Financial Stocks Lead the Charge

[Excerpted from Bill Cara's Daily Report]

Financial stocks (XLF +2.6%) led the charge Thursday in NY. That’s two days in three after being clobbered on Monday. Of course, the Fed conference annual confab at a resort in Jackson Hole Wyoming is underway Friday and the monetary authorities in the US are putting on a brave face. It must be easier knowing that China and Europe equity markets are in rally mode.

At the closing bell on Thursday in New York, the S&P 500 (1,007.37 +10.91 +1.09%) closed at the third highest level this year, close to the 1012.73 high set on Aug 13. The DJIA (9,350.05 +70.89 +0.76%) and the NASDAQ Composite (1,989.22 +19.98 +1.01%), with solid gains, also almost made new highs for the year. The US market is now ahead on the week despite suffering a loss of almost -2.5% on Monday.

The Toronto Exchange Composite (10,700.51 +13.68 +0.13%) was flat as the Canadian banks were mixed (CIBC, TD, and National losing ground), but the Toronto Venture Board (1,184.39 +7.44 +0.63%) made a gain.

Earlier Friday, the Austral-Asian markets were, except Shanghai (2,911.6 +4.52%), which was still recovering from Tuesday’s -4.30% loss, all had profit-taking sessions. Australia (4,305.7 -1.95%), Japan’s Nikkei 225 (10,238.2 -1.40%), Hong Kong (20,199.0 -0.64%), and India (15,240.8 -1.52%) were all soft.

At this point, however, the French CAC (3,560.7 6:34AM ET +1.58%), German DAX (5,394.5 6:20AM ET +1.57%) and FTSE 100 (4,807.7 6:20AM ET +1.08%) were making solid gains, with strength coming from the Oilers and Bankers again.

In the US equity market Thursday, all sectors and industries were moderately higher. Basic Materials (XLE +0.2%) was the weakest sector. Among industry groups, none were weak, and the Financials were led higher by REITs and Banks ($DJR +4.1% $BKX +2.9%).

The biggest winners of the Cara 100 company stocks were Brazilian pulp and paper company Votorantim, yet again, this time because VCP apparently has raised pulp export prices by $40 per metric ton. South Korea’s Kookmin Bank and Whirlpool (VCP +10% KB +7.5% WHR +6.2%) were next strongest. There were only 13 losers, led by Russia’s Mobile TeleSystems (MBT -1.5%) and China Mobile (CHL -1.4%).

The US Dollar gave up ground for the third straight day ($USD 78.39 -0.13 -0.17%), which it does on Reflation Play days, although Thursday the money was flowing more into the Banks than commodity related stocks. (That may come today.) Both the Yen (106.13 -0.19 -0.18%) and British Pound (165.04 -0.32 -0.19%) were weaker against the $USD, while the Euro (142.50 +0.22 +0.15%) and Canadian Dollar (91.86 +0.53 +0.58%) gained.

As tends to happen when the Fed is pumping liquidity, the US long bond ($USB 120.30 +0.44 +0.37%) was lifting. Treasury yields dropped for the 30-year (4.242 -0.52 -1.21%), 10-year (3.435 -0.28 -0.81%) and 5-year (2.414 -0.04 -0.17%) instruments, but not as much as the previous day. The Treasury bill yield (0.160 -0.05 -3.03%) dipped slightly again.

As for the major commodities, Crude Oil ($WTIC 72.91 -0.92 -1.25%) and gold ($GOLD 940.70 -1.40 -0.15%) prices dipped.

In precious metals trading this morning, the spot (cash) market was as follows for: gold (944.16 +4.80 +0.51% 06:36am ET); palladium (270 +2 +0.75% 06:28am ET); platinum (1237 +9 +0.73% 06:31am ET); and silver (14.00 +0.20 +1.45% 06:36am ET), respectively. The prices are holding firm as the Euro strengthens.

Sept futures prices at 6:23am ET were as follows for the Euro [1.4324 +0.0068 +0.48%], and DJIA [9364 +44 +0.47%], and for Oct Crude Oil [73.57 +0.66 +0.91%].

Comments

[whidbey:]

Great show Friday, with no hesitation. Rally's of this nature are usually out of control races, this one is no different than the norm. The problem is the market is being pushed up by momentum, not logical expectations of future performance in earnings. This is a Willy Coyote move which will likely end up a sorry chapter in the story of the recovery many believed in without ever seeing evidence first. Oh, we know of the coincident indicators showing the end to a recession, but they did not show, nor predict grow, just the end of the fall, for now anyway.

Aug 21 10:19 AM

[User 374895:]

I erred in reporting a loss of -1.52% in the Indian BSE 30 Sensex index. The actual result on Friday was +1.50%.

I recap and discuss global markets in my Week In Review on Sunday's. This is a particularly interesting week. Whereas most traders seem to be focused on US macroeconomics, the major driver in equity markets today, in my opinion, is the unstable forex market.

There is, I believe, only so much destruction to the USD that the US monetary authorities can permit in their efforts to pump equity prices in order to convince the world that the US-initiated global recession is over. Beyond a certain point, there will be significant consequences to the interest rate market, the commodity markets, real property foreclosures and future economic growth.

It's probably time for the US to support the Dollar, regardless of the consequential pressure that would temporarily put on equity prices.

Aug 22 08:21 AM