Markets soared 1.75% on Tuesday as the dollar retreated from recent highs and fears over Greece appear to be subsiding. There was relatively little news on the day so the size of the rally is a bit confounding. In addition, volume was nearly non-existent, but this has been a trademark of rally days over the last few months. I am venturing to guess that this move is almost entirely due to the dollar as investors piled back into risk assets following the big dollar rally and the tanking of the reflation trade over the last month. Little has changed in the fundamental picture in the last 48 hours.
Nonetheless, the first day of the week has been very strong over the last 6 months and this was certainly no exception. This appears to be a continuing function of the upgrade cycle as analysts release market moving notes on the first day of the week. Breadth was very strong on the day at 5:1 and up volume outpaced down volume by over 7:1. The trade in recent months has been buy Friday’s close and fade Monday’s close. We’ll see if this turns out to be the case again this week.
From Daily Futures:
The big up-trend in gold was interrupted on February 4th by concerns that debt problems in Greece were getting out of control. Today, April gold closed back above the 100-day average as those concerns appear to be easing (Feb. 16, 2010).
U.S. Economy
The New York Federal Reserve’s regional index of manufacturing increased from 15.92 to 24.91 in February, much better than expected. The March 2011 eurodollars were up .045 at 98.74.
Overall, most commodities finished higher today, helped that concerns about Greece appear to be easing.
The U.S. Treasury Department said that foreign purchases of long-term U.S. securities totaled $82.2 billion while U.S. investors bought $18.9 billion of foreign securities. The March U.S. T-bonds ended up 8/32nds at 117.26/32nds.
Grains and Cotton
Australia’s Bureau of Agricultural and Resource Economics reduced its estimate of the 2009-2010 wheat harvest from 22.0 to 21.7 million tons due to heavy rain. July wheat closed up 18.25 cents at $5.322, its highest close in four weeks.
May cotton closed up 1.35 cents at 76.26, helped by today’s lower U.S. dollar.
Livestock
Statistics Canada said that there were 13.0 million head of cattle in inventory on January 1st, down 1.3% from a year ago and the lowest number in 15 years. April cattle closed up 1.40 at 92.17.
Statistics Canada also said that there were 11.6 million hogs on farms on January 1st, down 4.5% from a year ago and the lowest in 12 years. April hogs were up .07 at 68.27.
Lumber
The National Association of Homebuilders’ sentiment index increased from +15 to +17 in February, better than expected, but still a strong sign of pessimism. May lumber ended up .90 at $288.90 ahead of tomorrow’s U.S. housing starts report.
Cocoa
On Friday, Ivory Coast President Gbagbo dissolved the government and postponed the national election for the seventh time. May cocoa closed up $60 at $3,163.
Orange juice
Temperatures in central Florida are expected to dip into the upper-30’s everyday this week, but no significant damage is expected to the citrus crop beyond what has already happened this year. May orange juice finished up 3.15 cents at $1.4200, the highest close in over a week.
Energies
Is an improving world economy finally having an impact on the demand for oil? Or are international tensions with Iran adding anxiety in the energy markets? Possibly both. April crude oil jumped up $2.92 to $77.42, the highest close in over a week.
Yesterday’s 6 to 10 day forecast from the National Weather Service is expecting below average temperatures for the eastern half of the U.S. April natural gas fell 14.5 cents to $5.302.
Metals
April gold closed up $29.80 at $1,119.80, the highest close in three weeks, supported by the feeling that Europe is in control of Greece’s financial problems, even though the details have not been made public.
Currencies
Japan’s Cabinet Office said that real GDP was up 1.1% in the fourth quarter of 2009 and down .9% from a year ago, better than expected. For calendar year 2009, real GDP was down 5.0%.
The Bank of Japan said that it is committed to increasing inflation to a target level of 1.0%. The March yen ended down .0024 at 1.1095.
The European Union has said that it will help Greece resolve its debt problems, but does not want to make the details public. They are also pressuring Greece to reduce its budget deficit. The March euro closed up 1.39 cents at $1.3756.
Statistics Canada said that manufacturing sales were up 1.6% in December to C$43.0 billion, more than expected and the most in a year. The March Canadian dollar closed up .54 at 95.70, the highest close in three weeks.
The U.K.’s Office for National Statistics said that consumer prices were up 3.5% in January from a year ago, up from a 2.9% gain in December. Bank Governor Mervyn King said that the increase will be ‘temporary.’
The Russian government said that industrial production was up 7.9% in January from a year ago.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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