Bernanke mentioned in yesterday’s speech that further Fed action might be required. Basically, the recovery is slower than expected. Some sectors are growing while others remain stagnant, things are not that dopies right now, but should be getting more chron in the next two quarters. Today’s 10-year note auction produced a yield of 2.967. The drop also caused the May 10-years, which yield 3.125, to be pushed up 1/4 to 101 11/32. Justin Lederer of Cantor Fitzgerald said, “With the future uncertain, investors are grabbing as much yield as possible, even if we aren’t at amazing yield levels. The market is playing it safe right now.” Ya, that explains it. The bid-to-cover today was 3.23, above the average of 3.09.
Dogshit numbers over the past couple weeks have been dominating equities. The Dow closed 21.87 points lower than yesterday, at 12,048.90. The S&P fell another 5.38 points to 1,278, with a lot of people saying 1,200 could be a dangerous level and could prompt a sell-off. Let’s fuckin’ hope not. It’s gonna be interesting to see what happens when QE2 wraps up this month. The 2-year/30-year spread was down today to 3.83 from 3.85 yesterday, the high since March. The prospect of continued low interest rates has been pushing this spread as the economic data has supported continued Fed intervention. For clarification, people are continuing to buy more 2-years than 30-years on the hopes that QE will be extended and prices will go up, which widens that spread.
The European debt crisis is finally beginning to be handled. The ECB has said that they will probably back Greek debt rollovers. After all of the talk of default it really makes you wonder. What is the point of pretending a country will be allowed to default? The US is on the brink of defaulting, but there’s no chance that happens. If the debt ceiling isn’t raised and we do default, shit is gonna hit the fan. Rates will skyrocket, and we can kiss a recovery good-bye. And for what? To teach us a lesson? Doesn’t make very much sense to me.
But, finally we’re seeing the euro bounce back up, hitting a 1-month high against the dollar. With the current state of US consumers (i.e., not spending), we gotta hope this climb continues if we want exports to pull us out of the hole. Rates have been higher in Europe for some time now, so what’s hopefully the end of the euro plummet will help. The slip in the euro was undoubtedly due to European debt crisis worries, but the continued asset purchases keeping US rates extremely low should help the euro’s rebound. We’ll find out today what Bernanke says about the future of QE2. It’d be nice if he could put sort of a range on the market and say something like “if the market falls we’ll be ready to add some liquidity”, which would hopefully keep shorts out without sparking a rally. Especially now with economic data that doesn’t support the movements of the market, people have been jumping onto rallies because there’s not much information to say they should do otherwise. Hence the bubble-worries over the past few months.
The recent success in the euro/dollar is now being seen in equities as the S&P 500 index bounced off a 2 1/2 month low. As of now, the index is trading at 12.2 times estimated profits… which is cheap as hell. Meanwhile, oil is dropping as expectations of OPEC announcing an increase in production quotas gain steam. This should help transportations, and in turn exports, who have faced a lot of problems from oil prices over the past few months. I just heard today that the 16 largest US airlines reported an on-time rate of 75.5%… weather has been a motherfucker lately.
I have to agree with what Obama just said in his press conference with Angela Merkel. Freaking out over one month of poor economic data is exactly what we’re trying to avoid. If focus continues to be on the short-term, there’s no chance we’ll keep volatility and speculation down. While neither is explicitly bad, too much is obviously bad for growth. Hopefully the increases we saw today will mark an upturn in markets. With poor housing markets, and now poor jobs data bogging down the recovery, the upswings in markets are a good sign for future growth.