* March US private payrolls unexpectedly fall: ADP report * Moody s downgrades five banks in Greece, citing weakness * US Midwest business activity expands less than expected
The Dow and the S&P 500 cut losses on Wednesday, led by gains in the energy sector, and the Nasdaq briefly turned positive.
Trader Mark submits:
Finally, someone is speaking up on a theme we’ve been promoting for a long while – one of the many "arbitrages" currently going on in the US. In this case, throwing America’s savers under the bus, so that (a) any 4-year-old may run a bank successfully simply by turning on the light in the morning [Apr 20, 2009: How Banks will "Outearn" their Losses] and (b) so that debtors may benefit.
What is sad to see is the potential for the desperate American saver – who has been hit by multiple Federal Reserve induced bubbles – being set up to have her monies swiped away yet again. Many who have been hit by two stock crashes and a real estate crash – all within a decade’s time mind you (3 Black Swans – what are the chances with a Federal Reserve gone crazy?) – now have fled into bonds. [Sep 16, 2009: Mutual Fund Investors Cling to Safety of Bonds, Missing Stock Rally] Why bonds? Because they are "safe" and offer some yield over and above the (almost nothing) offered in saving accounts or CDs. But safe is a relative term; interest rates and prices of bonds have an inverse relationship. At some point, rates will go up … and prices of said bonds shall fall. Which, from my anecdotal discussions and readings on the intertubes, is going to be a shock/surprise for many of our savers who are simply trying to find any product that generates even modest returns over and above inflation rates. Surely within 3-5 years we will be reading story after story of the individual investor "shocked" they have taken losses in their bond mutual funds.
Currencies and the Markets
March - 31 - 2010
Marc Chandler submits:
The combination of a negative surprise from ADP, a disappointing Chicago PMI and talk of a MSCI rejig has encouraged the market to extend the short-covering rally in the euro, sterling and Swiss franc. With the fiscal year end repatriation completed, the yen has been under pressure and remains so today. Full liquidity will not return to the foreign exchange market until next Tuesday and this may also encouraged some position adjusting.
The weak data are helping stabilize the bond market (in the US and Europe). At the start of the week, we suggested that the euro had corrective potential into the $1.3550-70 area. This still seems fair. The risk at this juncture seems to be on the upside. The key seems to be Friday’s US jobs data. A strong jobs report, say in the area of a 200k rise in nonfarm payrolls, could turn today’s price action into a head fake. After all, the ADP data is not seasonally adjusted. Nor does it include government workers. Both factors are thought to have bolstered the employment report. However, at this juncture it would seem that even a 100k increase would be disappointing. If there is disappointment, continued unwinding of euro shorts could push the euro through $1.36. A convincing move through there could target $1.38 in quick order.
We had expected sterling to rise toward $1.50. We under-estimated the strength of the short-covering rally. A move now above $1.5200 would likely signal a test on the $1.54 area. As we have noted, many macro-economic models are suggesting that sterling is relatively cheap. We have been more reluctant because of political considerations and the risk of a hung Parliament.
Marc Chandler submits:
The most authoritative source of information about the currency allocation of fx reserves, the IMF’s COFER data, was just released for Q4 09. As we have suggested, based on the dollar’s appreciation, the greenback’s share of reserves increased. In Q4 the dollar’s share of allocated reserves rose to 62.1% from 61.5%.
The euro’s share slipped to 27.4% from 27.8%. The yen’s share slipped to 3.0% from 3.2% and sterling’s share was steady at 4.3%. The catch-all category of other currencies rose to 3.1% from 3.0%. This includes Canadian dollars and Australian dollars as well as a host of other currencies that are used on the margins, like the Norwegian krone.
China Isn’t Going to Fold on the Currency Issue
March - 31 - 2010
Carlos Lam submits:
For weeks now, the US government has been accusing China of manipulating the Yuan so as to make Chinese exporters’ products more competitive in the marketplace. Of course, China does indeed peg the Yuan to the dollar; it is a "soft" peg, yet a peg nonetheless. While it does indeed make Chinese exports cheaper for Americans, keeping the Yuan undervalued also has the detrimental effect of reducing the purchasing power of Chinese citizens, as the Chinese central bank prints the Yuan out of thin air to buy US dollars.
Unfortunately for the Obama Administration, the Chinese are not going to fold on this issue, and a look at some salient facts will tell us why.
Micro Caps: This Is What a 12 Million Percent Profit Looks Like
March - 31 - 2010
Eddy Elfenbein submits:
Twelve million percent — that’s what micro-caps have done since the Great Depression.
Here’s a breakdown of market performance by size decile. The smallest have done the best and the biggest have done the worst.
Sector Snap: Mortgage insurers surge on data (AP)
March - 31 - 2010
Shares of mortgage insurers surged to new 52-week highs Wednesday as a trade group said in a monthly report that for the first time in four years, borrowers catching up on loans outnumbered those who fell behind.