Thursday, October 06, 2011

No Rate Cut From The ECB

Despite the hopes in the market that the ECB would cut rates as his last measure before leaving office, ECB President Trichet held rates steady at 1.50%, well above our fed funds rate here in the U.S. Trichet said that this rate remains appropriate, but that the ECB would conduct two longer-term lending programs. He also added that countries should move to recapitalize their banks.

As for the Bank of England, they too held rates at 0.50%, but increased their asset purchase program by an additional 75 billion pounds. The European markets rallied this morning, and helped improve sentiment before the open here in the US. Asian markets also rallied overnight, led by a +5.7% surge in Hong Kong.

In corporate news, we saw a wave of same-store sales reports by retailers this morning, and most of the stocks in the group are trading higher. The retail etf (XRT) is up +1.4% after an hour of trading so far today.

The dollar is lower today, helping to boost commodities. Oil prices are higher near $80.50, while gold prices are up a tad to $1645.

The 10-year is getting a nice bounce to 1.95%, despite Operation Twist. And the VIX is down another percent to 37.20. A test of its 50-day support is coming very soon. The VIX has not traded below its 50-day average since July 22nd, so this would be a notable event if it occurred.

Trading comment: The market is enjoying a third day of a bounce from its spike down to new lows on Monday. Tomorrow is the big monthly jobs report, which often adds to volatility in the market. I am considering adding back to our index hedges that we took profits on last week. While this bounce has been nice, it is still too early to declare that the market trend has changed from down to up. That could still happen in the near-term, but I think we would need to see some more consolidation and constructive action first.

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