Equity Markets Soar to New Highs

by: Bill Cara

[Excerpted from Bill Cara's Daily Report]

US equity prices soared Friday morning to new intra-day highs for the year, and closed reasonably firmly at new highs. The US national employment report had less impact on the market than is generally thought. The big news earlier in the day happened when the Bank of England (BoE) made a surprising policy change to monetary expansion. That set off a massive surge in prices in France, Germany and England, with the $USD surging, and the Yen being sold off to an even greater extent as the Great Reflation play was on again.

But then there was the European Central Bank (ECB) joint statement on gold that was released, which pulled down the price of gold, impacting goldminer share prices through the day.

At the closing bell, after a lot of random noise by over-excited talking heads on Financial Entertainment TV, the S&P 500 (1,010.48 +13.40 +1.34%), the DJIA (9,370.07 +113.81 +1.23%) and the NASDAQ Composite (2,000.25 +27.09 +1.37%) all surged to 2009 highs.

The leading sectors in the US equity market were Consumer Discretionary (XLY +3.3%), Financials (XLF +2.6%) and Industrials (XLI +2.5%). Energy (XLE -0.1%) was a small loser.

The only losing industry group was Goldminers ($XAU -2.5%), while the leaders were once again REITs ($DJR +5.3%) and Banks ($BKX +3.6%).

For Cara 100 company stocks, the leading winners were JC Penny (JCP +9.6%), Brunswick Corp (BC +7.7%) and Whirlpool (WHR +6.8%), all of which is connected to the Financials via Credit Default Swaps (CDS). The losers were the Goldminers Kinross Gold (KGC -2.9%), Buenaventura (BVN -2.8%) and Goldcorp (GG -2.5%).

With the surprising monetary expansion statement from the BoE, the US Dollar gained further strength (78.97 +0.97 +1.25%), rocketing back to 79. Against the stronger Dollar was the much weaker Yen (102.60 -2.17 -2.07%), Euro (141.87 -1.60 -1.12%), Pound (166.83 -0.93 -0.55%) and Canadian Loonie (92.55 -0.24 -0.26%).

With the stronger USD, commodity prices were lower. Crude Oil (WTIC 70.93 -1.01 -1.40%) and $GOLD (955.70 -7.60 -0.79%) dropped hard on the news from England that rocketed the Dollar.

The US long bond ($USB 115.31 -1.16 -0.99%) was weak after a single winning day that followed three straight down days earlier this week. Treasury yields for the 30-year (4.603 +0.86 +1.90%), 10-year (3.854 +1.08 +2.88%) and the 5-year (2.825 +1.14 +4.21%) instruments lifted. The Treasury bill yield (0.170) remained unchanged.

Earlier Friday, Austral-Asian markets closed sharply down except for Japan’s Nikkei 225 (10,412.1 +0.23%), which lifted a bit. Hong Kong (20,375.4 -2.51%), Shanghai (3,260.7 -2.85%), Australia (4,303.10 -0.64%) and India (15,160.2 -2.28%) were down a lot.

Until the BoE announcement, the European bourses were also weaker, following a negative Royal Bank of Scotland report. Before 7am ET, the French CAC (3,443.0 6:52AM ET -1.00%), German DAX (5,331.7 6:37AM ET -0.71%) and FTSE 100 (4,638.7 6:37AM ET -1.10%) were all down about -1.0%, pulled down by RBS, Lloyds, Barclays and HSBC. Then the BoE shocker sent prices soaring. At the close, the French CAC (3,521.1 Aug 7 +1.25%), German DAX (5,459.0 Aug 7 +1.66%) and FTSE 100 (4,731.6 Aug 7 +0.87%) were all well up on the day.

The spot (cash) market on Friday morning saw the price of gold, palladium, platinum and silver at: (960.11 -1.30 -0.14% 06:56am ET); (268 +1 +0.37% 06:48am ET); (1238 -11 -0.88% 06:48am ET); and (14.63 +0.08 +0.55% 06:56am ET), respectively. But at the close, the prices were weaker for Gold (955.40 -6.01 -0.63%) and Silver (14.5987 +0.0487 +0.33%). But Palladium (272.0 +5.0 +1.87%) and Platinum (1260 +11 +0.88%) got stronger.

Euro:Dollar futures, which had been a bit firmer earlier Friday (1.4364 +0.0021 +0.15% 06:42am ET), closed down a lot (1.4172 -0.0158 -1.11%).

US equity market futures, which had been down a bit in the morning (9203 -26 -0.28% 06:42am ET), closed much higher (9325 +96 +1.03%).