Wakeup Call: Bearish Comments From The BoJ

will that ensure stability in the Carry Trades? Fannie Mae and Freddie Mac making new lows

Overnight News Bullets

• FR Bank of France Business Sentiment (Jul) out at 92 vs. 94 expected.
• EC Euro-Zone Trade Balance (Jun) out at -3.0B vs. 0.5B expected.
• CA Int’l Securities Transactions (Jun) out at C£7.247 vs. C$5.000 expected.
• US NAHB Housing Market Index (Aug) out at 16 as expected (all time low).
• NZ PPI Inputs QoQ (2Q) out at 5.6% vs. 2.3% prior.
• NZ PPI Outputs QoQ (2Q) out at 3.5% vs. 1.8% prior.
• AU Preliminary BoP Imports MoM sa (Jul) out at 5.0% vs. -2.0% prior.
• JN BoJ Target Rate out at 0.50% (unchanged) as expected.
• GE Producer Prices MoM/YoY (Jul) out at 2.0%/8.9% vs. 0.7%/7.5% expected.

Markets

• FX: Consolidation in the majors. USD looks overbought, only buy on new highs (break-outs).
• Fixed Income: 10-year contracts (still) edging higher despite overall USD strength.
• Stocks: US session generally down 1.5%. Europe only slightly lower. Nikkei down 2.5%. ASX down 2%.
• Commodities: Crude Oil making new lows, $112/bbl. Precious metails looking vulnerable.

O/N Data Heat map:

Calendar

Today's Highlights:

This and Next Week’s Highlights:

What's going on?

• New speculations that Fannie Mae and Freddie Mac will need a bail-out due to lack of capital. Shareholders stand to lose out. Fannie Mae trading at the lowest since 1989.
• The NAHB Housing Market figures yesterday were out at the lowest level ever. In our opinion, the US housing market is still overvalued by 25%.
• The BoJ was issuing a rather depressing statement subsequent to the release of the target rate overnight. The BoJ said that the 'economy is not likely to recover until 2010'.
• The king of carry is shifting from EURJPY to USDJPY and we believe that the correlation seen over the past 4 weeks will continue to favor higher levels in USDJPY on the back of strong bidding for the dollar and continuing cross selling in EUR crosses.
  

FX

EURCHF to break lower

FX Trading Strategies

Equities

Stocks will trade lower on renewed concern that banks will make further writedowns.

Equities

We expect the European markets to open 0.7% lower Tuesday. The US stock indices lost 1.1% after the close in Europe and the S&P 500 future 0.3% up. The late losses in the U.S. were led by the financials with 1.8% as growing speculation that the government will bail out Fannie Mae and Freddie Mac rattled the mortgage market. We believe that the negative sentiment for the banks will spill over into the European session and recommend shorting Royal Bank of Scotland, Barclays, UBS and Deutsche Bank

Trading Strategy:

Trade Idea [Equities - Fundamental Call - Sell Royal Bank of Scotland (RBS:xlon)]: We are looking to sell within the entry range of 225-228, targeting 210. Keep a stop-loss at 232

Equity Index Levels

Futures

Oil: We expect the $110-108 area to be tested soon.

• Sell Crude Oil (clv8) @ $112.30/113.30 area with a stop above 113.45, target $110.40.
• Crude Oil resumed its fall as the Storm may miss the US Gulf fields. We expect the downtrend to continue and the $110-108 area to be tested.

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