25.06.2010 - XTB market snapshot

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Date: 2010-06-25 09:27

US equities – 2010 lows on the horizon / G20 – disagreement won’t help markets / Events to watch – US final GDP, UM index.


US equities – 2010 lows on the horizon

US initial claims fell to 457k from the previous week’s 472k and below the consensus of 464k but failed to improve a market sentiment for long. The thing is that the figure did fell before only to rebound from the 440-450k area. So unless there is an evident drop below the 440k threshold, any hopes for improvement on the labor market are off the table. The markets broadly neglected bad news from the US economy in the two previous weeks but eventually reacted to the extremely poor housing data released this week. A sharp reversal doesn’t fare well for the major US stock indices. They are on track for the 2010 lows (1040 points for the S&P500 futures and 9750 for the DJIA30) and unless those levels are defended (as they were in May and early June), a major H&S formation can take toll on the markets and drive stocks another 10% lower.    

Credit premiums on the European debt are worth observing here as they failed to improve along the equity markets (and the euro) and now may inch up to the new highs in some cases, causing additional default fears. Italian bond auction today might serve as an early indicator even if Italy is not the first to be targeted here.

G20 – disagreement won’t help markets

With the Chinese fx issue off the table, the incoming G20 meeting will be devoted primarily to the fiscal policy. Unlike last year, when everyone around was leaning towards a fiscal stimulus (perhaps except the Germans, as they were never keen for splashing around the taxpayers money), this time a row is evident. Germany and UK with their fresh austerity packages will argument the need of fiscal consolidation, while the US will press for more stimulus (or at least no tightening) citing the 1937’ case of preemptive tightening. The US will also speak for Southern European countries which might be the biggest losers of the tightening in the Northern Europe, but because of the promised aid might be shy to express their views. The truth is that while fiscal consolidation in a longer term is required (and in some places even in a short term), too many savings in too many places might indeed put an unnecessary brakes to the World economy. This type of thinking in Germany for instance, would be a positive sign for the markets, but seems rather unlikely at the moment.

Events to watch – US final GDP, UM index

The US GDP (8.30 ET, 14.30 CET, exp +3%) and the Michigan survey (9.55 ET, 15.55 CET, exp 75,5 pts.) are just final reading of previously released data and therefore their market impact will be close to none. Markets will look ahead for the G20 meeting and probably start thinking what the next week (and the payrolls release) might bring.

 

Przemysław Kwiecień
Chief Economist

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