Market Talk

US stocks on the launch pad as Asian and European markets engage in a spirited rally. Intel earnings credited for sparking gains, but earnings are almost a side note as US dollar index slumps to lowest levels in more than 16 months, and euro explodes higher.

EUR/USD surges above $1.45, and US stocks have a propensity to chase a bolting euro. No surprise either to see oil and gold soar. Seems sovereign debt problems — both in Europe and US — are too slow-moving, deferred and, at times, abstract for today’s capricious markets to get hung up on.

March existing home sales due at 10:00 a.m. ET. AT&T reports before the open; Apple, AmEx after the close.

S&P futures up 17.40, DJ futures up 137. Ten-year lower, yield at 3.41%.

Speaking of Intel, Kevin Kingbury posted the following:

Some mea culpas are going around on Wall Street as Intel (INTC) blew past 1Q expectations and gave a surprising strong 2Q revenue view in the face of what had been conventional wisdom about supposedly weak desktop and laptop demand. Auriga notes, “Consensus was clearly too pessimistic on PC sales (the primary source of upside).” While admitting that growth is under pressure from tablets and the economy, “data center will likely bolster both revenue and profitability.” RW Baird boosts its price target to $29 from $27 as it says INTC’s new Sandy Bridge product “is strong so far, debunking the myth about lack of demand for high-performance CPUs in PCs.” INTC up 6.2% premarket at $21.10.

I sat in a room with these three guys – John Mauldin, Marc Chandler and Christian Menagatti — for an hour yesterday along with a handful of other reporters, and it was completely fascinating, so the 35 minutes you might invest in this video is well worth your time.

Incidentally, we’ll have Mauldin on tomorrow’s Markets Hub, live at WSJ.com at 10:30 a.m.

On today’s Markets Hub, we peer through the smoke clouding stocks, forex and oil, and find the common theme: cheap money.

US stocks are poised to take a breather, at least initially, after a three-day rebound that has seen equities erase early last week’s swoon, with index futures essentially flat.

“The coalition forces continue to patrol the skies over Libya and the markets continue to recover,” says Alastair McCaig of WorldSpreads.

Asian stocks were modestly higher except in Japan, where trading was closed Monday for a holiday and responded with a 4.4% jump overnight in the Nikkei.

Quiet on the US economic data front, though quarterly reports from the likes of Walgreen (WAG), Jefferies (JEF), Carnival (CCL) and Discover (DFS) come this morning.

Meanwhile, the dollar continues to lose ground after the ICE Dollar Index hit a 15-month low Monday, with the pound reaching 14-month highs this morning against the greenback.

S&P futures down 0.20, Dow futures up 12. Crude futures and 10-year US Treasurys edge lower. Oil at $102.94.

There are an awful lot of big stories out there right now, and the yen is one of them, so we asked Brad Davis back to explain the latest moves in this critical market.

Equities are careening around the world after yet another explosion at the troubled Fukushima Daiichi nuclear-power complex and spikes in radiation levels.

The Nikkei tumbled 11% and most other markets in Asia and Europe are down at least 2%. Dow futures slide 245 points and the S&P 500 is off 32.

The sell-off is also occurring in other assets, with Nymex crude down 3% and gold falling 1%. But the dollar, lower against the yen, is surging versus the euro, British pound and Canadian dollar. The euro has dropped nearly 1% to below $1.39 after briefly getting back to $1.40 yesterday.

A flight-to-safety bid is also being seen in US Treasurys, with the 10-year yield falling to 3.26%.

Bruce Krasting caught the biggest tidbit to come out of Ben Bernanke’s rather boring testimony today (which I first saw on Zero Hedge) , does the grim math, and comes up with a conclusion that shows just how worthless, literally worth less, the Fed is making the dollar.

Alabama’s Richard Shelby asked the Fed chairman how he decided that $600 billion was the right amount for QE2. You can watch the C-Span video for yourself; the exchange comes around the 32-minute mark.

The Fed chairman explained that the central bank’s rule of thumb has been that roughly $150-$200 billion in bond buying has the same effect on the economy as a 25 basis point rate cut in the fed funds rate. So, by going out and buying $600 billion worth of Treasurys, the Fed is essentially cutting interest rates by 75 basis points. I say essentially, of course, because with the actual fed funds rate at zero (a band between zero and 25 basis points, to be precise,) it can’t cut interest rates any further. So it buys bonds.

Krasting takes the rule of thumb to its logical conclusion:

The sum of QE 1, QE lite (the top off of QE1) and QE2 is $2.35 trillion. Using Bernanke’s formula you get a range of 4% to 5% as the approximate interest rate consequence of QE. (2.35/.15 or 2.35/.2)

That is an extraordinary number. The Fed’ ZIRP policy set interest rates at zero. QE has brought that to -4.5% (average) based on Ben’s numbers.

I don’t think that this has ever happened before in the USA. The examples I can think of in history outside of the US all ended badly. Ben has set monetary policy so that interest rates are 5-6 % below inflation. There can be only one possible result. Inflation of everything we use is going to explode. Food, clothes, energy, transportation, ball bearing, plastics, you name it. The only thing that is not going to get inflated is wages and residential real estate. Cheap money will not fix structural problems.

Continue reading…

Our colleague Michael Derby has this overview of Fed Chairman Ben Bernanke’s testimony up on Capitol Hill this morning:

In testimony before Congress, Fed Chief Ben Bernanke says he sees a continued US recovery and expects inflation to stay contained. But he also warns sustained commodity-price increases could threaten the recovery and warns the central bank won’t allow inflation to take hold. Most of Bernanke’s comments on the outlook hew closes to things he and other Fed officials have said. Put another way, the remarks are no game changer, although they do reflect the increased attention paid to commodity prices.

The two most interesting topics today and tomorrow are likely to be the end of QE2, and commodity prices. On the former, you may get a hint or two, but that’ll be it. On the latter, the Fed chairman is still holding to his opinion that Fed policies are not the cause of the inflationary wave that’s spreading across the globe.

I just don’t know where to go with that. The Fed’s been trying like madmen for the past two years to spark inflation, given they’re terrified of deflation. The dollar is the world’s reserve currency. Most markets trade in dollars. Bernanke can do the “Huh? Wha? Don’t look at me” bit, but it’s not a very convincing act.

The stock market’s ready for its Sputnik moment already.

Strength so far in European stock markets today and President Obama’s inspired tone last night lift premarket mood in the US, with the Dow Industrials fixing to poke through the 12000 level and S&P 500 gunning for 1300.

Stocks should remain under the influence of an ongoing flood of quarterly earnings reports, while December new home sales and this afternoon’s FOMC statement could elicit some reaction. Euro climbs above $1.37, US dollar index recently at its lowest level since early November.

United Technologies 4Q generally in line, company backs 2011 EPS outlook. Boeing, General Dynamics results due before the open; Starbucks, Qualcomm and Netflix out after the close.

S&P futures up 4.80, Dow futures up 37. Ten-year note lower, yield at 3.36%.

Stocks are quiet in what should be a noisy week that includes a Fed meeting, lots of economic data and a handful of companies reporting earnings. Currencies, meanwhile, react to the latest China inflation data. John Shipman, Brad Davis and George Stahl report.