Week ahead : Fed Meeting, Treasury Auction Will Dominate Market

By: Patti Domm
Executive Editor

The Fed's mid-week meeting and a record $104 billion of Treasury auctions are the big hurdles for stocks in the week ahead. The week's economic data includes existing and new home sales data and durable goods, all important measures of the state of the economic recovery. Investors will also be interested in testimony from Fed chairman Ben Bernanke before a Congressional committee Thursday on his role in the Bank of America, Merrill Lynch merger.But the big event is the Fed's statement Wednesday.The Fed is likely to be cautious in its comments about the economy's improvement, and many Fed watchers expect it to reinforce its commitment to hold rates down while economic conditions improve.The Fed may even tweak its quantitative easing program, under which it has been purchasing Treasurys and mortgages.

"I'm sure they'll say things look better then they looked six to eight weeks ago..
I would say probably they've been encouraged by how things have improved," said Stephen Stanley, chief economist at RBS Greenwich Capital."You go back to the March meeting when they announced the purchase program...At that point, I think they were bracing for the worst.The turnaround from there to here in three months has been dramatic.The employment number is the latest bit of evidence...it doesn't mean we're in a healthy position The economy is still contracting," he said.Stanley said the Fed could alter its purchase program, by possibly slowing down the purchase of Treasurys or extend the time frame past the current September deadline.He said the Fed mortgage purchases should be a more effective way of getting rates down."It's just not clear any more that the Fed buying Treasurys is bringing rates down.It just doesn't seem to have the effect they want," said Stanley The Treasury's heavy issuance calendar has coincided with rising yields in the last several weeks, which in turn resulted in a creep up in mortgage rates.Traders fear rising rates could snuff the economic recovery and hamper the housing market's ability to heal.In the coming week, Treasury auctions 2-year, 5-year and 7 year notes in three separate auctions Tuesday through Thursday.

What Next
Once the Fed's two-day meeting is over, traders say stocks could continue to trade quietly into the quarter end. "The (thin) volume in the market is a good indicator that people are sitting on their hands, hoping the market trades without them into the start of the earnings season," said Patrick Boyle of LaBranche Financial.Boyle said stock traders are also keeping a close eye on the credit markets, which in the past several sessions showed the first signs of weakening since March.High-yield, in particular, lost about 1.5 percent for the week, but that was slight compared to returns of about 30 percent in the past three months.The improved health of the corporate bond market is supportive of stocks and can be an important monitor of the market's vitality.

"It's definitely weaker this week for sure," said Greg Peters, global head of fixed income research at Morgan Stanley. "There's no single catalyst. I think next week is important. You have some (corporate bond) deals that are going to come...There has been this crowding out affect. The Treasury auctions are so sizeable and so important that takes away from the ability to do deals in corporates in that period of time. I think this next week with the calendar coming, you'll get a sense of the true sentiment.""My guess is in investment grade, you'll see buying on the dips and some firming, and I think high yield is going to be a somewhat different story," said Peters.

Several hearings may get investors attention in the week ahead.On Monday, a Senate Banking subcommittee holds hearings on regulation of over-the-counter derivatives. But the hearing that will be most closely watched will be Thursday, when Bernanke appears before the House Committee on Oversight and Government Reform.The bottom line for markets is whether Bernanke damages his credibility when answering questions about his role in the merger of Bank of America and Merrill Lynch.

Whither Stocks
After four weeks of gains, stocks finished the past week lower, the second losing week in eight.
The Dow lost nearly 3 percent to 8539; the S&P 500 slumped 2.6 percent to 921, and the Nasdaq was off 1.7 percent at 1827.The dollar traded in a saw tooth pattern, ending the week just 0.4 percent higher against the euro, but 2.2 percent lower against the yen.The bench mark 10-year Treasury ended the week lower, which lifted its yield to 3.792 percent.The stock market's best performers in the past week were defensive issues. Health care rose more than 2 percent. Investors traded out of the cyclical names that represent the "reflation" trade, with energy falling 6.5 percent, materials falling 6.4 percent, and industrials off 5.6 percent.It's not surprising that oil and other commodities were lower in the past week.Crude finished at $69.55 per barrel, down 3.5 percent, while gasoline fell nearly 6 percent, and heating oil fell 2.8 percent.Natural gas though rose 4.5 percent. Copper fell 5.2 percent; corn was down 6.2 percent, and soy beans were down 5.3 percent. Gold also lost a little luster, sliding a half a percent to $936.20 per troy ounce.

Brian Belski, chief investment strategist at Oppenheimer, is bullish on the stock market but is not a big fan right now of the "reflation trade." His favorite sector is tech."We like companies that generate cash. That's why technology is our favorite sector, and that's why quality will show leadership. We have shown that the prior leadership is never our new leadership.Tech has pristine balance sheets, lots of cash, and has done a great job taking out capacity in the last five years. Where the commodities companies have been building capacity in the last few years," he said.
Like many strategists, Belski said it's possible the market could pull back, but he does not expect it to be deep."I would say it will be a fade. I think a fade could be anywhere from 5 to 15 percent," he said in a phone interview this past Thursday. "After three days of choppy behavior, if it's going to happen at any period, it's going to happen now. I think fourth quarter is going to be great for stocks."
Belski also stands apart in his belief that the market has entered a new bull market, and the current rally is not just a bear market rally."I think the bull market started in March with much doubt and negativity. That's how all bull markets start and now given what we've seen and the type of volume in the market that shows us there are not a lot of people involved...The 'long onlys' might be repositioned but they have not bought into it. All that's happened is investors have become market weight again, or not even," he said.

Good-bye Q2
Belski said the next week and a half could be relatively quiet for stocks ahead of the quarter's end. "I think people want to show the gains they made, so they don't' want to show they sold out of stocks. They want to hold them," he said. "..You might have some volatility around second quarter earnings."Stanley said the quarter end could be a significant time period for some markets."There hasn't been a routine quarter end over the last two years, and this is going to be a significant one, particularly because you have this special assessment of the FDIC on banks," he said.
The assessment is on assets as of June 30."There's even greater incentive than usual to get balance sheets down, and we've already seen ripples of some of that in the funding areas. It just adds to the pressure for people to take trades off and take risk off, than you normally see around quarter end," he said.

What to Watch
Housing data in the coming week includes existing home sales for May Tuesday, and new home sales for May Wednesday. May durable goods are reported Wednesday. Weekly jobless claims, and the final look at first quarter GDP are Thursday.Personal income for May and consumer sentiment are reported Friday.Economists expect existing home sales to rise 2.6 percent, to 4.8 million, and new home sales are seen at 361,000, up 2.6 percent.Durable goods orders are expected to decline by 1.5 percent, after a gain of 1.7 percent in April. Weeklly jobless cliams are expected to stay roughly flat at 610,000.Several major earnings reports are expected in the coming week, including Oracle on Tuesday; Nike and Monsanto Wednesday, and Palm on Thursday.

Kalender Ekonomi Event & Global (22-27 Juni)

Date WIB + 11 Jam Currency Forecast Previous
Sun
Jun 21 6:45pm
NZD Visitor Arrivals m/m 2.4%
7:01pm GBP Rightmove HPI m/m 2.4%
7:50pm JPY BSI Manufacturing Index -66.0
7:50pm JPY Tertiary Industry Activity m/m 2.3% -4.0%
9:30pm AUD New Motor Vehicle Sales m/m 0.9%
11:00pm NZD Credit Card Spending y/y -1.6%
Mon
Jun 22 4:00am EUR German Ifo Business Climate 85.1 84.2
8:00am EUR ECB President Trichet Speaks
8:30am CAD Foreign Securities Purchases 4.27B 6.85B
Tue
Jun 23 2:00am EUR GfK German Consumer Climate 2.5 2.5
2:15am CHF Trade Balance 1.86B 2.55B

2:45am EUR French Consumer Spending m/m -0.1% 0.7%
3:00am EUR French Flash Manufacturing PMI 44.8 43.3

3:00am EUR French Flash Services PMI 48.7 48.3

3:30am EUR German Flash Manufacturing PMI 41.1 39.6

3:30am EUR German Flash Services PMI 46.0 45.2

4:00am EUR Flash Manufacturing PMI 42.4 43.3

4:00am EUR Flash Services PMI 45.8 44.8

4:05am GBP MPC Member Dale Speaks
4:30am GBP BBA Mortgage Approvals 29.5K 27.7K
8:30am CAD BOC Gov Carney Speaks
9:00am EUR Belgium NBB Business Climate -24.7 -27.6
9:00am EUR Buba President Weber Speaks
10:00am USD Existing Home Sales 4.82M 4.68M
10:00am USD HPI m/m -0.3% -1.1%
10:00am USD Richmond Manufacturing Index 5 4
7:50pm JPY CSPI y/y -2.8% -2.4%
7:50pm JPY Trade Balance 0.20T -0.52T
10:00pm NZD Westpac Consumer Sentiment 96.0
Wed
Jun 24 2:30am JPY BOJ Gov Shirakawa Speaks
4:00am EUR Current Account -4.6B -6.5B
4:00am EUR Italian Retail Sales m/m -0.3% 0.1%
6:00am CHF SNB Chairman Roth Speaks
6:00am GBP CBI Realized Sales -17 -17
8:30am USD Core Durable Goods Orders m/m -0.2% 0.8%
8:30am USD Durable Goods Orders m/m -0.6% 1.7%

9:30am GBP Inflation Report Hearings
10:00am USD New Home Sales 360K 352K
10:30am USD Crude Oil Inventories -3.9M
10:45am GBP BOE Gov King Speaks
2:15pm USD FOMC Statement
2:15pm USD Federal Funds Rate <0.25% <0.25%
6:45pm NZD Current Account -1.26B -4.03B
8:00pm AUD CB Leading Index m/m 0.4%
Thu
Jun 25 25th-30th GBP Nationwide HPI m/m -0.4% 1.2%
5:00am EUR Industrial New Orders m/m 0.0% -0.8%
8:30am USD Unemployment Claims 605K 608K
8:30am USD Final GDP q/q -5.7% -5.7%
8:30am USD Final GDP Price Index q/q 2.8% 2.8%
10:00am USD Fed Chairman Bernanke Testifies
10:30am USD Natural Gas Storage 114B
6:45pm NZD GDP q/q -0.7% -0.9%
7:01pm GBP BOE Financial Stability Report
7:30pm JPY Tokyo Core CPI y/y -1.0% -0.7%
7:30pm JPY National Core CPI y/y -1.1% -0.1%
7:50pm JPY All Industries Activity m/m 2.3% -2.4%
Fri
Jun 26 2:00am EUR German Import Prices m/m 0.3% -0.8%
All Day EUR German Prelim CPI m/m 0.1% -0.1%
5:30am CHF KOF Economic Barometer -1.77 -1.86
8:30am USD Core PCE Price Index m/m 0.1% 0.3%
8:30am USD Personal Spending m/m 0.3% -0.1%
8:30am USD Personal Income m/m 0.3% 0.5%
9:55am USD Revised UoM Consumer Sentiment 69.2 69.0
9:55am USD Revised UoM Inflation Expectations 3.1%

Crude Oil Weekly Technical Outlook

Written by Oil N' Gold
Nymex Crude Oil (CL)

Crude oil engaged in choppy sideway trading last week but closed below 70 level eventually. While 66.79 support remains intact, daily MACD is now staying well below signal line and crude oil has also broken near term trend line support decisively. The development suggests that a short term top should be formed at 73.23 and hence, we'd favor downside in near term, targeting 38.2% retracement of 45.44 to 73.23 at 62.61. On the upside, though, above 72.55 minor resistance will argue that recent rally is still in progress and should target 38.2% retracement of 147.27 to 33.2 at 76.77 before topping.

In the bigger picture, while a short term top might be formed at 73.23, there is no indication that rise from 33.20 has completed yet. Such rise is still in favor to extend to 38.2% retracement of 147.27 to 33.2 at 76.77, and possibly further to next key level of 90, (50% retracement of 147.27 to 33.2 at 90.23) . But as noted before, strong resistance should be seen there and at least from some deep pull back. Though, a break of 54.66 key medium term resistance turned support will argue that whole rise from 33.2 low has indeed completed and will turn outlook bearish for a retest of this low eventually.

In the long term picture, note that fall from 147.27 is treated as a correction, or part of the correction/consolidation to the five wave sequence from 98 low of 10.65. Downside target of 17.12/37.0 support zone is already met and the correction might have completed already. Sustained trading above mentioned 55 weeks and 55 months EMA will add some credence to this case and should target next key level of 90, (50% retracement of 147.27 to 33.2 at 90.23). This will remain the preferred case as long as crude oil continues to stay above 54.66 support.

Gold Weekly Technical Outlook

Written by Oil N' Gold |
Comex Gold (GC)

Gold fell further to 926.5 last week before turning sideway. Initial bias is neutral this week and some consolidation might be seen. But after all, further decline is still in favor as long as 962.4 resistance holds. Below 926.5 will target 61.8% retracement of 865.5 to 992.1 at 913.9 next. On the upside, though above 962.4 will suggests that decline from 992.1 has completed and will will turn short term outlook bullish for 1007.7/1033.9 resistance zone again.

In the bigger picture, recent development argues that rise from 865 has possibly completed at 992.1 already, ahead of 1007.7/1033.9 key resistance zone. Also it suggests that consolidation from 1007.7 is still in progress and break of 913.9 fibo support will bring the third leg down to test 865 support before completing the whole consolidation. Nevertheless, downside is expected to be contained by 801.5 cluster support (61.8% retracement of 681 to 1007.7 at 805.7 ) and bring resumption of rise from 681. On the upside, though, above 992.1 will revive the case that rise from 865 is resumption of up trend rather than part of sideway consolidation. In such case, retest of 1007.7/1033.9 resistance should be seen next.

In the long term picture, medium term consolidation from 1033.9 should have completed as an expanding triangle to 681 already. Rise from there is tentatively treated as resumption of the long term up trend from 253 and will target 61.8% projection of 253 to 1033.9 from 681 at 1160 after taking out 1033.9 high. However, a break below mentioned 801.5 cluster support will argue that consolidation from 1033.9 is still in progress and will delay the long term bullish case.

Morgan Stanley: Emerging-Market Stocks Will Advance 32%

(Bloomberg) -- Developing-nation stocks may rise 32 percent in the next 12 months as a faster-than-expected earnings recovery fuels a long-term bull market, Morgan Stanley said. The MSCI Emerging Markets Index may climb to 985 by June 2010 from its closing price of 743.72 yesterday, Jonathan Garner, Morgan Stanley’s chief Asian and emerging-market strategist, wrote in a research note. Profits will rebound 28 percent next year after a 15 percent slide in 2009, Garner wrote. That compares with his earlier forecast for a 20 percent gain in 2010 and a 25 percent drop this year.The London-based strategist still reduced his recommended allocation to developing-nation equities, saying he’s “tactically cautious” because the global economic recovery may stall. The MSCI gauge may slide as much as 33 percent from its 2009 high during the next three months as weaker economic data from China and the U.S. spark a “correction,” Garner wrote.

“We continue to believe that Asia, emerging-market equities are in a secular bull market,” Garner wrote. Still, “we would not chase the market here over the summer months.”The MSCI index climbed 1.1 percent as of 9:58 a.m. in New York. The 22-country benchmark surged 55 percent from February through May, a record three-month advance, on speculation earnings will rebound as the global recession eases. The rally stalled this month as valuations reached the most expensive level since December 2007.

‘Correction’
Garner’s previous forecast for the MSCI gauge was for a rally to 810 by the end of 2009. He reduced his recommended equity allocation to 54 percent of an emerging-market portfolio from 56 percent and advised investors to increase cash holdings to 5 percent from 3 percent. Garner’s call for a “correction” in emerging-market stocks contrasts with a more bullish short-term outlook from Adrian Mowat, JPMorgan Chase & Co.’s Hong Kong-based chief Asian and emerging-market strategist.Mowat wrote in a report dated yesterday that he sees “no obvious fundamental triggers for correction” and investors should take advantage of this month’s retreat in stocks to “position” for further gains through the end of the year. “Potentially, we are in a powerful rally in emerging- market equities,” Mowat said.

Developing nations may grow their share of global gross domestic product to about 35 percent by next year from 20 percent a decade ago, Garner said. That will help boost emerging markets’ weightings in global stock indexes, he added.“We anticipate that demographic trends and the adoption of the market economy in most EM countries will sustain the recent trend towards a more EM-centered global economy,” Garner wrote.