Bobbys Corner-Open Market-Dec.6.2010

Good Morning:

We start this week with the USD stronger amid comments by Fed Chairman Bernanke on CBS’s 60 Minutes news program. 
The Fed Chairman stated that it may be possible to increase the US Governments bond purchase program to further spur the US economy-which is showing signs of anemic growth.  With Friday’s disappointing NFP data-and the unemployment rate jumping to 9.8%, the Fed must come up with a program to get the economy growing.  A 2.5% growth rate will keep the unemployment picture stable-so we need better  than 2.5% growth  to get unemployment lower, and jobs created.  He also stated that inflation is not a current concern-and that the Fed is keeping a watchful eye for any signs of  inflation.
European officials seem to be split on the steps needs to contain the sovereign debt crisis hitting the continent.  European Finance Ministers are heading to Brussels today to discuss and hopefully come up with an agreed upon program on how to get  handle on the debt issues plugging the EU.

Asian and European equity markets are mixed-and US Futures are lower at this time.

Oil:$89.05                                         Gold:$1415.60

NO MAJOR US DATA DUE OUT TODAY. 

HAVE A GREAT DAY & GOOD LUCK

Bobbys Corner-Open Market-Nov.19.2010

Good Morning:

The Euro showed some strength overnight-as speculation mounts that the “bailout” for Ireland will control the debt crisis in the EU from getting worse.  An agreement on the rescue  plan will help markets stabilize, and keep the fear factor at a minimum.
The USD lost steam as Fed Chairman Bernanke defends the current QE2 program to stimulate the faltering US economy.

Asian equity markets were lower after China announced that banks need to set aside higher reserve requirements to help curb inflation.  European markets are following suit this morning.  US Furues are also lower at this time.

Oil:$81.58                                                     Gold:$1347.50

HAVE A GREAT DAY-WEEKEND & GOOD LUCK

Bernanke’s Washington Post Op-ed

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110307372.html

FOMC Chairman’s Op-Ed in the Washington Post (click on the link above) explains his/the Feds reasoning for the increased QE conducted yesterday.  As discussed during our webinar on Tuesday, the Fed remains concerned about the low inflation/high employment that has persisted since reaching the abyss of the recession. Typically, unemployment moves lower, faster, after a steep recession and this in turn supports prices as businesses look to recoup from the recesssion.

 That has not occurred.  PCE fell to 1.2% YoY this week with MoM showing no change.  Next month, a 0.3% gain from a year ago, drops out of the calculation which should lower the PCE below 1% YoY.  Unemployment at 9.6% from 10.1% is not improvement.

The resulting effect from “this times” dead cat bounce, is lower incomes and expectation for lower prices (i.e. deflation or disinflation).  The Feds hinting of additional QE over the last month or so, has led to lower mortgage rates and could be spurring on some growth in that sector as a result.  However, judging from the change in interest rates on the longer end post the announcement yesterday, the effects on mortgage rates might have already seen the good news.  Today we saw Unit Labor Costs declining for the 3Q which is not good news for future spending. Workers need more money to spend more money. However, that is also now in the rear view mirror.

What we and the Fed will be looking at is the road ahead. Will the stimulus from the increased purchases find its way into the hands of businesses and ultimately in the consumers pocketbooks.  Will the resulting lower dollar lead to increased investment from abroad – even in housing?  Will exports of services from the likes of IBM, Oracle, Microsoft, lead to a more balanced trade picture and higher growth.  That is the road we will be looking at ahead.

For those worried about too much money being printed, it may be, but Bernanke feels he has no choice. However, be aware that if the Fed sees an increase in lending activity. If they start to see an increase in the velocity of money. If they see deleveraging slow. iIf they see job gains. They will tighten and take back fast.  When will that happen?  Time will tell, but indications remain that it will not be soon.

The NY Morning Forex Commentary. Bernanke, data dominate

Bernanke paves the way (again) for further action

• Case for further action with too low inflation
• Ready to provide accomodation
• Fairly modest pace of recovery
• Bulk of unemployment due to contraction
• Inflation too low relative to Fed’s mandate

The dollar has fallen sharply on the comments.  The EURUSD has moved above resistance at the 1.4121-27 area.  Look for support against this level. The USDJPY has dropped below the 81.00 support.

The link below is to the text of the chairman’s speech.

http://www.federalreserve.gov/newsevents/speech/bernanke20101015a.htm

The EURUSD remains within the boundary after Bernanke speech

Fed Chairman Bernanke on the Wires

Bernanke Says:

• Fed will do ‘all it can’ to ensure US recovery
• inflation fallen to level below FOMC preference
• FOMC prepared to provide more accommodation if needed
• fed has tools to support growth, oppose disinflation
• more long-term securities buying would be effective
• economic recovery ‘remains far from complete’
• growth ‘has been to slow’ unemployment too high
• FOMC not agreed on ‘criteria or triggers’ for action
• preconditions for growth pickup in 2011 are in place
• households more cautions about outlook than nexpected
• near term spending likly to grow slowly
• modest pace of growth for second half of 2010

GDP, then Bernanke, Bernanke and Bernanke

Expect a sugar rush like move as Bernanke comments are reported at 10 AM. Last year, the comments had around a 100 pip range as the market moved up and down and all around. This year I would expect something similar. The comments are anyone’s guess. Popular thought is if new or rather a strong hint of QE (which is doubtful as that is why there is a FOMC – they decide that), the dollar gets weaker. If he doesn’t hint, expect up and down volatility. The good news is that the market has some key levels that straddle the current price so there are some boundaries to lean against or use as guides for bullish or bearish bias. I would think that the smart money will be using and watching the key levels for their clues today. Click to see the key levels.

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