Ralph Shell @ 1:05 PM, Friday May 07 2010
So far today there have been no fat fingers or heavy thumbs hitting the B rather than the M button. The equity markets have survived some morning bouts of selling and have come back, now the Dow is down only 36. Yes we may even close higher today, but before celebrating best heed a word of caution from a veteran Barron's commentator Randall W Forsyth who this morning said:
"Yet even after the near-thousand-point drop was reversed, the major U.S. averages were still down more than 3% and holders of equities $1 trillion poorer than three days earlier. Something more than fat fingers is afoot.
"Those losses, led by financials, were no glitch, but a clear reflection of the fact that sovereign debt woes due to indiscriminate Keynesian deficit spending is outrunning tepid global recovery and threatening the next financial blowout," asserts Uwe Parpart, Cantor Fitzgerald's chief economist and strategist for Asia."
Meetings abound over the week as the central bankers and finance minister search for a hasty solution solution to a decade or two over over spending.
Japanese Finance Minister Kan was quick to point out, the Bank of Japan will pump ¥2T into the system to keep the markets liquid. Was this prompt action an attempt to chill the strength in the yen as specs blew the short yen and some carry trades? Mr Kan also made a comment quoted in Bloomberg:
“Currencies have been moving in a volatile manner,” said
Kan, who is also deputy prime minister and took office in
January saying he wanted to see a weaker yen. “I expect it will
come down,” he also said, referring to the yen’s value against
the dollar. ".......This sounds like a trade to me!
Meanwhile European Central Bank President Jean-Claude Trichet is doing an impersonation of a deer frozen in the head lights. Perhaps he is awaiting the results of the German elections and suggestions from Fraulein Merkel how to proceed. Unless some strong European leadership emerges, further weakness in the euro seems likely.
In the midst of the fear, panic, British elections and margin call liquidation we get Canadian and US employment reports and the notorious NFP report. The reports are positive in Canada and perplexing in the US. How does unemployment go to 9.9%, and the NFP go up to 290K, the biggest increase since March 2006. The progress in Canada will give the Central Bank there, courage to begin raising the bank rate, currently at .25%. We prefer the long side of the C$, but feel it is prudent to wait until next week to initiate new positions.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.