Macro Morning: Risk roars

The Dow Jones Industrial Average finished at its highest level in around 5 years overnight as hopes that the Fed will deliver QE3 outweighed the threat by Moody’s to take away the US’s AAA rating. Europe had a better day in the lead up to the US market open as hopes rose again about the prospects for the German Constitutional Court’s decision but the US open gave them a late lift.

The success of the US 3 year note auction overnight, where there was huge demand, suggests that markets are genuinely getting hot once more for the monetary stimulus that the Fed is supposed to deliver.

For mine, the Fed is already succeeding because it has once again begun the debasement of the US dollar which is the primary objective of QE – that is to make the US more competitive relative to the rest of the globe and thus get a greater share of global trade for American business. It has worked over the last few years with exports as a percentage of total US GDP having risen materially. Last night, however, the US trade data showed that there had been a drop in exports as the global economy weakens.

But as noted, at the close of play the Dow was up 0.52% to 13,323, the S&P 500 up 0.31% to 1,433 while the NASDAQ was flat up just 0.02%. In Europe the FTSE was essentially flat but the DAX rose 1.34% and the CAC was up 0.89%. The Madrid stock exchange rose 0.99%. One thing to note amongst the ebullience is that there is still some jockeying going on within the European ruling class. German Finance Minister Schaeble was on the hustings saying that Germany is still against Euro bonds while Spanish PM Rajoy said he is still undecided about whether to request ECB bond buying.

In FX land, US dollar weakness was the story of the night as the Euro and Aussie dollar both roared. The Euro rallied from a low yesterday of 1.2759 to a high of 1.2867 and sits at 1.2851 as I write. This is a multi month high and the Euro is edging closer to the 1.29/1.30 resistance zone. The Aussie likewise pushed higher up more that 1% at 1.0431 presently from a low of 1.0325 yesterday and a high overnight of 1.0447. For the moment the US dollar looks to be in a continuing downtrend which, all other things equal, will bias the Aussie dollar higher.

On commodity markets the weakness in the US dollar didn’t translate as much to strength in the price of crude or gold as might have been expected.  Crude fell 0.29% to $96.26 Bbl while gold rose 0.1% to $1,733 oz. The ags were down with corn dropping 2%, soybeans 1.03% and wheat 0.51%.

Charts will be back tomorrow once I rebuild them

DATA: NAB Business one day, Westpac Consumer Confidence the next. This will be the primary focus today.

And here is how the markets closed at 6.25 this morning courtesy of AVATrade

Twitter: Greg McKenna. He is the Chief Investment Officer of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

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  1. A cynic could say that The Fed has given anyone who chose to ‘ride it out’ a chance to get out now with their skin still intact.

  2. A sobering report from Harry S dent – I would suspect that many here would think Dent is the ‘mad hatter’; but all he is saying is ‘massive downturn because of the inevitability of demographics’ is to be expected. In fact he believes a boom will commence around 2020 (vision!?) and be as good as any in history.

    It is just that from now until then, really serious pain is a real likelihood. I also wondered how Spain with over 27% unemployment and over 50% youth unemployment survives and that they are not rioting and then it dawned on me that they have a very strong extended family culture, where they look after each other and grow their own veggies e.t.c – pity us in OZ with our singular nuclear units!