On Wednesday, Fed governor Lacker made his promo pitch stating he didn’t see the Fed as “anywhere near cutting balance sheet size” and “maybe markets got a little bit ahead of us on QE." He is also “fine with FOMC tapering QE now” or at any time evidently, but he’s a team player.
Thursday we got a troika of Fed governors beginning with uber-dove and former Goldman Sachs honcho William Dudley. He restated Bernanke’s view that QE tapering may begin in late 2013 and/or early 2014. He was followed by Fed governor Jerome Powell who stated, “Market adjustments since May have been larger than would be justified by and reasonable reassessment of the path of policy," adding, “The reaction of the forward and futures markets for short-term rates appears out of keeping with my assessment of the FOMC’s intentions, given its forecasts.” In other words, the markets were just wrong. Lastly, Fed governor Lacker stated, “…as the Chairman made clear, there is no 'predetermined' pace of reductions in the asset purchases, nor is the stopping point fixed.” Below is the Fed’s seemingly successful campaign to put the toothpaste back in the tube via Zero Hedge.
The bottom line is Fed governors have been united in their efforts to jawbone financial markets higher. It’s no coincidence that POMO today was unusually large at over $5 billion.
As to business concerns about rising borrowing costs there was this comment. “It causes me to be a bit more cautious,” said Ron DeFeo, the chief executive of Terex Corp. The Connecticut-based company makes cranes, paving equipment, and other heavy building machines, a business sensitive to interest rate changes. “I am hesitant because I really don’t believe the U.S. economy is in a strong growth mode.” (WSJ)
Meanwhile the unease generated by Chinese interest rates and a credit crunch revealed the PBoC lowered some rates but will retain a firm hand on conditions. This review is featured in this Bloomberg article and also a Goldman Sachs view that a tightening bias will remain in China.
The well regarded and matter of fact Consumer Metrics Institute just released their analysis of the “sham economic recovery” in progress since 2009. I would encourage you to read it.
Jobless Claims dropped some to 346K vs 345K expected, and prior revised higher to 355K. Personal Income rose to 0.5% vs 0.3% expected, and prior revised higher to 0.1%. Spending also rose to 0.3% vs 0.4% expected, and prior revised lower to -0.3%. Pending Home Sales rose sharply to 6.7% vs 1.0% expected, and prior 0.3%. The home sales data was good, but this is the home-buying season and those buyers needing mortgages received interest rates a full percent lower than now.
This is the last week of the second quarter and its transparently obvious window-dressing is in overdrive to ramp prices higher. After all, bonuses are at stake providing the motive. Although this activity is illegal, it’s almost impossible for regulators to track it down. I’ve never read of a case where regulators have enforced this rule.
Most stock sectors were higher Thursday continuing the rally of this week. Most major market sectors (SPY) tried to regain the 50 day moving average but fell a little short. Leading the charge higher were homebuilders (ITB), REITs (IYR), financials (XLF), small caps (IWM), regional banks (KRE), oil (USO). and gold miners (GDX). Lagging sectors remain commodities (DBC) and gold (GLD). The dollar (UUP) as slightly weaker and bonds (TLT) slightly higher. The 7 year Treasury bond auction was well bid Thursday.
Volume was quite light which has been the signature of market melt-ups in the recent past. Breadth per the WSJ was positive.
Consumer Sentiment will be released Friday and we’ll see how it matches-up against the Consumer Confidence data from early in the week. Bulls are pretty amped-up and may have the power to close the month and quarter with more than just respectable performance.
Three more Fed speakers strategically placed before markets open Friday include Jeremy Stein and Jeffrey Lacker then later in the day John Williams will take his turn at bat. All these Fed speeches have been well-orchestrated to promote confidence in their policies. In fact, the entire effort this week has been a transparent rally dominated by the Fed and portfolio managers.
It’s understandable this kind of promotional activity would occur, but at the same time, it makes conditions obviously too manipulated.
Let’s see what happens.
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