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Key Reports (WSJ):
7:45 a.m. ICSC Chain Store Sales Index For Apr 4: Previous: +1.1%.
8:55 a.m. Redbook Retail Sales Index For Apr 4: Previous: +0.2%.
2:00 p.m. Mar Federal Reserve FOMC Minutes
3:00 p.m. Feb Consumer Credit: Expected: -$2.9B. Previous: +$1.76B
4:30 p.m. API Oil Industry Report For Apr 3
5:00 p.m. ABC/Wash Post Consumer Conf For Apr 4: Previous: -49.


“Socialists believe in government ownership of the means of production. Fascists believed in government control of privately owned businesses … That way, politicians can intervene whenever they feel like it and then, when their interventions turn out badly, summon executives from the private sector before Congress and denounce them on nationwide television.”

                              Thomas Sowell

FX Trading – Bad News: In or Not-Yet-In?
What’s the story? Is bad news priced into the markets? More specifically, is the crummy potential for first quarter US earnings season priced into markets?

Alcoa kicks things off today and clearly the expectations for the season are dismal. About somewhere just south of a 40% contraction in overall earnings is expected in companies’ first-quarter showing.

Considering the labor situation (among other things) it’s clear that corporate health is still on the skids. Stocks, however, have rallied strongly over the last month, recovering from big-time lows.

Was that the calm before the storm?

I guess, to answer that question, we first need to expect there will be another storm. And we do.

Yes. Expectations are low for companies who must reveal their Q1 financial positions soon. One might think such low expectations leave the door open for potential upside earnings surprises and, thus, potential for upside on share prices.

In the near-term, risk-appetite will ebb and flow with earnings numbers. But the real story on risk will come about not from past performance, but rather the potential for recovery here and in the rest of the world.

Again, with OECD forecasts recently setting global growth prospects a couple more notches lower, one might also think the potential for growth surprises lies mostly to the upside. Careful.

We wonder, based on world governments’ bailout and regulatory policies blanketing the global economic driving countries, are we setting up to experience a new round of pain for the same reasons the pain began in the first place?

We’ve recognized the symptoms of this crisis, but it seems we fail to accept an accurate diagnosis of the problem. (Of course, when I say “we” I mean it to be read as “top officials.”) If more of the same symptoms recur … or if the current virus morphs into a new strain of growth destruction … or if market players determine our top officials’ remedies are actually more hurtful than helpful … then we’re in for a substantial bout of risk-averse capital flow.

To revisit a question I recently asked in the pages of Currency Currents: have stocks bottomed?

I’m still leaning towards no. The growing potential for economic disappointment (due to further growth contraction as well as overly-confident, economically-myopic policy makers) leaves stocks set-up for a major wave of selling.

And we know what risk-aversion has come to mean for currencies.