Market Talk

US stocks rise, even after Portugal comes out and says it’ll be the third European nation to seek an international bailout.

DJIA rises 33 (0.3%) to 12427; yes, it’s another fresh multi-year high, S&P 500 gains 3 (0.2%) to 1336, Nasdaq Comp adds 9 (0.3%) to 2799.82. Volume’s a bit weak.

There wasn’t much in the way of hard news most of the day, but that serves bulls just fine. They’re buying just about everything. Gold hits a fresh record. Crude hits a fresh multi-year high. Even cotton’s rebounded.

Market shows little initial reaction to Portugal’s admission that it will follow Greece and Ireland in seeking a bailout. It can’t be a good thing that a third European nation is seeking international help because it can’t handle its problems on its own. But the even bigger issue is that everybody, and we mean ev-ree-bo-dee, is already looking past Portugal to its neighbor on the Iberian Peninsula — Spain.

Meanwhile, the Nasdaq Comp continues to flirt with the 2800 level. Our colleague, Tomi Kilgore, penned the following missive:

The fifth time wasn’t the charm for the Nasdaq Composite. Including today, the index has traded above 2800 intraday for the third time in four sessions, and the fifth time since Feb. 22, without closing above it. The Nasdaq ended up 8.63 at 2799.82, off an intraday high of 2815.55. Even if 2800 is cleared, bulls have to contend with nearby resistance within the gap in the charts between the Feb. 18 low and the Feb. 22 high (2808-2824), followed by the Feb. 18 high of 2840.41. Meanwhile, support starts at 2750-2765, which includes the gap between the March 29 high and March 30 low and the 50-day moving average.

Compliments to the Bank of Japan, for keeping it real.

While the Federal Reserve continues to pretend its easy money policies aren’t juicing commodity markets, the BoJ isn’t afraid to acknowledge the obvious. Colleague Kevin Kingsbury alerted us to this commentary issued by the BoJ last week titled: “Recent Surge in Global Commodity Prices – Impact of financialization of commodities and globally accomodative monetary conditions.”

And if anyone knows a thing or two about accommodative monetary conditions, it’s Japan.

The report certainly gives credit to global economic growth for pushing up commodities, but it also says “speculative investment flows into commodity markets have amplified the intensity of the price surge.”

Here’s a sentence from the summary that should have Bernanke, Dudley and other deniers at the Fed turning crimson: “Furthermore, globally accommodative monetary conditions have played an important role in the surge in commodity prices, both by stimulating physical demand for commodities and driving more investment flows into financialized commodity markets.”

A dose of cautionary comments on three things that seem to only go up lately: the euro, stocks and corporate earnings.

First on the euro, which surged through $1.43 today its highest level vs USD since January 2010, and looks as if it’s left any and all concerns about sovereign debt in the dust.

Nomura says in a report that it’s too early for the euro to shed that risk. “The uncertainties about the economic outlook, debt dynamics, and the political framework around managing sovereign insolvency are simply too great,” firm says.

It estimates “a debt restructuring isolated to Greece/Ireland/Portugal would trigger direct and indirect losses around $240bn for core Eurozone banks, while bank losses would rise to $480bn in a restructuring including Spain.” German banks have the largest exposure to the periphery, Nomura says, with estimated losses of $185B in a restructuring scenario involving Spain.

Implied risk premium on the euro “has compressed significantly since January,” firm says, as the single currency “decoupled from sovereign risk.” That process “has probably run too far at this point: a persistent risk premium is still needed.”

On to stocks and some thoughts from BofA Merrill small-cap strategist Steve DeSanctis. He points out that weaker economic news, higher energy prices and disaster in Japan tripped up stocks in early March, but a “liquidity driven rebound” has put the Russell 2000 within 1% of its all-time high.

“Volatility came tumbling down despite the fact that none of the earlier concerns…have been resolved,” he writes, and small caps “are now very close to the full year’s return we have been expecting.” DeSanctis says he’s been “taken back by the strength of the overall equity market and in small caps in particular given the economic backdrop and where absolute and relative valuations stand,” and thinks 1Q earnings estimates are too high. Continue reading…

Is the stock market rising on strong fundamentals, or strong liquidity? We get into that debate today, and we were lucky enough to have best-selling author John Mauldin on to help us get to the heart of it.

Based on premarket futures, US stocks on track to run higher when regular trading gets underway as investors here watch a surging euro and rising European stocks.

Rally in Europe said to be pinned on hopes for the economy as ECB is expected to hike rates tomorrow to corral inflation. Solid German manufacturing data out today, but UK manufacturing wasn’t so hot. Seems basis for rally is a bit flimsy, particularly as a teetering Portugal had to pay an average of more than 5.1% on six-month T-bills in its auction today vs 2.98% a month ago.

Here in the U.S., Chicago Fed’s Midwest manufacturing index hit the tape at 8:30 a.m., and showed some improvement. The bank’s Midwest Manufacturing Index rose 1.3% to a seasonally adjusted 83.3 in February from a revised 82.2 in January, with a 3.5% rise in auto production helping the region outpace broader U.S. indicators. Mind you, that’s for February, before all the problems that erupted in March.

S&P futures up 7.50, DJ futures up 58. Ten-year note flat yield pushing 3.49%. Crude futures higher, Nymex crude at $108.50. Brent crude, meanwhile, is over $122, at $122.40/barrel.