Friday, November 01, 2013

Will ECB Cut Rates Next Week?

The markets are mixed in early trading.  The major indexes were mostly higher after the open, but the smaller cap indexes have given up their gains for the time being.

The euro has seen significant weakness the last 2 days after a very weak CPI reading in the Eurozone yesterday has many investors speculating that the ECB could actually cut their key interest rate at next week's meeting.  That would be a pretty surprising turn of events considering we have been hearing about how Europe is on the mend and improving economically.

In economic news, the October ISM Index rose to 56.4 from 56.2 last month.

Stocks rising on earnings: FSLR, NEE, SPR, CDW, HEES

Stocks falling on earnings: CVX, AIG, OAK, IPGP, BPL, DRQ, OMG, WCG, BRKR, GWR, ELLI

Asian markets were mostly mixed overnight.  China's HSBC Manuf. PMI held steady at 50.9.  And overnight SHIBOR rates eased for a second day with the 2-week rate down 48 basis points to 5.03%.

Europe's markets are mostly lower today with the weakness in the euro pressuring things.

The strength in the dollar is also pressuring commodities.  Gold prices are down to the $1307 level and oil prices have fallen back below $95.

The 10-year yield is getting a further boost, up 7 bps to 2.61%. 

And the volatility index is still steady around the 13.80 level.

Trading comment: If the markets end lower today it would be the third down day in a row.  But the selling has been pretty orderly and sparks more of consolidation of the recent gains that a rush to take profits and decrease equity exposure.  I would expect more backing and filling in the near term and continue to like the approach of adding to stocks that recently reported solid results.  Index ETFs offer less appeal here as the indexes are already up considerably on the year and the upside in those vehicles is likely limited.

KAM Advisors has long positions in NEE


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