Weekly Market Review- 17th September 2012

According to Bloomberg, new home construction and sales of previously owned houses probably climbed in August, a sign residential real estate is one of the economy’s few bright spots, economists said before reports this week. Housing starts increased to a 765,000 annual rate, the fastest in almost four years, from a 746,000 pace in July, according to the median forecast in a Bloomberg survey. Existing-home purchases advanced to a three-month high, while manufacturing contracted in two regions in September, other reports may show.

Australia will focus spending on vital services such as education while cutting expenditure in order to return the budget to surplus this fiscal year, Treasurer Wayne Swan said. The government made more than A$130 billion ($137 billion) in savings over the past five budget periods and measures such as reducing private health insurance rebates for high income earners would enable it to reach the goal of a surplus, Treasurer Wayne Swan said yesterday in his weekly economic note. In addition, the global boom in commodity prices is over and Australia must improve productivity in order to remain competitive, Resources Minister Martin Ferguson said. “The easy earnings we get out of high prices are now gone,” Ferguson told Bloomberg Television in an interview from Canberra today.

European Central Bank President Mario Draghi, embracing policies dismissed by his predecessor, is forcing euro bears to capitulate. The cost to protect against a default on government debt in Western Europe tumbled to a 15-month low and confidence in the region’s banking system is improving, with bank stocks rallying 33 percent since June 1. While former ECB President Jean-Claude Trichet kept the central bank from propping up debt-laden governments by limiting purchases of their securities as the almost three-year crisis deepened, Draghi has done the opposite since he took over in November.

Over the weekend, EU finance ministers, gathering in Nicosia, Cyprus, hit another obstruction on the European Union’s plan for a banking union, a new single supervisor to watch over 6,000 banks in the Eurozone. Several aspects of the plan were not agreed upon, including the number of banks to be overseen and how to avoid marginalization in non-Eurozone countries from key regulatory decisions.

EUR/USD: The pair jumped to a more than four month high at 1.31709 last week, after the European Central Bank unveiled its own bond purchasing program and Germany’s Constitutional Court allowed the euro zone’s permanent rescue fund to move forward. Furthermore, the Fed said it will purchase USD40 billion of mortgage-backed securities every month until the labor market improves on Thursday, fueling demand for riskier assets. Today, the pair was trading slightly lower at 1.31312 at the time of writing on news which came out over the weekend that EU finance ministers faced obstruction on the European Union’s plan for a banking union. Germany’s constitutional court said Germany’s liability to the ESM must not exceed EUR190 billion without the approval of the lower house of parliament and said that both houses of parliament must be kept informed about decisions relating to the ESM. While, Spanish Finance Minister Luis de Guindos said Friday his country still needs time to see how support from the ECB would work before the government requested anything beyond its current bank bailout. Investors should be very prudent this week as huge volatility are expected as speculation and market sentiments will continue to dictate the market. Economic events likely to contribute in the volatility are: Monday, official data on the current account in the Eurozone. Later in the day, the U.S. will publish an index of manufacturing activity in New York State. Tuesday; German economic sentiment as well as a separate report on sentiment throughout the entire bloc. On the other hand, the U.S. will release official data on the current account, as well as a report on the balance of domestic and foreign investment in long-term securities. Wednesday; building permits as well as data on housing starts in the U.S. Moreover, the country will publish government data on crude oil stockpiles, as well as an industry report on existing home sales. Thursday; data on manufacturing and service sector activity in the Eurozone, while Germany and France will release their individual reports. Meanwhile, Spain will hold an auction of 10-year government bonds. Later in the day European Central Bank President Mario Draghi will speak at a conference in Frankfurt. The U.S, on its side will release weekly government report on initial jobless claims, as well as an index of manufacturing activity in Philadelphia. The resistance level is at 1.32406 and the support level is at 1.30386 on the weekly chart.

USD/JPY: The USD/JPY was trading in the narrow range of 78.469 and 78.160 at the time of writing as investors jumped to the sidelines before the Bank of Japan starts a two-day meeting tomorrow. Last Friday, Japan lowered the assessment for its economy, marking the first consecutive downgrade since the waning of the global credit crunch in 2009, fueling concern the world’s third-largest economy will contract this quarter. Furthermore, the BOJ Governor Masaaki Shirakawa said on Sept. 6 that the yen’s appreciation causes a decline in Japan’s exports and that its negative effect is “dominant.” Investors weighed whether it will follow the Federal Reserve in expanding monetary easing. The dollar weakened to a seven-month low against the yen on Thursday after the Federal Reserve launched a third round of quantitative easing in an effort to spur economic growth in the U.S and after the European Central Bank unveiled its own bond purchasing program, a day after Germany’s Constitutional Court allowed the euro zone’s permanent rescue fund to move forward. This week lots of fluctuations are expected as speculation and sentiment will be driving the market ahead the BOJ policy decision scheduled this Thursday. Other events likely to add to the volatility in Japan are; Friday, Japan will release official data on the trade balance. The resistance level is at 78.822 and the support level is at 77.939.

Oil (WTI): Oil was trading lower at 99.040 at the time of writing on profit taking after touching a four months high at 100.357 last week. Oil soared after the Federal Reserve announced plans to stimulate the economy via a third round of quantitative easing and as market players focused on rising geopolitical tensions in the Middle East and Africa. This week, oil traders will continue to focus on violence across the Middle East, amid growing fears over a disruption to supplies from the region and will also focus on Spain's fiscal health, amid ongoing speculation over how close the debt-strapped country is to asking for a full-blown euro zone bailout. Besides, South Korea stopped buying crude from Iran in August after its refiners lost insurance coverage on ships carrying supplies from the Persian Gulf nation. Yet again, important fluctuations are anticipated on the pair this week on talk that Saudi Arabia remains committed to keeping prices low by upping supply should the demand arise, while reports forecast to show a strengthening economy in the U.S., the world’s biggest consumer of crude. New home construction and sales of previously owned houses rose in August, Housing starts in August increased to an annual rate of 765,000 from 746,000 in July, Existing-home purchases advanced to three-month high in the U.S, economists said before data this week. Investors should wait for some news and data to come on market to better assess the trend of the commodity. The resistance level is at 100.357 and the support level is at 97.956 on the weekly chart.

Good Luck in trading…