Markets turn on false Fed taper expectations

Stock Indexes:

The Dow Jones industrial average closed Friday at 16,020.20, up 198.69 or 1.26% but for the week lost 0.4%. The S&P 500 (CME:SPZ13) closed at 1,805.09, up 20.06 or 1.12% and for the week lost 0.1%. The tech heavy Nasdaq closed at 4,062.52, up 29.36 or 0.73% and also lost less than 0.1% for the week. The better than expected U.S. jobs report and the increase in the consumer confidence rate responsible for the Friday sharp rally in equities. We viewed the buying as on "faulty" data and would use the opportunity to sell futures contracts on all three indexes. The Friday action could be described as the "last hurrah" in our opinion with the shorts succumbing and buyers fearful of missing the boat jumping in. We feel the name of the "boat" could be "Titanic" and expect a sharp correction very soon. We once again implore holders of large equity positions to "remember" the "extravagances" of 2000 and 2008 and the resulting declines and implement hedging strategies soonest.


The March U.S. Dollar Index (NYBOT:DXH14) closed Friday at 80.455, up 5.1 points with the dollar strength tied to the possibility of the U.S. Federal reserve announcing a taper off of the stimulus program as soon as their Dec. 17-18 policy meeting. Higher U.S. interest rates would result, thus making dollar investment attractive. We continue to prefer the dollar even though at the moment a taper does not seem likely after only one "good month" for the Fed to analyze and react to. The March Euro closed at $1.37, up 24 point, the Swiss Franc 33 points to $1.1207, the British pound 3 ticks to $1.6332, and the Aussie dollar 38 points to 90.44c. The Japanese yen lost 113 points to 0.09727 as the head of an advisory panel called on Japan’s Government Pension Investment Fund to cut its domestic debt holdings. The Canadian dollar lost 7 points to 93.61c. Stay with the dollar.


January crude oil (NYMEX:CLF14) closed at $97.65 per barrel, up 27c on short-covering as concerns over weather condition in Texas and the wide band of freezing weather heading toward the Mid-Atlantic states. The big story however, was with natural gas futures, which dropped from a six-month high as forecasts for milder weather is behind the current cold snap. January natural gas closed at $4.122 after trading as high as $4.1990 during the session. Profit-taking also was a feature to the trading Friday. We remain bearish for crude and neutral on natural gas from here.


March copper (COMEX:HGH14) closed at $3.2405, up 1.10c on short-covering tied to the rally in equities and the jobs data. The positively construed jobs data and consumer confidence increase provided the impetus for expectation of increased demand for building materials. We disagree as usual and suggest that the U.S. economy is weaker than the U.S. Fed would like and for that reason we see no policy changes in the near term. Stay out of copper. Prices could go either way depending on U.S. economic data, Eurozone prospects for recovery, and of course China’s economy projections.

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