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The Week Ahead

Will the data help?

Mon, Feb 1 2010, 10:32 GMT
by Przemysław Kwiecień

X-Trade Brokers, XTB  |  View company's profile

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The US macroeconomic figures released on last Friday were upbeat. The GDP in the 4th quarter of 2009 expanded by impressive 5,7% (even if greatly helped by inventory rebuilding) and both Chicago PMI and University of Michigan sentiment index came at better than expected. Regardless of the good news, the Wall Street ended sharply lower. Will the figures about to be published this week help?

It seems that what was feared in the US, materialized in Asia. Signals of inflationary pressures and monetary tightening in China and India caused a retreat on stock markets even though the Fed doesn’t seem to eager to move rates any time soon. This caused a cascade of sells on the industrial commodities, especially metals as those countries are seen vital to a demand side on markets like copper or aluminum. On the copper market the worries added to already deteriorating fundamental picture which eventually caused a major retreat in prices and technical picture (now pointing at a correction to as low as 5800 USD per ton).

On the stock markets, however, the slide seems to mostly psychological. The earnings season looks very solid and last Thursday Microsoft summed up techs results with very solid reports. This week’s ISM and payrolls will provide another chunk of a fundamental picture. The ISM (today at 4pm CET) is expected to inch up to 55,5 pts. which would be the highest since April 2006 and the sight month straight above the 10-year average. The index gave the first signs of a revival in the first half of 2009 but came onto the rougher path later on. Still the direction is upward and reading of 55+ pts suggest a fairly brisk recovery. Payrolls (Friday, 2:30pm CET) are expected to be on the positive side and post the best reading (+13k) since December 2007. Higher claims reading in the second half of January make much higher rise in employment rather unlikely but since the number is an estimate, an actual reading may always surprise on both sides.

To sum up, for now it seems that the slide on the stock markets has a corrective nature and does not herald a major shift in the sentiment. On the other hand, the dynamics and internal structure of the move suggest that it might go deeper than previous profit taking retracement. A clear break under the 1080 pts line on the S&P500 futures suggest a possible drop to as low as 1025 pts with a very weak support at 1066 pts. A drop to a further support – 957 pts., peaks from June 2009, seems unlikely, as strong fundamentals would encourage opportunity buying before that point.

Published on  Mon, Feb 1 2010, 10:33 GMT

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