Monday, July 30, 2012

Monday Morning Musings

The markets are trading slightly higher in early trading following last week's nice gains.  The S&P 500 finished 1.7% higher last week for its third straight weekly gain.  Equity markets are obviously pricing in the possibility of further central bank action ahead of this week's meetings at the Fed, the ECB, and the Bank of England.

Asian markets were mostly higher overnight, but China was lower for a 4th straight session and the Shanghai Composite is now at its lowest levels since March 2009.  That's not a very good sign for the China bulls.

Europe was also higher this morning led by Spain and Italy, which would be the two biggest beneficiaries of any actions taken by the ECB.

In corporate news, Shaw Group (SHAW) is some 70% higher after CBI said it will buy the company for $46.  Best Buy (BBY) is also higher after reports suggesting that the company's founder Richard Schulze will try to take the company private.

Stocks rising on earnings: BEN, HBC, CALM, CIT

Stocks falling on earnings: MCY, DBD, L, LUFK

The dollar index is higher today, but commodities are mostly higher.  Oil prices are flat near $90, while gold is up a bit to $1618 and silver is up nicely.  Corn futures rose to a new all-time high overnight as drought conditions continue to plague farmers. 

The 10-year yield is easing back to 1.50% after a late week spike higher last week.  And the volatility index (VIX) is 7.6% higher so far today back to the 18.0 level.

Trading comment: All of the major indexes are back above their 50-day averages with the S&P 500 at its highest levels since May.  If the Fed or the ECB announces some form of further quantitative easing this week, it could boost stock prices more.  For the Fed, I still think they are going to want to keep some powder dry and that they will likely reiterate that they "stand ready" to take steps if the economy continues to falter.  For the ECB, they seem to be closer to doing something big, but I'm not sure they have Germany on board yet which is a critical factor.  As such, if they just try to talk up a good game without any new policy measures it would not be surprising to see a buy the rumor sell the news type reaction with stocks pulling back later this week.  We shall see.


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