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Monday, October 12, 2009

Morning Market Report

Equity market finished last week on an up note. The Dow was up 78.07 points to 9864.94, the NASDAQ was up 15.35 to 2139.28, and the S&P 500 was up 6.01 to 1071.49. Futures are pointing up today.

Futures indicated a mildly higher open for Wall Street on Monday as better-than-expected third-quarter results began trickling in, boosting investors' optimism about the overall earnings season.

Markets will only be partially open this morning. Equities will be open but bonds along with banks will be closed for Columbus Day. Thee's also news of merger and acquisitions that is adding to the perception that the markets are getting healthier.

Meanwhile, the news isn't all good. The President of the St. Louis Federal Reserve, James Bullard, raised the specter of intermediate term inflation.

I am concerned about a popular narrative in use today — the narrative being that the output gap must be large since the recession is so severe," he said. "And so, any medium-term inflation threat is negligible, even in the face of extraordinarily accommodative monetary policy. I think this narrative overplays the output gap story

Bullard went on to conclude that the risk of medium term inflation was higher than what most people think. This isn't necessarily a new view of the inflation risk. Since this comes from a regional Fed president, it will carry more weight than when a pundit says it.

Bonds are closed today but they ended the last week on a sour note. The ten year U.S. Treasury bond was up 12 basis points on Friday to 3.38%. It was up nearly 25 basis points from its low earlier in the week. The yield spread between the two and ten year bond is 2.31%. That's slightly higher from recent lows of 2.30%. The yield spread is a measure of the chance of future inflation and in my opinion a much better barometer than any prognostication, even one from a Fed president.

It was a relatively mixed day in the Far East while markets were up across the board in Europe. The Hang Seng in China was down .93%, the NIKKEI in Japan was even, and the Straits Time Index in Singapore was up 1.05%. In Europe, the FTSE in London was up 1.06%, the DAX in Germany was up 1.4%, and the Spanish index was up .84%.

In currencies, the Dollar is mixed this morning. It's down .24% against the Euro, it's up by .12% against the British Pound and it's up .22% against the Japanese Yen.

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