Market Talk

Hope you’re not still wondering about the effectiveness of the Fed’s QE2 program, as there should be no more debate: Dow Industrials close at their highest level since August 2008; S&P 500′s highest close since early Sept 2008; go back almost three years to see Nasdaq close at this level.

Fed officials have proffered that one ambition for QE2 was to help increase stock prices. Well, mission accomplished so far. Sure, it’s lighter, pre-holiday trading, but gains are gains, right bulls?

Feel wealthy, citizens? Case closed.

Financials soar, followed by materials and energy. CAT, IBM and JPMorgan contribute 50% of the Dow’s gain. DJIA rises 55.03 to 11533.16, and Nasdaq Comp climbs 18.05 to 2667.61. S&P 500 ends 7.52 higher at 1254.60. Continue reading…

Yesterday we took issue with St Louis Fed President James Bullard’s assertion during a CNBC interview that there was no evidence that QE2 is a factor in jacked-up commodities prices, though he conceded that their relationship should be studied.

Well, study this, Mr. Bullard: today US corn futures close at their highest level since July 2008 at $6.02 a bushel. Nymex Feb crude futures hit their highest close since October 2008, at $89.82 a barrel, and up 6.8% this month. Nymex heating oil at a fresh 2010 high at $2.5164 a gallon. Cotton hits a fresh post-Civil War (yes, that Civil War) high at $1.59 a pound. Comex copper futures settled at an all-time record high at $4.276 a pound.

Now, we’re not saying it’s all because of QE2 and no influence from supply/demand, China, whoever, but come on. All of these different commodities hitting fresh or all-time highs simultaneously?

Meanwhile, an asset class that Fed officials admitted QE2 was, in part, aimed at — stocks — also rose today to fresh two-year highs.

Not a coincidence. Study complete. Good luck at the gasoline pump or grocery store, citizens.

The euro earlier slumped to a session low $1.3072 vs US dollar (after earlier rising to $1.3202), continuation of a drop sparked when the Fed announced it will extend existing US dollar swap line facilities with a handful of foreign central banks.

US stocks appear generally oblivious to the develop, which could be chalked up to a simple focus on wrapping up the year’s business, and trying to grind out more gains in thinner, pre-holiday, formulaic and mechanical trading. Slap the blinders on and buy.

The Fed’s swap-line extension is telling — it’s reinforcement that the debt problems in Europe have a certain intractability, a stubbornness that won’t be dissolved by wishful thinking, promises of new “support mechanisms” or kind words from the Chinese. Continue reading…

Feeling a little deja vu, with the premarket complexion nearly identical to yesterday’s at this time, except stocks were stronger in Asia overnight.

Positive tone for global markets is being attributed to a Chinese official’s comments in support of EU bailout measures. Was there some concern that China might denounce such actions? This stuff is boilerplate trade diplomacy, folks, so the emphasis it gets today speaks to the lack of other tangible drivers. Oh, so China’s cool with the EU’s attempts to keep its economic system intact? What a relief.

Despite the DJIA’s inability to make headway yesterday, the path of least resistance still seems to remain higher into year end, as participants focus on wrapping up business and enjoying the holidays.

Euro flatlining around $1.315, USD index shaded lower. S&P futures up 4.00; 10-yr note higher, yield at 3.31%.