Are Investors Anticipating QE3?
The markets are higher in early trading, on little real news. The is the 7th day in a row of flip-flopping by the market, where we are up one day and down the next. I also think that speculation is growing that the Fed will embark on another round of quantitative easings. Though remember that each subsequent round of easing seems to have a less lasting effect on the markets.
Asian markets were lower overnight, and Europe is down this morning. Moody's downgraded Spain's debt rating last night pushing yields on Spanish debt to record highs near 7.00%. And the Swiss National Bank said that Credit Suisse should look to raise additional capital.
With the pressures on Europe mounting, Germany seems to be softening its stance on some sort of Eurobond-like solution. Of course, treating debt with more debt is no solution, but the market will probably cheer it in the same fashion it has with all of the previous kick-the-can provisions.
In economic news, the core CPI rose 0.2% in May, while overall consumer prices fell -0.3% when food and energy prices are included.
In corporate news, SFD is down after missing earnings; and KR is higher after topping estimates, raising guidance, and upping its stock buyback.
The dollar is down slightly, and commodities are mixed. Oil prices are up a bit near $83 while gold prices are flattish around $1620. Copper prices are higher, while silver prices are lower.
The 10-year yield is getting a small bounce to 1.63%; And the VIX is currently -2% lower to 23.75. It got close to the 25 level this morning before turning lower. Yesterday's high VIX was good tell for late day weakness. Given the 100+ point rally this morning in the Dow, I would think the VIX would be down more than 2%. This could be another hint that this current market strength fades later today.
Trading comment: We remain at an interesting juncture for the market. The S&P 500 is putting in a fairly constructive consolidation pattern. I admit I would not be surprised to see it break in either direction. The pressures on Spain and Italy continue to grow, and that is a big red flag. But in the near term, the G20 meeting this weekend, the possibility of QE3 from the Fed, some sort of eurobonds from the EU-- all of these have the potential to spark some near-term enthusiasm in the market. It is always difficult when we are in these headline driven periods, but the 52-wk high list is littered with defensive stocks and that tells me it is okay to remain patient.