The positive impact from traders perceiving yesterday’s FOMC minutes as dovish has faded into history this morning, with the Dow and S&P already starting to retreat again. On closer inspection, it appears the market overreacted to the minutes. Despite talk of further accommodation, tapering appears likely to continue, so the best the street can really hope for is that interest rate increases may be pushed off a bit. It’s important to remember though that with a long-term goal of 2% inflation and neutral monetary policy
where interest rates = inflation even if interest rates were raised from the current 0.25% to say 1.00%, the Fed would still be highly accommodative.
Much was also made of FOMC members trying to back away from sounding too hawkish even through their individual forecasts called for rates to rise significantly next year. This suggests the FOMC is running the risk of breaking
Colin’s #1 Rule of Trading : Ignore your indicators at your peril!!!!
A lot can happen between now and early next year and a lot has already happened since the Fed meeting ended including Fed Chair Yellen suggesting six months between the end of tapering and start of rate hikes as reasonable, and a number of positive data points indicating the US economy continues to accelerate like last week’s payroll numbers. Today alone, we have US jobless claims falling to 300K and its lowest level in eight years (since April 2006). Poor earnings from the countercyclical (does better in a weak economy) Family Dollar stores also indicates an improving economy.
Precious metals are on the rise again today with gold and platinum gaining 1% and silver up 2%. In addition to a soft USD, metals still appear to be benefitting from concerns political tensions in Ukraine could escalate, while platinum also benefits from increasing auto sales on the industrial use side.
Greece took a big step on its road to recovery today, returning to the bond market selling €3 billion in 10-year bonds, more than the government’s €2.5B goal. The bonds went out with a 4.75-4.95% yield (reports vary), better than the 5.00-5.25% that had been expected. The deal was way oversubscribed with orders totalling over €20B. Greece’s unemployment rate finally fell this month but remains horrific at over 26%. Considering that Ireland sold 10-year bonds today at a 2.91% yield, Greece still has a long way to go but step by step, Europe continues to work its way out of the woods.
EUR is trading moderately higher on this news against a soft USD but is running in middle of the pack overall. Major European indices started out higher but have dropped back into negative territory. GBP is underperforming EUR slightly after the Bank of England held rates steady today and indicated it is focused on reducing the slack in the economy suggesting it may keep rates low for some time yet. SEK remains the weakest performer among majors on speculation the Riksbank may cut interest rates at a future meeting.
AUD and NZD are outperforming in currency markets again today, boosted by a strong employment report for Australia and a strong PMI report for New Zealand. Chinese indices rallied overnight on speculation declines in exports and imports could encourage more stimulus although this was later squashed by Chinese Premier Li Kequiang who indicated the government does not respond to short-term volatility in the economy. Meanwhile, the PBOC drained another CNY 114B of emergency stimulus out of its financial system, which can be seen as a sign of confidence.
CAD has weakened a bit today with USDCAD
retesting $1.0900 as new resistance following yesterday’s breakdown in what appears to be normal backing and filling.
Costco March same store sales up 5.0%, beating street 4.3%. US sales ex gasoline up 6.0%
Family Dollar $0.80 vs street $0.90k, guides next Q to $0.85-$0.95 below street $0.98, guides full year to $3.05-$3.25 short of street $3.38.
Shaw Communications $0.37 vs street $0.40
Blackberry In an overseas interview CEO John Chen suggested the handset business could be sold if it can’t be turned around
Economic reports released overnight and this morning include:
UK monetary policy decision no changes to 0.50% interest rate or £375B QE as expected
South Korea interest rate 2.50% no change as expected
US jobless claims 300K vs street 320K
Canada new house prices 1.5% as expected
Australia jobs change 18K vs street 5K and previous 43K
Australia full-time jobs (22K) vs previous 80K
Australia part-time jobs 40K vs previous (33K)
Australia unemployment rate 5.8% vs street 6.0%
China trade balance $7.7B vs street $1.8B
China exports (6.6%) vs street 4.0%
China imports (11.3%) vs street 2.4%
NZ Business PMI 58.4 vs previous 56.2
Japan bank lending 2.3% vs previous 2.2%
Japan machinery orders 10.8% vs street 17.6%
Greece unemployment rate 26.7% vs previous 27.5%
Greece consumer prices (1.3%) vs street (1.1%)
France industrial production (0.8%) vs street (0.3%)
France consumer prices 0.7% vs street 0.8%
Italy industrial output 0.4% vs street 1.1%
Economic reports due later today include:
10:30 am EDT US natural gas previous (74B)