking crisis as well as a plan to underline growth in the near future pushed global markets higher, notably European indices.  The IBEX35 is likely to trade higher early on as the ECB is expected to cut rates & stronger eurozone sentiment should not reflect a weaker valuation. Banking and natural resources stocks should continue to do well.

The ISEQ (Ireland) closed up +3.28% for the week as buying on Wednesday’s opening through Friday’s close pushed the market higher. Friday’s trading pushed the index higher by +1.34%. Volume ranged from 41mm to just over 100mm shares traded/day. A more concentric restructuring of the Ireland debt improved sentiment with regard to the prospects of future growth as on a belief of an end to ‘good money chasing after bad money’. The index should trade similar to the IBEX over the next week w/less total risk. Industrial building materials, transportation, & consumer-noncyclicals (food, dairy/beverage-wine & spirits) should continue to outperform.

The BEL-20 closed up +4.76% for the week as relatively light & marginal movement on Monday & Tuesday’s trading followed by buying on Wednesday & Thursday (+1.89%) the week was followed by buying on Friday (+3.80%). Consumer non-cyclicals & banks should rise on expectations of an ECB interest rate cut.

The FTSE closed up +1.04% for the week as buying on Wednesday (1.41%) & Friday (+1.42%) on ostensible short covers was more significant than selling (on margin, long positions) on Monday (-1.14%) & Thursday (-0.56%). Volume hit a low of about 630mm on Tuesday w/volume reaching over 1B shares traded on Thursday & Friday.  Volume range of 25mm to 39mm shares/day. The activity next week should be relatively light (moderate shorting) until the ECB announcement which will entice covering.

The CAC40 closed up +3.42% after Monday’s apparent shorting (-2.24%) with some short-covering on Wednesday & additionally as upside tail-risk volatility pushed the index higher on Friday (+4.75%). Volume range of 139mm to 233mm shares traded/day. The CAC40 should respond similar to the FTSE next week.

The DAX closed up +2.44% for the week with Friday’s buying (+4.33%) pushing the market beyond the loss experienced after Monday’s selling (-2.09%). Volume range of 25mm to 39mm shares traded/day. The DAX should respond similarly to the CAC40 w/less total risk.

The STOXX50 closed up +3.56% for the week as marginal movement after Monday’s selling was followed by Friday’s buying (+4.96%). The OMX (Stockholm) closed up +0.77 for the week after selling on Monday (-2.39%) and marginal trading through Thursday proceeded Friday’s upside tail-risk volatility (+4.01%). The OSEBX (Oslo) closed up +5.59% for the week as the  index pushed higher on Wednesday’s opening through Friday’s close (+6.35%). Over 3B shares were traded each day. These indices experienced upside tail-risk volatility and are likely to rise further on an ECB rate cut. Further easing from export partners will support these indices valuations as well. Broader Europe & Scandinavia appear to strengthening relative to the global macro picture for growth going forward.

The SMI (Swiss) closed up +1.30% for the week as volume ranged from 41mm to 101mm shares traded/day. The index sold off on Monday but did rebound by Thursday’s close. Buying on Friday pushed the index higher by 1.34%. The index remains in a peak to trough trading range with the EURCHF as upward pressure remains to buy the Swissie. The index should push higher over the coming week by about 1.2% (+/- .25%).

Russia, India, Asia/Middle East

The TA100 closed down -1.69% as selling throughout the week was not mitigated w/purchasing.  The index should close higher next week by more than 1.00% as it’s currently trading at its one month low.

The MICEX closed up +3.27% for the week as buying on Tuesday, Wednesday, & Friday (3.31%) pushed the index higher to close much higher than where the index closed on Thursday, which was approximately at the level the index opened on Tuesday (1340). Stronger demand for oil should push the index higher over the coming week.

The BSE 500 closed up +2.59% as buying on Friday (+2.32%) pushed the index higher after marginal movement throughout the week. Stronger global growth, curbing inflation & potentially rising interest rates are bullish for Indian stocks, as is growing demand for technology & tech based solutions such as software and underlying electrical engineering of technological components used in the manufacture of a variety of electronics & computer hardware. The index should maintain its valuation and rise further on the ECB decision.

Southeast Asia & Far East

The Nikkei225 closed up +2.37% for the week as the index see-sawed with selling on Monday & Tuesday followed by buying on Wednesday through the close on Friday. Volume ranged from 90k to 150k shares traded/day. Stronger employment numbers from Japan coupled with lower manufacturing & industrial productivity points to a more services based economy rather than the hi-tech and industrious growth economy enjoyed since the 1980’s. Such an economic shift makes sense given the relative cost of Japanese exports in what has been a global recession for premium imports for the broader market consumer. Further easing from the Bank of Japan will push the index higher as the PBOC is expected to ease further in conjunction w/a rate cut from the ECB thereby easing credit and making it cheaper to borrow & buy €’s.

The Hang Seng closed up +2.35% for the week as buying on Friday (+1.50%) pushed the market higher from Thursday’s close and from the marginal increase experienced since Monday. Volume ranged between 1B to 2B shares traded/day. The active trading on the index is bullish for the underlying growth of the global economy as the Hang Seng contains a laundry list of basic materials stocks & natural resources/mining companies. The earnings of the index is increasing which points to rising demand for the materials resourced by these companies.

The Straits Times closed up +1.78% for the week as index shorting on Monday & Tuesday led to the buy backs on Wednesday through Friday to include long buying. The index may trend lower until an announcement of easing, however, no announcement will likely cause shorting of the index after the ECB announcement, regardless of the decision.

The DJIU (Australia) closed up +1.08% for the week as buying on Wednesday through Friday’s closed (+1.27%) pushed the index higher after the shorting of stocks on Monday & Tuesday. Volume of shares traded went from 6m to 7m shares to over 1B shares on Friday. The index appears to be long and therefore should be watched heading into next week. I do not expect the index to sell off as investors appear to be long going in to the open.

The NZX50 closed up +0.02% for the week as the index appeared to be shorted on Tuesday with covering on Wednesday & Thursday on the positive news from Europe. Volume of shares traded ranged from 23mm to 58mm shares/day. The index is expected to push higher by Friday’s close.

The Jakarta closed up +1.70% for the week as volatility was over a billion shares over 3/4 of the trading week. The trading cycle over the week appears unlike any other aforementioned index as the selling on Monday as followed with buying on Tuesday & Wednesday w/a sharp sell-off on Thursday and a sharper cover and purchase on Friday, indicative of 130/30. The index should follow similar trading to the Straits Times next week though with less downside volatility.

Commodities & Futures

NYMEX WTI crude traded higher by $7.27 (+9.36%) with the upside tail-risk volatility occurring on Friday. A lower than expected supply along with higher demand for oil consumption in Europe & the U.S. will sustain the move into the mid $80’s trading range over the coming week. Brent crude traded down on Friday to $93.94 to again narrow the WTI/Brent price spread, which points to a shifting of global macro economic manufacturing, industrial, and energy consumption to the U.S., and the continuation* it’s oil to exporting markets. Notably, the growth is seen in Central & South America and in Europe, the leading markets for U.S. gasoline based exports. Crude is likely to trend higher however as demand for oil in general does increase on underlying demand as a function of expected growth.

Gold 12 month futures +3.47% to $1603 for the week as the U.S. dollar weakened against the euro. Gold also reflected confidence in the Rupee’s strengthening valuation against the USD. The weaker USD is bullish for gold to run higher within the trading range of $1550 to $1650. Easing by the ECB coupled to marginal growth rather contraction of eurozone growth will push gold prices higher as well along with other commodities such as copper & silver.

Wheat, corn, and soybeans are grown in agricultural regions of the continental U.S. to which further drought conditions are expected to continue into the following weeks. Wheat is already up considerably since June 22nd and has room to push higher. Demand for agricultural commodities continue to rise to where QD exceeds QS thus pushing futures higher. Orange Juice futures are also trading above $120 and should remain above that price floor over the coming week.


The U.S. 10yr bond yield should rise back to the 1.66% to 1.72% range as demand decreases for U.S. bond yields. The U.S. 30yr yield should rise to 2.82% by Friday. Demand for European bonds including the German, Swedish, Dutch, & Swiss 10yr bonds may cause yields to fall by week’s end however the ECB rate cut will push bond yields higher as capital chases a higher yield. The peripheral yields on the 10yr should continue to fall over the course of the week putting additional pressure on the shorts to relieve their positions. The Australian 10yr yield is rising given the improving European outlook though the yield on the Australian 10yr is attractive to the point of being an initial safe haven trade should capital return to bonds over the course of the week, which is unlikely. The yield should approach 3.30% though the interest rate spread w/the New Zealand 10yr yield should not contract.


The USD should strengthen against the euro over the week to about $1.235 & to ¥80.65 and should not breach $99.65 against the Aussie by Friday evening. The Ruble should strengthen marginally against the USD, a trade to monitor. The USDCHF should rebound to $0.96 by Friday evening given the recent drop & as the pairing closely tracks the USDEUR.


Thank you for reading. Please enjoy the week ahead and have a wonderful Independence Day!


Vidia – Ricochet Alternative Asset Management



One thought on “Global Macro Markets Outlook: July 2, 2012 – July 6, 2012

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s