What a relief! Santa Claus Rally arrives in the nick of time
Between the nonfarm payrolls peak on Friday Dec 5th through to Tuesday the 16th it really looked like Santa was only going to bring lumps of coal for traders but the rally of the last two days suggests that Santa may have some good cheer after all, even if only for a little while.
A lot of markets had become extremely overextended lately and the big snap back reversals that started yesterday and have continued into today suggests a lot of profit-taking and position squaring ahead of the holidays combined with some traders looking for pre-holiday bargains.
The rebound in stocks that’s underway has been in conjunction with a rebound in crude oil and a number of major developments around the world. Let’s now take a quick look at some of these factors.
1) Oil rebounds as companies cut back on capital programs. This is a good start and may help to stabilize the oil market for now, but there is still a difference between cutting back on exploration and expansion (taking foot off gas) and shutting in production (putting foot on brake). Even if oil stabilizes near $60 for a while, we could still see $50 before $80 again.
2) Stabilization measures from Russia’s central bank has helped to ease the panic run on the ruble for now but doesn’t mean things are about to turn around any time soon.
3) Yesterday the Fed changed its “considerable time” guidance to “can be patient”, which stock traders have taken as bullish.
4) However, currency traders have taken the FOMC meeting as being more hawkish. Fed members raised many of their economic projections. Also Fed Chair Yellen indicated Fed may remain on hold for a couple of meetings and that the Fed could start at any meeting not just one with a press conference. This suggests the FOMC could act as soon as its April meeting, earlier than the June first hike that had previously been widely expected.
5) The US deciding to bury the hatchet with Cuba certainly doesn’t hurt matters but its impact on corporate earnings and the markets may be more in the longer term if any.
6) The Swiss National bank went to a negative interest rate to try and stop people from using the country as a haven for capital which had driven up CHF in the past. Today, CHF is the worst performing major.
7) Greece did not elect a new President in the first round of parliamentary voting but this was widely expected.
Without wanting to sound like Scrooge or the Grinch, overall, this looks like another relief rally easing oversold conditions that had developed in many markets, but it’s questionable how sustainable the advance may be, so enjoy the holiday cheer while it lasts.
Note how even though USD is gaining today on speculation of a more hawkish Fed, gold and silver are up even more indicating some traders have been taking advantage of this rally to move into defensive positions.
Even if markets manage to stabilize into and through the holidays, it’s important to remember that none of the factors that drove markets down recently has really changed, so we may see ongoing higher volatility and increased opportunities for trading continue well into 2015.
Oracle $0.69 vs street $0.68
Economic reports released overnight and this morning include:
Switzerland interest rate surprise cut to (0.25%) from 0.00%
US jobless claims 289K vs street 295K
UK retail sales 6.4% vs street 4.4%
UK retail ex auto 6.9% vs street 4.5%
Germany IFO bus climate 105.5 as expected
Germany IFO current 110.0 vs street 110.4
Germany IFO expectations 101.1 vs street 100.5
Greece unemployment rate 25.5% vs previous 26.6%
Sweden consumer conf 99.0 vs street 98.0
Sweden econ tendency 105.8 vs street 102.9
New Zealand GDP 3.2% vs previous 3.9%
Economic reports due later today include:
9:45 am EST US flash service PMI street 56.3
10:00 am EST US Philadelphia Fed street 26.0
10:00 am EST US leading index street 0.5%
10:30 am EST US natural gas street (61 BCF)