Daily Market Reports | Jun 07 2012
By Rudi Filapek-Vandyck
The S&P500 jumped 2.30% overnight to close at 1315.13, up 29.63. The Nasdaq gained 2.40%, up 66.61pts to close at 2844.72 and the Dow Industrials (DJIA) rallied 286.84pts, or 2.37% to 12,414.79.
All you need to know is "anticipation of more Fed stimulus". Et voila, like they say in France, all your questions have already been answered. We don't want to make this any more complicated than necessary.
Having said so, let's spare a thought for the daytraders and staff at hedge funds the world around. Those boys and girls that get out of bed every morning with the task of finding a way to make money on that day. As an investor, it's probably wise to sit back and watch the spectacle, but as a professional trader, there's the dilemma that sitting back and relaxing doesn't pay the bills at the end of the month.
So how do they make money in this market?
A recent survey by financial services provider Bloomberg suggests they don't. According to the latest data collation, hedge funds fell 2.9% in May, their worst monthly performance since September last year. Bloomberg reports the decline was pretty much across all the various strategies these financial wizzkids try to employ in today's markets; long-short equity, multi-strategy and global macro. Making matters worse, hedge funds have lost 1.3% since the start of the year, those Bloomberg data tell us.
Note that after last night's rally on overseas bourses, global equities are now officially back in positive territory for the year and Australia is no exception.
According to CNN, it was the best session for the year for both the S&P500 and Dow Industrials, while journalists at the Wall Street Journal observe yesterday's session marks the first back-to-back gain since April. Yippie?!
Note that, as reported yesterday, market observer Richard Russell, of Dow Theory Letters fame, has called for a primary bear market in US equities, with the accompanying warning that the market will do anything to confuse investors in the short to medium term. In addition, Dennis Gartman, also famous and publishing his own daily The Gartman Letter, yesterday warned US equities would probably put in a rally, but it will not last and should be considered an opportunity to offload and take some profits, where possible.
Confused? Or are you simply praising yourself for NOT trying to be a cold hearted capitalist mercenary in times like these?
It would appear the easiest way to read market sentiment this month remains through movements in FX markets. This week the US dollar is retreating from overbought levels, which allows the euro to claw back lost territory and this in turn allows risk assets to do what they do best, rally (assisted by shorts who have to cover). And so it is that while equities are enjoying their moment in the sun, gold is doing exactly the same thing.
Overnight, gold for August delivery rose US$17.30, or 1.1%, to settle at US$1,634.20 an ounce on the Comex division of the New York Mercantile Exchange. According to people who have time on their hands to keep track of daily statistics, last night's move marks the highest settlement price for the most-active gold contract since May 7.
As far as economic news was concerned, the ECB sounded surprisingly dovish and indicated there never was a genuine chance in hell the central bank would lower its 1% rate for the eurozone. The Fed's Beige Book remains stuck in the "moderate growth" lane with only one district reporting slower growth in last night's update. Similar to what happened in the previous session when the non-manufacturing ISM update did not disappoint, this was taken as a positive. No more negative news means good news now.
Investors initially responded negatively to the no-change announcement from the ECB, but the subsequent press conference from ECB president Draghi brought the turnaround. Draghi indicated the ECB will meet all fixed-rate, full-allotment refinancing tenders in full for as long as necessary, or until January 2013 at the very least. Add the fact that two Fed presidents, Lockhart and Williams, both alluded to more quantitative easing and we had enough fuel for the strongest rally for the year (thus far).
Rumours about European policy makers putting together a bailout programme for Spain’s banking sector allowed the gains to continue. And then there was speculation about an imminent Chinese rate cut, which put some TNT under resources stocks on the European continent. The STOXX 600 Basic resource index rose 5.2% overnight. Chinese authorities are extending the deadline for banks to reach capital targets to facilitate lending in response to the slower economy.
There's no such thing as "moderation" in low volume financial markets.
German industrial production fell 2.2% in April (worse than expectations for a fall of -1.0%) after recording a 2.2% gain in March. The German 5-year bond auction saw an average yield of 0.41%, down from 0.56% for the previous auction in May. The eurozone GDP was confirmed at 0.0% in Q1, but the annual rate was revised lower to -0.1%yoy from 0.0%yoy.
US treasury prices fell for a third straight day on Wednesday (yields higher) as talk of more accommodative policy supported investor risk appetite and a switch away from safe haven US government debt. US 2yr yields rose by 1pt to 0.27% and US 10yr yields rose by 8pts to 1.66%.
Base metal prices were mostly higher on the London Metals Exchange on Wednesday. The exception was Zinc, which fell 0.7%. Copper rose for the first time in five sessions. US Nymex crude rose by US73c or 0.9% to US$85.02 a barrel. London Brent crude rose by US$1.80 to US$100.64 a barrel.
Today in Australia, the employment data for May are released and economists are looking for a fall in employment and a rise in the unemployment rate to 5.1%, from 4.9% in April. Later in the day, the Bank of England meets, Bernanke testifies to the US Senate, and there are bond auctions in Spain and France.
Enjoy the rally.
I'll be on Sky Business' Lunch Money between 12-1pm. Greg Peel will be back on Monday.
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