Thursday, January 10, 2013

ECB Holds Rates Steady, Euro Rallies

The markets are higher in early trade after gains in overseas markets as well.

Asian markets were mostly higher after China reported positive export data.  Export growth increased to 14.1% year/year, well above estimates for 5.0% growth.  This helped China post a wider than expected trade surplus.  Japan was also higher after the Bank of Japan reiterated that it may purchase assets on an "unlimited basis".  I guess that's what they call QE-infinity.

European markets were mixed this morning after the ECB held interest rates steady at 0.75%.  Some folks were looking for the ECB to cut rates, so when they didn't it caused a big spike higher in the euro.  The Bank of England also held rates steady at 0.5% and kept its asset purchase program unchanged.

The latest Euro country to seek a bailout is Cyprus.  It is estimated that the country needs 17 billion euros.  Germany said Cyprus must agree to economic reforms before the EU approves anything.  And Russia said it does not intend to grant Cyprus an interstate loan.

A couple of companies issued downside guidance this morning, and their stocks are trading lower.  The two companies, ARO and TIF, are both retail related though one is apparel and the other is more jewelry.  It's odd that TIF had to guide down when SIG recently guided higher. 

AAPL is still trying to break away from that $520 level its building building support around.  CEO Tim Cook is in China talking to China Mobile about "matters of cooperation".  China Mobile has 700 million subscribers but does not offer the iPhone.

Commodities are mostly higher at the dollar is weak today.  Oil prices are up near $94 while gold has bounced $25 to $1675.

The 10-year yield is higher today near 1.90%.  And to volatility index remains in low territory near the 13.75 level.

Trading comment: The market still appears like it wants to work its way higher.  We said toward the end of last year that any sort of deal on the fiscal cliff would likely unleash some pent up demand to put money to work in equities.  For the short-term, the worries are off the table.  But they remain in the not to distant horizon, and we expect similar volatility this year like we saw last year.  The spending cuts part of the fiscal talks will come, the debt ceiling, as well as whether Spain will look for a bailout this year.  We are still looking for a solid year overall in the market, but similar to recent years there may be times when it looks far from certain that stocks will produce those solid gains.

KAM Advisors has long positions in AAPL


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