David Fry's Daily Market Outlook

"But I make the weather!"
Phil Connors

A scene from movie favorite "Groundhog Day" seems appropriate today, as the weather folks said, "Sorry folks, two more weeks of cold weather." This drives up crude oil, which rose 3% today after falling 2% yesterday.

The central bankers are trying to match each other's tough-guy images, since yesterday Fed Governor Plosser was talking "vigilance" and the possibility of a rate hike, and today ECB head Trichet said they needed to maintain "strong vigilance."

Who's tougher?

This last statement was telegraphing currency traders that a rate hike would be coming in March. This "tough talk" stuff is really impressive isn't it? Just remember, if yield differentials matter, the short-term rate for the EU as set by the ECB is only 3.5% versus 5.25% in the U.S. You figure it out, since we've said repeatedly that there's little to like about the euro. In fact, there are rumblings in Deutschland and elsewhere in the EU about returning to the D-mark. How fun would that be?

The Treasury completed its auction of 30-year bonds today and by all accounts it was very successful. For us, iShares Lehman 20+ Year Treasury Bond ETF (TLT), which parallels 30-year bonds fairly well, needs to climb above $89 to get excited.

Now what was shaking in the stock market today? The primary market moving story came from HSBC, and it was negative news regarding mortgages and potentially rising bad debt charges. The contagion spread to other mortgage lenders and even some homebuilders led by Toll Bros.

As has been the case all week, the overall stock market opened weak and stayed that way for most of the session until the cavalry arrived to pick things up toward the close. I wonder if the Fed tossing in an extra $19 billion to the primary dealers helped... Ya think?

So what else was happening today? Oh yeah, gold moved higher with a weaker dollar and, yes, stronger energy prices. I don't think the latter should be linked, but we don't fight that.

Other sectors we've been promoting discussing include small and mid cap sectors.

And other sectors of note include some familiar names in ETF sectors we've been posting for awhile.

Moving around the world, let's see what's going on.

Like Phil, who doesn't really make the weather, we don't make the markets. We just follow along as best we can. Things can change on a dime in this environment. India looks like a market you can't lose in. But what if something happens to Pakistan's Musharaf and radicals take over armed with nukes and missiles? That's the major "what if" for that market.

The G-7 meets this weekend. Who knows what they'll do about exchange rates. Most traders feel nothing will happen. That could be, but then surprises have happened from these events. With the markets at high levels globally, why would the leaders do something to rattle them?

I hope you have a pleasant and warm weekend.

Disclaimer: Among other issues, the ETF Digest maintains positions in: S&P 500 Index (SPY), streetTRACKS KBW Capital markets (KCE), streetTRACKS Gold Trust ETF (GLD), PowerShares DB Precious Metals Fund (DBP), iShares Russell 2000 Index ETF (IWM), Ultra Russell 2000 ProShares (UWM), MidCap SPDRs ETF (MDY), ProShares Ultra MidCap400 (MVV), NASDAQ 100 Trust Shares ETF (QQQQ), First Trust DJ Internet Index ETF (FDN), iShares Goldman Sachs Network Index Fund (IGN), PowerShares Aerospace & Defense (PPA) PowerShares Water Resources ETF (PHO), iShares Dow Jones Select Dividend ETF (DVY), iShares MSCI EAFE Index Fund ETF (EFA), iShares MSCI Emerging Markets ETF (EEM), iShares S&P Latin America 40 Index Fund (ILF), iShares MSCI Australia Index Fund (EWA), iShares MSCI Japan Index ETF (EWJ), iPath MSCI India ETN (INP) and iShares MSCI Malaysia (EWM).