Problems Are Deeper And Broader Than What Meddling With Interest Rates Can Cure

The U.S. stock market’s first 10 percent decline in four years may foreshadow more losses as investors speculate the Fed will fail to keep the world’s biggest economy from faltering.

Overnight News Bullets

• SW Trade Balance (Oct) out at 11.4B vs. 7.5B expected. Prior at 7.1B
• PD Retail Sales MoM/YoY (Oct) out at 7.4%/19.4% vs. 2.7%/15.1% expected. Prior at -1.8%/14.2%.
• PD Unemployment Rate (Oct) out at 11.3 as expected. Prior at 11.6%.
• Hungary Base Rate unchanged at 7.5% as expected.
• JN Corp Service Price YoY (Oct) out at 1.4% vs. 1.5% expected. Prior at 1.3%.

Markets

• FX: Emerging market currencies lower, with USDZAR back around 7.00. Dollar weakness continues in major pairs, with EURUSD around 1.4860 and cable above 2.07.
• Stocks: American and Asian stocks broadly lower. S&P 500 closing 2.32% lower.
• Fixed Income: US Treasuries lower after new of Citigroup equity sale. European bonds gain for a second day and JGBs little changed.
• Commodities: Crude prices consolidate with January contract now again around $97 a barrel. Gold trading around $827 an ounce.

O/N Data Heat map:

Calendar

Today's Highlights:

This and Next Week’s Highlights:

What's going on?

• Citigroup shares fell below $30 for the first time in 5-yr period, again highlighting the concern of mounting of mortgage losses. For the year, the share price is down is down 46% and the bank is considering massive layoffs. Abu Dhabi Investment Authority has however agreed to purchase 4.9% of Citigroup, infusing $7.5B to troubled bank.
• As another clear sign of increased risk aversion, premium for options on major currencies is falling over the emerging currencies and indicating a possible, larger scale correction in the riskiest emerging market investments.
• The yo-yo effect on the crude prices continues within the $96-99 a barrel range, with the prices dropping by one dollar overnight as speculation has increased that OPEC would decide after all to increase its output.

FX

FX Trading Strategies

Equities

We Go Defensive With France Telekom (FTE:xpar)

The U.S. stock market’s first 10 percent decline in four years may foreshadow more losses as investors speculate the Fed will fail to keep the world’s biggest economy from faltering. Yesterday’s decline wiped out the rally that was sparked by the Fed’s Aug. 17 Discount rate cut. It seems the problems are deeper and broader than what meddling with interest rates can cure.

Equity Trading Strategies

We like the trend in France Telekom, and the recent days of the decline is offering a good risk/reward setup, we buy towards 25.00 keeping a stop at 24.25 initially targeting 27.

Futures

Oil: Hold well under Equity pressure.

Futures Trading Strategies

Buy Crude Oil (clf8)  @ 96.20/60area; stop below 95.80; Target 98.30 and 99 areas. We keep it as a trading affair and will play both side(Sell &Buy) while keeping an eye on the Equity mkt.