Friendly comments from Fed Chairman Bernanke regarding the economy helped send equity prices soaring on Friday. Speaking to a group of bankers and financial industry officials, Bernanke said that the global economy was emerging from recession. This comments sent a wave of optimism through the equity markets which drove the stock index futures to their highest levels for the year. In addition to the Bernanke comments, news that U.S. existing home sales rose contributed to the rally.
Now that the stock markets have cleared an important resistance level, the charts indicate there is plenty of room to the upside. Skeptics however are noting that the rally took place on option expiration day and under thin conditions which may have exaggerated the rally. Some are remaining cautiously optimistic by calling for a pullback while the more bearish skeptics are still calling for a 10 - 15% correction.
September Treasury Bonds and Notes fell following Bernanke’s positive comments and after the release of the better than expected U.S. existing home sales report. Investors may be looking ahead to next week’s Treasury auction. Because of the stock market rally and increased demand for higher yielding assets, investors may demand a higher yield at next week’s auction. Traders could also be pricing in the possibility of the U.S. leading the world out of the recession and being the first central bank to raise interest rates.
The Euro reversed weakness early in today’s trading session following better than expected French manufacturing and German services reports. This news marked the second time in a week where both French and German data showed unexpected improvement. Last week it was reported that the GDP in both of these countries showed growth during the second quarter. Early gains were pared following comments from Bernanke that boosted the U.S. Dollar.
The Japanese Yen erased early morning gains to post a loss for the trading day. Overnight the Yen traded higher because of the reversal of the carry trade following weakness in Asian stock markets. The surge in U.S. equity markets and the thought of an economic recovery in the U.S. encouraged traders to buy the Dollar and sell the Yen after friendly comments from Fed Chairman Bernanke
December Gold surged to the upside following a weaker opening in the U.S. Dollar. This market broke from early highs when the U.S. Dollar and equity markets rose following the bullish Bernanke comments. Gold, however, was able to hold on to almost all of its gains. Inflation could be on the minds of investors now that Bernanke has declared that the global economy is ready to emerge from the recession.
December Crude Oil finished the day with a gain but off the new high for the year. Traders are expecting demand to increase as the global economy improves, but today’s light advance could be an indication that the rally earlier in the week may have been overdone. Crude oil did hit a new high for the year, but the lack of follow-through to the upside led traders to take profits and perhaps wait for a dip to buy.
