Now that U.S. Federal Reserve Chairman Bernanke has declared the global economy is beginning to emerge from its worst crisis in generations, the emphasis will be on whether central banks continue to work together to prevent a crisis like this from happening again or if each will take it own path to assure the path to recovery is smooth.
The initial reaction by traders to Bernanke’s comments on Friday was to sell the Dollar because of increased demand for higher yielding assets. After giving it a little thought over the weekend, it appears that investors may be interpreting what Bernanke said a little differently and are buying the Dollar in the hope that the U.S. leads the world out of the recession.
Equity markets are up overnight. The strength in Europe and Asia is helping to boost U.S. prices. Bernanke’s positive comments were the driving force behind last Friday’s gains. Traders seem to be focusing on the positive at this time and ignoring the negative. Bank failures are an issue that should begin to make the news. Some analysts are predicting more failures and avoidance of regional bank stocks. Unless there is a dramatic technical reversal on the charts, traders should continue to buy the dips.
Treasury futures are trading higher this morning. Traders have been bucking the norm and supporting the September Bonds and September Notes. Higher equity markets usually mean lower prices for Treasuries because of competition for yields. This is not the case overnight. Furthermore, the increase in supply this week because of the $109 billion auction should also be exerting some kind of downside pressure.
Crude oil is still trading strong but traders don’t seem too willing to chase this market higher at current levels. A strong surge in the equities markets may bring some buyers into this market as appetite for risk increases, but it appears that there is more room to the downside. Watch for weakness in crude oil if equities begin a profit-taking break.
