With the S&P/Case-Shiller home index showing an increase in home prices (not seasonally adjusted) it will be interesting to see if the markets erase some of the losses built into the futures prices or if the looming jobs numbers are going to be the main factor of the market this weekend and volume will remain light going into Friday. The data leading up to, and including, the employment report will help shape the markets thoughts on if and when a third round of QE3 will occur.
I posted an article on the Fed’s decision not to discuss QE3 and the methods that should be taken should a QE3 eventually be implemented.
It was interesting to see the UNG spike immediately after the Earthquake felt on the east coast. This price jump could be from speculation that the natural gas operations in the Virginia area might need to be halted for inspection and repairs. Conspiracy theorists could also claim that the location and magnitude was as a result of the controversial fracking operations there. Any claims of the sort will be proven baseless but it would be interesting to see how the price of Natural Gas moves as a result, to see if fundamentals or fear are moving the price.
Watching stocks and commodities increase in tandem today shows some sign of confidence slowly creeping back into the markets after a shaky start to August. ‘Risk On’ money seems to be going back into the usual trades, equities and commodities, in the hopes that the current bout of bad news is just that. One interesting thing to note is the prospects of a stronger dollar against the Euro during European talks. European investors could start to become enticed with the relative safe valuations of many large caps, dividend paying stocks in the US; taking advantage of the rising prices and currency potential.
Unemployment Friday is upon us again, this time there is very little optimism going into the numbers. After yesterday's huge sell-off in the equity markets many investors will be looking for signs of this correction to be a buying opportunity or a sign of a double dip ahead. With so many asset classes at the extremes right now, interventions into asset prices could be on the rise. The Swiss and Japanese government have provided stimulus to weaken their respective currencies. The bond prices of short term, safe haven bonds are near negative real rates while others are hitting post euro highs. Margin requirements on commodities have been adjusted as well. The equity market might not be far behind.
The equity market has just come off of fresh stimulus from QE2 and the jobs numbers tomorrow could be the fuel needed to have traders considering a third. If the employment situation doesn't come in positively, it will compound the announcements of cuts already made by companies and could put more people into the bearish camp. It could be said the much of the 2nd quarters performance could be decided on the days and weeks after this announcement.
Today news came out about the Swiss central bank lowering the LIBOR target which acts as a lowering of interest rates, increasing liquidity. This move is expected to stem the rise in the Franc to the Euro, as well as other currencies as the rush to safety has started. The Bank of Japan is meeting this week to discuss stimulus and potentially enact an intervention in the currency.
These moves could just be the beginning of major currency pairs being pushed up by a flood of money coming out of the USD and EUR to start intervening in the markets to keep themselves competitive in the global marketplace. This puts technical analysis in the currency markets in a self defeating position where strengthening in the currencies will only prompt a violent reaction by the banks eventually. Depending on the aggressiveness of these policies, the exporters in those countries stand to benefit if there is a sustained weakening in the currencies, however we have seen with Japan that the interventions were short lived and the BOJ is reluctant to step in without major moves in the currency over a short time frame.
With a deal to be voted on today the markets are reacting positively, for now. The compromise may not be what many have expected, it will be interesting to see how the news gets digested over the week. Amid the debt talks is a week of data on the US economy, including the monthly employment numbers. This could be the opportunity to start finding value in equities and positioning your portfolio for the austerity ahead. Without a permanent deal made, there will have to be some shorter term adjusting, but the days of austerity could be coming to the US. Watching England could be a good precursor for what could be in store.