Morning Meeting 07/09/12

Good Morning.

The day after the D-day, financial markets look quite different from what we had become accustomed to see.

Asian shares jumped this morning after Mr Draghi unveiled his expansive bond-buying plan to stabilize markets and China boosted stimulus measures.

The Shanghai Composite surged 4.20% to 2,138.02, while Hong Kong's Hang Seng Index rose 2.37% to 19,663.92.

China's top planners, the National Development and Reform Commission, gave the go-ahead to 13 highway projects and other municipal and port projects, according to reports citing documents posted on the commission's website. The measures follow Wednesday's announcement of 25 new rail projects worth an estimated 800 billion yuan ($127 billion) over the next three to eight years. The Keynesian-style stimulus is designed to cushion Chinese's economy fall.

Still, the current plan is much smaller than the 4 trillion yuan package of spending unveiled in 2008, which was phased over a two-year period to help shield the Chinese economy from the global crisis.

Japan's Nikkei Stock Average rose 1.98% to 8,852.43 as Europe exposed exporters climbed in Tokio, helped further by a drop in the yen versus the euro.

The euro traded at $1.2628, not far from a near 10-week peak of $1.2652 hit on Thursday. It stood at 99.61 yen, just below a two-month peak at 99.80 yen touched on Thursday. Risk-sensitive commodity currencies were firmer, with the Australian dollar at $1.0293 after jumping nearly 1 percent to $1.0300 on Thursday, its biggest one-day gain in a month.

Spot gold fell 0.5 percent to $1,692.14 an ounce from its highest in six months above $1,700 touched on Thursday. US crude shed 0.7 percent to $94.87 a barrel, weighed by a possible U.S. release of emergency oil reserves and profit-taking from recent gains ahead of the U.S. payrolls data, while Brent fell 0.5 percent to $112.95.

US stocks closed at multi-year highs yesterday after the Draghi “secret” plan was unveiled. The DJIA surged 244.52 points, or 1.9%, to close at 13,292.00, its highest close since Dec. 28, 2007. The S&P500 Index rose 28.68 points, or 2%, to close at 1,432.12, the highest close since Jan. 3, 2008, driven by materials, financials and tech stocks. The Nasdaq Composite Index jumped 66.54 points, or 2.2%, to 3,135.81, its highest close since Nov. 15, 2000. Was just the Draghi effect?

In addition to the ECB detailing its bond buying program, which was discussed yesterday in our D-DAY review, investor sentiment was raised by macro readings that cast a more positive light on the US labor market, one day before the Non-farm payrolls report.

ADP Employer Services found U.S. companies added 201,000 to payrolls last month, the largest jump in five months. Yesterday the US Labor Department reported that the number of people filing for state unemployment benefits for the first time fell 12,000 to a seasonally adjusted 365,000 last week, the biggest drop since mid-July.

Today the Labor Department will release the NFP (Non-Farm-Payrolls) numbers for August the market is positioned for 120.000/125.000 new jobs, down from an initial estimate of 163.000 in the prior month.

The report could affect the Federal Reserve's decision on whether to launch another round of large-scale asset purchases, or quantitative easing, at its policy meeting next week. Will Mr Bernanke join Mr Draghi unveiling his unconventional measures?

Investors will read today numbers in searching for an answer, by the way it's important to observe that we are assisting to a shift in risk assessment as showed by the Vix Index which sank 12 percent to 15.60 and Europe's VStoxx Index, a measure of Euro Stoxx 50 Index option prices, which fell 16 percent to 23.11 for its biggest drop since October.

Therefore if the NFP reading will beat expectations, we would not see the selling wave that usually followed better than expected data when the bulk of the trading hypothesis was the “QE”.

Let's kick start this day and thank's God it's Friday.

Originally posted at www.77sigmatrading.com