Global Macro Markets Report: August 06, 2012 – August 10, 2012

Dear Readers,

United States

The U.S. markets closed up for the week as the Dow ended +0.16% (Monday’s open through Thurs, 1.50%) , (Friday +1.69%). The laggards of Friday’s surge into the green included Verizon, McDonalds, & AT&T. The majority of components of the DJIA rebounded after the gradual sell-off from Monday through Thursday’s close.  The upcoming week should enable the Dow to remain above 12800 as Southern Europe improves given the lessened demand of funds from Germany to Italy & the expectation of the Spanish Bond Minister’s decision to enable ECB bond purchases to stabilize Spain’s sovereign debt load with respect to the obligatory responsibility to finance debt interest expenses against future GDP growth.

As the Spanish government increases savings & reduces spending, the internal bond transfers of non-secured sovereign debt into registered bond issues by the ECB to collateralize Spanish debt is the mechanism of conditional response.

Such an expectation will further stabilize Southern European markets and increase the bond yields of the U.S. intermediate & long treasuries to enable the U.S. equity markets. Such a move in the U.S. bond markets will sustain the increase in the upward valuation of equities.

The Nasdaq closed +0.33% for the week after Friday’s +2.00% pushed the index up from its declination. Given the sharp upward move in the index, the notion of upward volatility becomes a function of the underlying probability of the index leading the momentum gainers as positive macroeconomic news from the U.S. with respect to the better than expected jobs report & the positive economic news from Europe. Having lagged the S&P500 over the past week, the Nasdaq does have room to run considering the highs of late March. However, the downside for the index is around 2850 given current macroeconomic indicators.

The S&P500 ends the week +0.36% on the strength of the U.S. jobs report and stronger sentiment from southern Europe. The S&P leading the Nasdaq is a bit unusual given the opposite trend over the last 2 months. Such a move may indicate the consumer stocks gaining momentum heading into Q4. Should greater downside volatility show in the Nasdaq rather the S&P500, given symmetric beta risk, then one may suppose that consumer stocks are poised to have a strong Q4.

U.S. bonds should experience capital outflows early in the week as investors seek greater yield based on greater global stability. Should the Spanish Prime Minister not induce ECB bond purchases, capital inflows into U.S. treasuries is likely to take place, pushing down yields and causing instability in the U.S. equity markets. The downside for the 2yr 0.21%, 10yr 1.48%, 30yr 1.60%.

As the euro strengthens, the USD will continue to bounce off of its recent index high of 84. Some believe the stronger euro and weaker dollar to be reflective of potential further easing by the Federal Reserve. However, the euro has remained in a trading range of $1.21 to 1.24 and will move above $1.25 should the Fed ease or should the ECB monetarily sublimate fiscally derived Spanish sovereign debt into securitized European debt obligations.

The USD is continued to weaken against the Australian & New Zealand dollar, the Russian ruble, the Chinese yuan (onshore & offshore), & the Japanese yen. The USD is expected to rise against the Brazilian real & Philippine peso.

Central & South America

The IPC closed -1.15% for the week as the sell-off on Monday & Tuesday kept the index relatively low throughout the week. The IBOVESPA was the only index to achieve a gain on the week as the IPC & the Merval closed down more than 1.00%. The IPC, however, is coming off its six month high & is likely to experience capitulation going forward given the expectation of €’s moving into Mexican banks via an increase in tourism. The euro continues to move downward against the peso. 40435 is the key level to watch.

The Merval closed -1.61% for the week as Friday’s U.S. rally only brought the index back up to the level of Wednesday’s close. The Merval is still roughly 4/5’s off of its recent 3 month high to which the percentage decline is likely to be profit-taking and a move into growing global markets. The downside volatility level to watch going into next week is 2350.

The IBOVESPA closed +1.24% for the week as the bullish sentiment of the U.S. markets propelled the IBOVESPA. The index did gap higher on Friday’s open but only pushed marginally higher throughout the day. The index is above its June 20th & July 30th highs, respectively, and is likely to experience downside volatility over the coming week. Look at 55.5 as the level to watch.

Europe

The STOXX50 ended the week +5.40% as the general sentiment surrounding Europe has been improving over the recent weeks. Investors in the market that remain short on Europe continue with bearish sentiment on Pan European growth. Much of the recent push in the index is likely to be short-covers. 2333 is the level to watch going into next week with regard to downside volatility.

The FTSE100 ended the week +2.85% as the index did zigzag higher throughout the week before ending up on Friday’s session. The index is actually at its highest level in 3 months and will likely remain in a trading range with regard to downside volatility with greater probability of breaking through the trading range with volatility to the upside.

IBEX35 closed +2.09% for the week as Thursday was the only day where the index experienced a steep decline. Friday’s bull session pushed the index higher from the level of Wednesday’s close. The index appears to be rising from the end of July lows. Considering the likely actions of the Spanish Prime Minister & of the ECB, the time to purchase quality Spanish equities may be now. 6373 is the the level to watch for downside volatility.

The MIB closed +3.88% for the week as the bullish sentiment has propelled the index. Similar to the IBEX35, the MIB is coming off of end of July lows and is ostensibly establishing higher floors from the aforementioned lows. 13282 is the downside volatility to watch over the next week though expect the market to be long the index.

The CAC40 closed +2.87% for the week as a strong Friday pushed the index beyond Wednesday’s close. The index chart resembles the MIB & IBEX35 as the economic dissent has forced investors to trade these markets accordingly. The recovery in the former indexes will transfer to the latter. 3232 is the level to watch going into next week.

Middle East

The TA100 closed +1.89% for the week as technology stocks in Asia & the U.S. as well as improved European economic sentiment bolstered the index. The index closed higher on Monday, which no other Western oriented index accomplished. The gradual sell-off after Monday’s higher close lasted until Friday’s bull session. The index has been pushing higher to which the level to watch for downside volatility is 977.

Asia, Far East, & Oceania

The Sensex closed +2.13% for the week as the index made initial gains on Monday to which the market did not give back by Friday’s close. The positive market sentiment derived from the RBI reigning inflationary pressure & promoting low cost financing. The index has responded positively off of its July 26 low & is approaching its 1 month high of 17618.

The Nikkei225 closed -0.13% for the week as the index sold off on Friday after Monday’s buy-in & followed by capitulation. Given the relatively strong yen, the index has formed peaks & troughs over the past 2 months to which the global economic slowdown has not caused the index to fall below its Q4 2009 levels. The Nikkei is looking to reestablish 9000.

The ASX200 closed +0.28% for the week as the index closed down Friday after trading higher throughout the week. The index is approximately at the May 15 high, which is comparatively higher than indices within Asia & the Pacific Rim.  The index is seeking to gain momentum to reestablish 4420. The strong Aussie will enable lower prices for imports of agricultural commodities. Exporting countries will benefit via the balance of trade & the holding of the Aussie.
Thank you for reading.

Have a wonderful week!

Best,

Vidia – Ricochet Alternative Asset Management

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