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Friday, October 9, 2009

Morning Market Report

The markets had a relatively good day yesterday. That followed the weekly first time jobless numbers which were the best since January. All three indices were up between a half and three quarters of a percent yesterday. Futures are pointing lower this morning however there is breaking economic news that could change things. The trade gap narrowed unexpectedly in August.



The monthly deficit was $30.7 billion, down 3.6 percent from a revised estimate of $31.9 billion for July. That reflected a 0.2 percent increase in exports to the highest since December and a 0.6 percent decline for imports.


Fed Chairman Ben Bernanke said what ought to be obvious. He pronounced no immediate plans to raise interest rates but that he would begin to tighten aggressively as soon as the economy begins to recover. That's all simple to say in theory but it will be quite a trick to get right in practice. The comments, however, were viewed as supporting the dollar and so the markets are pointing lower, for now at least. The markets have been viewing a weak dollar as positive for equities for a series of complicated reasons. What's important is that they view it as positive. So, since the comments were viewed as strengthening the dollar, the markets have so far responded negatively.


Meanwhile, bonds continue in a very schizophrenic manner. They responded very negatively to the weekly jobless numbers. That's not necessarily surprising however bonds haven't been responding to all good economic news lately. The ten year U.S. Treasury bond is now at 3.29%. It was at 3.17% this time yesterday. That's still at the very low edge of its range over the last nine months but up about fifteen basis points in the last two days. The thirty year fixed rate is still in the high 4% range and so we should see mortgage applications continue to be strong for another week when it's announced next week. The yield spread between the two and ten year has broadened to 2.34%. It tightened to 2.30% earlier in the week. That's the tightest since I began tracking it about six months ago. (that yield spread is one indicator of the potential for future inflation. A larger spread indicates a bigger chance of inflation)

Oil is currently trading at $71.89 a barrel. That's up slightly for the day and continues an upward trend that started when news broke that oil producing nations were secretly meeting to discuss potential plans to look at alternatives to trading oil in a currency other than the dollar.

Europe and Asia were a near mirror image of each other today. Far East markets were almost universally up while the opposite was largely true in Europe. The Hang Seng in China was up .03%, the NIKKEI in Japan was up 1.87%, and the Straits Time Index was up .06%. The FTSE in London was down .06%, the DAX in Germany was down .03%, and the Spanish Index was down .68%. The Swedish index lead the majority in the positive direction.

The Dollar meanwhile is maintaining its rally. It's up .33% against the Euro, up .97% against the British Pound and up 1.23% against the Japanese Yen.




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