FA...FOREX

Bi-Weekly Outlook April 19th – 30th: Market Movers – And EU’s Fatal Mistake
Here’s what happened, as reflected in the chart below of the bellwether S&P 500, our chief risk appetite barometer.



S&P 500 Daily Chart April 1-30 2010 04 May 02

Friday April 16th

Pullback Begins With Goldman Sachs
US Securities and Exchange Commission formally charges Goldman Sachs with fraud. The fear was that this case would lead to increased regulation that would limit big bank profits and also signal the start of similar legal troubles for other large banks.

April 16th- 27th

Positive US Earnings Season Lifts Markets:
Markets spent this period recovering losses from April 16th on positive earnings reports that showed big name sector leaders not only beating earnings but increasingly showing top line revenue growth, indicating actual sustainable growth in their businesses.

EU Debt Crisis Worsens

Meanwhile the EU debt crisis threatened to do the unthinkable – upstage US earnings season as the prime market driver. Following the latest EU/IMF rescue plan of March 25th, confidence in the aid plan eroded as:
Greece attempted new bond sales. However, Greek bond yields rose, showing markets correctly saw ambiguities in the plan.
The IMF reports a Greek rescue will cost €100-120 bln, confirming the widespread believe that the existing € 45 bln EU/IMF plan was inadequate beyond the very near term.
German political and legal challenges risked delaying or preventing Germany from participating, essentially dooming Greece to default when its bonds matured on May 29th.
Bond traders saw the danger that others missed, rates on all PIIGS block bonds began to climb at an accelerating rate.

That stock, commodity, and many risk currency markets were able to rise against this background was testimony either to market resilience or denial of the crisis that was unfolding.

EU Crisis Blows Up

Monday April 26th:Germany attached even more conditions to its participation. The costs of insuring Greek and other PIIGS block bonds soared on recognition that Greece truly might not get funding in time to avoid default, if not in May, then at some point in 2010. Italy held a nearly failed bond sale with demand barely covering the supply, and at higher rates. Italy needs to sell about €30 bln of bonds in June.

Tuesday April 27th: Standard and Poor’s downgrades Greek and Portuguese credit rating.

Global markets plunge as it becomes clear to all that the rising likelihood of Greece default increases default risk of the rest of the PIIGS block and other struggling economies.

Wednesday April 28th: Standard and Poor’s downgrades Spain’s credit rating, which in turn makes Spain’s borrowing costs rise. It needs to sell about € 30 bln in July. Unlike Greece and Portugal, Spain and Italy’s debt loads are too big for the EU to cover.

German leaders see the danger, reverse position, say that funds will be ready in time. EU leaders begin planning a new Greece rescue plan.

Pullback Continues With Goldman Sachs

Friday April 29th: Markets sell off on uncertainty about the coming EU Greek rescue, and on sharp drops in financial stocks on news that Goldman Sachs will be part of a federal criminal probe.

Primary Risk Market Drivers For The Coming Weeks
EU Crisis
US Jobs Reports and Related Leading Indicators
German And UK Elections
Fallout From Goldman Sachs, BP Oil Spill
Further developments in China housing construction and real estate bubble and attempts to cool it.

Better news on these will help the AUD, NZD, CAD, EUR, GBP, CHF, USD, and JPY in that general order, however:
New on the EU crisis most directly impacts the EUR for good or bad
US jobs data most directly affects the USD for good or bad
German elections could impact EU rescue plan if opponents to EU rescue score big