The Week Ahead, Five Minute Drill: Greek Bond Sale, U.S. Non Farms Report

See The Week Ahead: Stocks, Commodities, Forex: March 29th -April 2nd–What To Watch for more detailed analysis of key market movers over the past and coming week.

STOCKS

Stocks began the week strongly on hopes for a solution to the EU debt crises, then faded into the end of the week as the EU provided a partial, stopgap solution, and rising US bond yields scared markets with the threat of rising interest rates. See the above link for details.

For the week, the DJIA gained 1%, the Nasdaq rose 0.9%, and the S&P500 climbed 0.6%.

Given that stocks sit at 16 month highs, they are subject to pullbacks on negative news. Primary market moving news to watch in the coming week:

• Greek attempts to sell about €5 bln in bonds as the EU’s plan to support Greece gets its first real test. If Greece is able to borrow at rates it deems acceptably low it need not actually test the new default contingency plan.
• US monthly job reports this coming Friday and the events that serve as leading indicators for them.

Go with the trend higher, but keep stops tight. Should the Greek bond sale go sour, or US jobs figures disappoint already high expectations for about a 200K increase in jobs, a pullback would likely follow.

COMMODITIES

Continue to trade within multi-week ranges, with oil holding steady and gold falling back slightly.

FOREX

The week in currency trading began on a subdued note as European leaders continued to send out conflicting signals over aid to Greece ahead of Thursday’s EU Summit. The EUR/USD ended the week off its worst levels above 1.34. That the EU managed as much of an agreement as it did was a pleasant surprise, though few saw it as anything more than a temporary bandage over a gaping wound. Greece’s attempted bond sale this week will be the first test of whether the accord had the desired effect of calming markets into keeping Greece’s borrowing costs acceptably low. See the above link for full details.

In addition to the Greek bond sale, the other big focus of the forex market will be the U.S. non-farm payrolls and a number of other mostly related key economic reports due for release. With a consensus forecast that calls for 195,000 new jobs to be created this month, economists clearly have high expectations for the labor market report.

If payrolls are able to meet this goal remains to be seen and even if job growth is really that strong, traders will wonder if the pace can be sustained. The March payrolls report will be distorted by the hiring of census workers (which are temporary) and the addition of jobs deferred forward from the snowstorms in February.

The ADP and Challenger layoff reports will help to guide the market’s expectations for payrolls and in turn, the movements of the dollar ahead of Friday’s release.

In addition to the NFP report, we will also be watching what comes out of China’s Vice Minister of Commerce’s visit to Washington D.C., with tensions between the U.S. and China exceptionally high right now due to trade and currency issues.

China’s reluctance to revalue the Yuan and increasing calls by members of Congress for Yuan appreciation has celebrity NYU Professor Nouriel Roubini predicting that the U.S. and China are on a Currency and Trade Collision Course.

US Dollar Weekly Outlook: Moving With EU Debt Crisis, Rising US Bond Rates, Coming US Monthly Jobs Numbers

US Dollar Bias: Bullish

• US dollar hits fresh highs against euro on Greek worries, but fades slightly after EU accord to support Greece, as even a partial, ambiguous, and temporary solution is still a step in the right direction.
• Fed’s Bernanke sets a relatively hawkish tone, setting stage for US dollar gains.
• Rising bond yields may force US rates higher regardless of Fed plans, another coming 10 year bond auction in the second week of April will tell more.
• For this week, watch the Greek bond sale to check the EU accord’s effectiveness, and US jobs figures (consensus is for +200K increase).
• USD unaffected by downward revision of US Q4 GDP from 5.9% to 5.6% given the relative advantage over that of the EU, UK, and upwardly revised UoM Consumer Confidence figure

Euro Weekly Outlook: Greek Bond Sale To Test Whether EU’s Ambiguous Greek Accord Succeeded in Lowering Greek Borrowing Costs

Euro Bias: Longer term Bearish, but in the coming week record oversold levels leave it ripe for a bounce if Greek bond sale is smooth or US jobs data disappoints

• European Union officials agree to joint Euro-area/IMF bailout for Greece should it be necessary
• Moody’s downgrades Portugal’s sovereign debt rating
• EU accord ambiguities leave markets unsettled, major questions about whether the amounts discussed are enough even for just Greece, never mind the rest of the PIIGS block
• Greek bond sale this week will test whether the accord achieved its key goal: to keep Greek borrowing costs low enough so that it doesn’t need to test the EU agreement.

Japanese Yen Weekly Outlook: Uncertain as Yields, Risk Compete for Influence

Japanese Yen Bias: Neutral

• Japanese Media Report Insurance Companies (huge yen bond buyers) Bearish on yen, to hold unhedged foreign bond positions
• Japanese Large Manufacturer’s Survey points to jobless recovery
• Bank of Japan leaves rates unchanged, doubles bank lending
• All Activity Index outperforms in January on Japanese service sector sales
• Could be pressured by USD strength, or lifted by its weakness, thus moving with the same forces as the USD

British Pound Weekly Outlook: To Test Upper Trading Range as ‘Relative’ Economic Outlook Improves

British Pound Bias: Bearish

• Employment and public spending improve, but still awful even compared to just last year
• U.K. Consumer Prices weaken more-than-expected
• Chancellor of the Exchequer Alistair Darling maintains pledge to cut deficit
• Retail spending tops forecasts
• Bloomberg Survey shows economists expect BoE to refrain from more QE at April 8th meeting

Swiss Franc Weekly Outlook: May Decline Against Pound and Dollar, Gain on Euro

Swiss Franc Bias: Neutral

• Speculative sentiment favors Swiss franc gains vs. US dollar
• Futures positioning hints of possible franc trend reversal
• Moving With markets, SNB policy shift to allow CHF to rise
• CHF gaining on commodity dollars as they test support

Canadian Dollar Weekly Outlook: Looks to Nonfarm Payrolls, Crude Oil, Equities for Direction

Canadian Dollar Bias: Bullish

• Canadian dollar test of parity awaits breakout in Crude Oil
• Medium-term momentum and crowd sentiment favors Canadian dollar gains
• Canadian dollar proves resilient amid broader US dollar rally
• CAD holds fundamental advantage over USD, which faces serious mortgage reset issues from July forwards

Australian Dollar Weekly Outlook: Will Gauge Interest Rate Forecast Ahead of RBA Meet

Australian Dollar Bias: Bearish

• Moving With risk appetite, which in turn will move with Greek bond sale, US jobs news
• RBA Financial Stability Review keeps Australia on pace for further rate hikes
• Dollar volatility and a steady Dow run don’t necessarily confirm sentiment trends
• Australian dollar further develops a reversal pattern

New Zealand Dollar Weekly Outlook: Will Higher Rate Expectations Spur Break Out?

New Zealand Dollar Bias: Neutral

• Moving With risk appetite, which in turn will move eith Greek bond sale, US jobs news
• New Zealand 4Q GDP expands at fastest pace in two-years
• Current account deficit widens more-than-expected
• Trade deficit widens For first time in eight months

Disclosure: No Positions