Tuesday, November 05, 2013

Rates Starting To Bounce Again

Markets are lower in early trading, but not by a large percentage.  Given that the market remains overbought these bouts of early weakness are not surprising.  But the market seems to bounce each day and rarely closes on its lows lately.

In economic news, the October ISM Services Index rose to 55.4 from 54.4 last week.  Not sure if this is the culprit for rising rates today, but the selling in Treasuries has pushed the 10-year yield up to 2.67% today.  That's a pretty nice bounce from the 2.50% level we saw hold recently. 

Lots of folks think with the Fed taper off the table for now that rates should remain low in this 2.50% range, but rates are hard to predict and if the market starts to sniff out stronger GDP growth in 2014 then we could see investors talking about that 3.0% level again as we get into year-end.  Not many people are looking for this, but it's something to put on the radar.

Asian markets ended mixed.  The PBOC moved to improve liquidity again into China's markets.  The one-week SHIBOR rate eased another 19 basis points to 4.23%.  And the Bank of Japan head said that the country will meet its inflation target and that more stimulus is available if needed.

Europe's markets are mostly lower today after the European Commission lowered its 2014 GDP growth forecast to 1.1% from 1.2%.  The Italian PM also said that a strong euro presents risk to the recovery.

Commodities are also most lower today.  Gold prices are down to $1309 and oil prices have eased back near $93.61.  Lower prices at the pump are showing up, and that should boost consumer confidence as we head into this year's holiday season.  Black Friday talk will be here before you know it.

Trading comment: The market continues to consolidate in orderly fashion.  The last 2 months of the year are generally a strong time period of seasonality for the market.  As such, we expect participants to remain in dip buying mode and look to use weakness to add to stocks.  Big picture we still get the sense that many investors remain underweight stocks in their traditional asset allocations, which should give some legs to this bull market into 2014.

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