Japan Jumps On The QE Bandwagon

The markets are flattish in early trading after big gains in Asian overnight but fading enthusiasm as European trading got underway.

Asian markets rose overnight after the Bank of Japan became the latest central bank to announce more stimulus.  The BoJ increased its asset purchase program by 10 trillion Yen to 80 trillion.  Japan and Hong Kong rose by more than 1% while China rose only 0.4%.

Europe's markets are not higher this morning after an ex-ECB memeber commented that the bond purchasing program is not a silver bullet capable of fixing the underlying problems in the region.  For its part, the Bank of England decided to keep its asset purchase program unchanged.

In economic news in the US, existing home sales for August hit an annualized rate of 4.82 million units, which is up from the prior months rate of 4.47 million units.

The dollar is slightly lower and commodities are mixed.  Gold prices are a bit higher to $1773, but oil prices continue to take it on the chin and are now down to $92.30 from almost $100 at the start of the week.

The 10-year yield is pulling back a little more to 1.78%.  And the VIX is back near its August lows down -3.3% to 13.70.

Trading comment: The stairstep market continues.  The market has had a chance the last few days to pull back from last week's gains, but it hasn't given back much at all.  The market has basically traded sideways for the week so far as it works off its overbought condition.  It still feels like underinvested portfolio managers are looking to put money to work on any dips and this could last into quarter end.  Bullish sentiment continues to rise and this is a bit of a red flag.  But sentiment is a secondary indicator and it won't likely kick in until we first see a break in the price action and some selloffs that have volume behind them.

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Is A German Slowdown Next?

Global markets are lower again this morning after some profit taking after last week's rally as well as further signs of economic slowing.

Asian markets were down across the board overnight.  Tensions are still running high in the East China Sea with Japan shutting factories amid worries about violent protests.  Additionally, Chinese housing data recently showed that 53 of 70 cities showed year-over-year declines.  That's a pretty big figure.  Also the Reserve Bank of Australia in its recent minutes noted a weakening of the Chinese economy.

In Europe, markets were also down across the board as the focus turns back to Spain and whether they will request a full bailout.  A recent ZEW pull suggests the German economy is expected to lose momentum over the next six months.  George Soros was out with comments over the weekend supporting the same notion.  Germany has been the lone pillar of economic strength in the southern eurozone, so if their economy weakens you can expect the recession in the region to deepen.

In the US, the NAHB Housing Index rose to a reading of 40 in September, above last month's views.

Separately, FedEx (FDX) is lower this morning after beating earnings but issuing disappointing full-year guidance for 2013.

The dollar index is higher today, but commodities are mixed.  Gold prices are higher to $1773, and silver and copper prices are higher also.  Oil prices remain a bit weak at $96.22 after a big negative reversal yesterday that left many scratching their head.

The 10-year yield is easing back more to 1.80%.  And the VIX is down -1.75% today despite the negative headlines and weak open.  The VIX is hovering near very low levels at 14.30.

Trading comment: Yesterday's pullback was extremely mild.  It started to pick up a little steam in the afternoon but then rallied back in the last hour to post little damage by the close.  Today is looking similar, though we still have a lot of time left in today's session.  If the market can't pull back much, dip buyers may grow impatient and look to put money to work sooner rather than later.  Recent leaders like AAPL and GOOG haven't given back any ground and remain near their highs.  Ditto AMZN, ALXN, BIIB, etc.  The NYSE registered nearly 500 new highs last week, so the list of potential market leaders has certainly broadened recently.  Now we just need to watch to see which ones can continue to add to those gains.

KAM Advisors has long positions in AAPL, ALXN, BIIB, GOOG

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Monday Morning Musings

Global markets are a bit sluggish this morning after another strong week last week amid investor enthusiasm over the last round of quantitative easing by the Fed. 

Overnight, Asian markets were mostly lower led down by a -2.1% decline in China after some local Chinese governments reintroduced property price controls in an effort to weed out speculative buying and cool their property markets.  This has some investors questioning further easing measures by the PBOC.

The Reserve Bank of India left its overnight interest rate unchanged at 8.00% while cuttings its reserve ratio 25 basis points to 4.50%.

In economic news in the US, the Empire Manuf Index came in at a very weak -10.4.  This is actually the lowest level since April 2009.  This may be one of the reasons that the Fed was willing to enact further QE despite the stock market near 5-year highs-- the economy has hit another soft spot and continues to offer weak datapoints.

The dollar is off a little and commodities are mixed.  Gold prices are flat near $1772 while oil prices are higher to $99.30.

After a big spike higher on Friday to nearly 1.90%, the 10-year yield is pulling back to the 1.83% range.

And the volatility index (VIX) is bouncing from very low levels to 14.80 this morning, up 2%.

Trading comment: The markets appear a bit extended after last week's spike higher.  I wouldn't be surprised to see some mild pullback and consolidation at these levels.  But I also think it is premature to start betting on more than a mild pullback until we see a change in the price volume action of the indexes.  We have been in a stair-step higher mode, and until we see some rallies that fail to make new highs and some selloffs that come on volume and take out support levels I think those betting against this market will continue to be frustrated - which is pretty much Mr. Market's primary objective.

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Stocks Run For The Roses

The Fed came through yesterday and gave the market what it wanted in the form of additional quantitative easing. Markets around the globe rallied in response to the FOMC decision to purchase additional agency mortgage backed securities at a rate of $40 billion per month.
Asian markets rallied strongly, with more than 2% gains in Hong Kong, Indonesia, S. Korea and Tawain. China lagged with a gain of only 0.6%. But not everyone was happy with the Fed's actions. The People's Bank of China suggested the Fed's action could spark global inflation. The Hong Kong Monetary Authority warned that the risk of a property bubble in their housing market is higher now. And the Bank of Japan was put on the defensive as the yen soared vs. the dollar sparking speculation the BoJ might have to intervene in the currency market.

Europe's markets are also higher despite continued debate over whether Spain will need to ask for a full bailout. There is also increasing unrest in the middle east with violent protests in Egypt, Yemen, and elsewhere.
In economic news, the Univ. of Mich. consumer sentiment index rose to 79.2 for September, near its high for the year and well above last months' reading of 74.3. Separately, retail sales for August rose 0.9% which was above expectations.

The dollar index is well lower today which is helping commodities.  Oil prices have risen to $99.70 and gold prices are up a bit to $1772 after a nice rise yesterday.  And the breakout in copper prices continues.  The copper etf (JJC) is up over 5% for the week.

The 10-year yield is also rallying.  I'm not sure if this has more to do with operation twist moving its focus to agency securities or simply an allocation move out of bonds and into stocks and commodities.  The 10-yr is currently at 1.87%, its highest level since May.

For its part, the VIX had a big plunge yesterday down to the 14 level where it has pretty much bottomed each time down there this year.  Today it is actually up 1.5% to 14.25 despite another up move in the stock market.

Trading comment: The markets staged a follow on breakout yesterday and pushed further into high ground for the year.  This is a tough juncture because the market has had a big move and does look a bit extended.  Investor sentiment is also growing more and more bullish, and we know that when the herd gets complacent the market is often ripe for a pullback.  But with the Fed in QE mode, the ECB adding liquidity, and portfolio managers chasing stocks to avoid underperforming their benchmarks it does seem that dips in the market will continue to be bought until the macro backdrop turns negative again.

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Fed Decides On More QE

Here is their press release:

Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.

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The QE Conundrum

Global markets were mixed overnight as investors around the world await today's FOMC decision and whether or not the Fed will initiate more quantitative easing (QE) measures in the near-term.  Many strategists have said the anticipation of more QE is the reason that global markets have been rallying and if we don't get any there could be some disappointment.

I have been on record as saying I don't think the odds are as high as everyone says, considering the stock market is at new highs and the Fed might like to keep some powder dry for when we need it more.  We still have the economy slowing and the fiscal cliff ahead of us.  For the near-term, the ECB seems to have done some of the heavy lifting with its recent bond purchase programs.

The FOMC statement will be released at 12:30 ET with the economic projections released at 2:00 ET followed by Bernanke's press conference.

There hasn't been a lot of market moving news this morning. US producer prices rose more than expected by 1.7% in August vs. the 1.2% expected.

Overnight in Asia, several central banks held interest rates steady.  Indonesia held at 5.75%, New Zealand at 2.5%, Phillipines 3.75%, and S. Korea held at 3.00%.  Asian markets finished mixed.

In Europe, markets are also mixed to lower this morning.  German Finance Minister continues to try to pour cold water on recent ECB announcements.  He said that he does not believe the ESM can get a bank license.

The dollar is slightly lower today and commodities are mixed.  Oil prices are higher to $98.20 while gold prices are roughly flat near $1735.

The 10-year yield is a bit lower to 1.73% after a nice bounce higher yesterday.  And the VIX is also slightly lower to 15.68 still hovering below its 50-day overhead resistance.

Trading comment: The major indexes are holding up in new high territory.  The SPX is at new highs again, but the Nasdaq is a few points below its yearly highs.  More growth stocks continue to lead the market.  But with investor sentiment growing more bullish and this recent uptrend in the market getting long in the tooth, I would not be surprised to see some volatility and choppiness pick up in the near-future.  I feel like investors are getting lulled into a sense of complacency and Mr. Market usually doesn't like it when that happens.  But for now, let's see what the FOMC has to say about further QE now or in the near future.

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German Court Upholds Euro Stability Mechanism (ESM)

Global markets are higher this morning on the heels of the German court upholding the constitutionality of the ESM bailout fund.  There are still some limitations to the fund, including capping Germany's liability at 190 billion euros, but it still looks good that the ESM will come to fruition.  Elsewhere in Europe rumors swirl that Spain is considering asking for aid from the ECB bond buying program, and that France is urging them to do so.

Asian markets rallied overnight ahead of the German court ruling after Chinese Premier Wen suggested there is room for more stimulus to spur consumption.  Japan led the gains, while China lagged again.

In the US, investors are eagerly anticipating tomorrow's FOMC meeting and whether Bernanke will announce new QE initiatives.  I have been saying I don't think it is likely and that they would prefer to save some bullets, but most strategists expect to hear something and say that is the primary reason that the markets have been rallying - in anticipation of further QE.  So if we don't get anything from the FOMC, the market could be vulnerable.

Also later today we will hear from Apple at their San Francisco event where they will unveil the new iPhone5.  We could also hear about a smaller iPad (7") as well as other software updates.  But the stock has run quite a bit heading into this event, and I could see it taking a breather now that the news is out.

Yesterday Facebook CEO Zuckerberg spoke at a tech conference.  He said a few positive things relative to the stock and their expectations for growth, but nothing earth shattering.  Nonetheless the stock is 5% higher today.  I think investors were just happy to see him in person and hear that he is engaged and taking the drop in the stock price seriously.

The dollar is lower today as the euro gets a bounce from the German court news.  Commodities are mixed with oil slightly higher to $97.30 and gold down just a touch to $1733.  Silver prices are also taking a breather.

The 10-year yield is lifting further to 1.74%.  And the VIX is down 3% back below the 16 level but not giving that much back from Monday's upside reversal.

Trading comment: The S&P is back to making slight new yearly highs today.  So far Monday's selloff looks like a 1-day wonder, but a lot could depend on the FOMC tomorrow.  Many think that if the Fed doesn't announce new QE moves that the stock market could be disappointed and have a correction.  This is certainly possible, but with the stock market making new highs I just don't think that the Fed feels the same pressure to do more QE as it has in past summers.  Financials are leading the early action, which is always a positive sign.  And more growth stocks are continuing to lead the market higher.

KAM Advisors has long positions in AAPL and FB

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