Some interesting action in financial markets yesterday and today, with the US dollar looking perkier, euro having a harder go of it along with stocks, Treasurys retreating and gold still scorching.
Leaves us wondering just a little if the QE2 trade — buy Treasurys, short dollar, buy stocks and commodities — has reached the saturation point. Heading into the Fed’s expected QE2 announcement, we were thinking that expectations for easing were all priced into stocks, at least, and the eventual announcement would likely get greeted with more sellers than buyers. Wrong, as Dow Industrials ripped more than 200 points higher the next day.
Perhaps that was the final capper on the trade, though, since stocks and the euro haven’t made much headway since, and Treasury yields are probing back to the high end of their recent range. Gold continues to streak higher, but could be driven much more now by those searching for safe, hard assets, rather than as a weak-dollar, long-commodities play. Continue reading…
Nothing to really marvel at this morning, folks, just the same follow-the-euro-like-a-lost-puppy strategy for investors in US stocks that’s been in place for the past six months.
The euro has regained its footing, US dollar weakening again, which of course sets a positive premarket tone for US stocks. European markets posting solid gains, fittingly led by resource-related names. Asian stocks mostly weaker overnight. Sept wholesale trade and inventory data due at 10:00am ET.
USD weakness supporting fresh gains for oil and gold, with the latter up $14 near $1,417/oz. USD index recently down 0.3%. S&P futures up 2.40; 10-yr note higher, yield at 2.55%.
Stocks endure modest declines during a session spent mostly mimicking the euro’s moves. Absence of economic data or other meaningful catalyst allows equity traders to essentially hit the “track currency” auto-pilot button for the day.
Weaker euro, USD gains translate into pullback for stocks. Noticed some ramped-up rhetoric on currencies as QE2 gets running, expect to hear a lot more in the days and weeks ahead. Weak day for financials and utilities; modest gains for energy and materials. Gold runs to another fresh high above $1,400/oz.
Dow Industrials slip 37.24 to 11406.84 in unremarkable volume, while Nasdaq Comp adds 1.07 to 2580.05. S&P 500 ends 2.60 lower at 1223.25.
There’s little to suggest that anything’s on the horizon to challenge EUR/USD’s dominant influence over the direction of US stocks. This mechanical, monotonous trade continues until further notice.
GMO’s Jeremy Grantham continues to be among the most coherent, rational and entertaining voices commenting on US markets and the economy. His latest quarterly piece is the usual must-read, titled “Night of the Living Fed.” Here’s a little taste:
In almost every respect, adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment.
Stocks work off some sharp early weakness to end in positive territory, following some perceived reassurance in FOMC minutes that the Fed’s warming up the QE2 engines.
Early posture featured stronger dollar, sliding euro, but the USD began to lose steam well before the Fed minutes hit, enabling the Dow Industrials to erase a 97-point drop. Stocks looked to be on their way to a stronger finish, but pulled back right before the close.
All in all, stalking the euro continues to be a winning strategy for bulls. DJIA rises 10.06 to 11020.40, and Nasdaq Comp adds 15.59 to 2417.92. S&P 500 ends 4.45 higher at 1169.77.
Major indexes close at highest levels in five months, DJIA less than 2% below its 2010 closing high.
JPMorgan’s 3Q results look like the main event tomorrow. Curious to see how trading revenue comes in, any color on loan demand, credit-card and loan balances and how much lower loan-loss provisions contribute to overall results. JPM reports early morning.
There’s a certain feel today, a somewhat subtle vibe, that investors may be (just maybe) looking a bit harder at the stock market’s expectations regarding QE2.
It’s clear that markets in general — stocks, bonds, commodities and forex — have priced in more Fed QE as a foregone conclusion, ready to roll as early as November. Presumptuous? Perhaps. Now the Dow Industrials are up more than 5% in the past four weeks, the 10-yr yield down more than 40 bps and a laundry list of commodities have soared. Coincidentally, with some greater insight into the FOMC’s Sept 21 meeting ready to spill, investors seem a bit more reflective.
Maybe they’re thinking those stock gains were a little excessive. After all, QE2 would largely be a last-ditch effort — the monetary equivalent of a hail-Mary pass — to spark something in the economy. Maybe we beat up the dollar a little too severely, bought the euro a bit too enthusiastically, they’re thinking, considering the festering problems on the continent that haven’t been fully addressed. We’ll know shortly if they feel chastened, or more emboldened, when we get a look at the FOMC minutes.
This is just a brilliant insight from Peter Boockvar of Miller Tabak, writing at The Big Picture. The bubble isn’t in gold, or bonds, or even stocks. No, sir. The bubble is in printing money.
If you have it, the Bank of Japan will buy it. The BoJ cut interest rates from .1% to a range of zero to .1% and announced a 5T yen fund to buy not just JGB’s but corporate debt, commercial paper, ETF’s and Japanese REIT’s. If you live in Japan and thought about selling stuff in the closet on EBAY, hawk it to the BoJ instead. Bernanke in the Q&A of a speech on Fiscal Sustainability last night responded to a question about QE and said “I do think that the additional purchases…have the ability to ease financial conditions.” Another round of QE seems inevitable with the size and pace being the only question. It’s no wonder that gold is rising to another record high. Gold is not in a bubble, money printing is. Emerging economies however are not happy with the rise in their currencies. Brazil doubled the tax on foreign purchases of fixed income and South Korea said banks who do FX trades will face audits.
J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees […]
If ever a restaurant chain was growing the right way it’s Noodles & Co., a Broomfield, Colo.,-based chain that just announced an initial public stock offering. Noodles, founded in 1995, has grown steadily through booms and busts to 339 locations. It’s secret: Delicious healthy offerings, a diverse menu and great service for a fast casual […]