Today the Fed reported in its monthly Beige Book that the U.S. economy was stabilizing or improving. This positive report was a strong sign that the worst recession in decades was over and that the economy may have turned the corner.
While the Fed remains “cautiously positive” about the economy, the road to recovery is expected to remain rocky primarily due to flat retail sales and a weak labor market. The biggest concern for many of the world’s central banks is when to put an end to the stimulus plans which have supported their economies. This presents the next challenge for the central banks because waiting too long could be inflationary while acting too swiftly could curtail gains.
Equity markets finished the trading session higher fueled by a cheaper Dollar and a Goldman Sachs recommendation to buy multi-industry companies. Early this morning the markets felt downside pressure which dried up immediately after the opening when sellers vanished. The subsequent rally sent the indices up toward recent tops before the release of positive Treasury auction results and the Fed Beige Book triggered an intraday profit-taking sell-off. Buyers stepped in and the markets were able to erase much of the afternoon loss.
Traders seemed a little hesitant to buy strength at current price levels because of the history of September to produce major tops. Investors seem to be looking for a catalyst to drive this market through the recent top. Traders are also looking for a sector to take over the leadership of this rally now that it is six months old.
December Bonds and Notes traded under pressure throughout the day as traders awaited the results of today’s $20 billion 10-year note auction. Competition from Japan for fixed income investment funds have helped to drive up yields recently. Most of the earlier losses were erased when the results of the auction showed favorable interest.
The U.S. Dollar was under pressure all day as appetite for higher risk assets drove the Dollar lower. Record low borrowing costs have been contributing to the weakness in the Dollar and the strength in higher yielding assets. Investors have been selling the Dollar to fund their appetite for risk. The U.S. Dollar is currently the cheapest funding currency.
December Gold is traded mixed most of the day before finishing lower despite the weaker Dollar. Overbought technical conditions may be helping to repel buyers at the current price level. This could indicate that a sizeable correction is possible to attract fresh buyers. The recent rally in the equity markets may also be drawing away investors who only want to buy gold as protection against a stock market decline.
December Crude Oil recovered into the close after a weaker opening. Strength in the equity markets and weakness in the Dollar helped to support the rally. OPEC is holding a meeting in Vienna this week. Expectations are for the oil cartel ministers to leave production at current levels and to encourage members to maintain their production quotas
