Thursday, August 4, 2011

No Follow Through

While we are waiting the weekly jobless claims, futures are not looking like there is going to be any real follow through on yesterday's QE3 celebration in the afternoon.  While off the worst levels of the overnight session, most of yesterday's gains look to be erased at the open barring a material change in futures in the next hour or so.  Therefore, it appears yesterday afternoon was some combination of selling exhaustion (we're very oversold), and short sellers covering on the QE3 discussion.

Both the ECB and BOE kept interest rates steady, which was expected.  The ECB press conference today may be a form of catalyst as the marketplace is pressuring Trichet to reinstate sovereign debt purchases, which apparenly have not been utilized the past four months.  With both Italy and Spain the current focus, it would seem like Trichet would open the door to this which might appease markets.  The 'big bailout' fund (ESFS) is not yet funded, and not looking to be operational until end of year - so the market is looking for a bridge in the meantime:

  • "It is to some extent anticipated in markets that the ECB could be some kind of bridge until the EFSF is fully implemented. As we know, the EFSF is not ready before the end of this year to buy up in the secondary market, but it would be a massive positive event in markets if the ECB stepped in and put away its reluctance to act in the market," Danske Market chief analyst John Hydeskov told CNBC on Thursday morning.

Outside of that Japan intervened overnight in the currency markets as the dollar has weakened tremendously versus the yen.  Being a heavy exporting country, this is not good for Japan.
  • The Japanese yen plunged Thursday after Tokyo intervened and the nation’s central bank stepped up its monetary easing.  The action in Tokyo, which came a day after Switzerland acted to push down its own currency, marks the first time Japan has stepped into the market since the aftermath of the devastating March 11 earthquake.
  • Later in the day, the Bank of Japan announced that it was adding to its asset purchases — such easing tends to weaken currencies — even as it said that Japan’s “economic activity has been picking up steadily.”

Gold and to a lesser degree silver continue to rocket, as fiat currency debasement is the only solution governments and central bankers seem to know.

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