Big Gains Via Relief Rallies
01-12-2011
The broad markets delivered a relief rally on Thursday. This as the six major Central Banks issued a coordinated plan that provides the E.U. with an emergency relief program for its financial institutions that were becoming illiquid. The EUR responded to the measure with a quick turnaround and the GBP and AUD promptly followed suit against the USD. The financial crisis in the E.U. has brought upon a host ills, liquidity being one of the biggest problems. While E.U. banks were able to provide enough EUR’s via the ECB, they have been running into problems borrowing USD’s because of the growing Sovereign Debt related symptoms. Global equities rebounded upon the Central Bank news and bourses saw their best one day gains since August and March collectively. The question now for traders are how the ‘good vibrations’ will be able to be sustained.
The ADP Non Farm Employment Change produced a better than anticipated number yesterday, but today the weekly Unemployment Claims will be reported and tomorrow are the always important official Non Farm numbers from the States. The Chicago PMI was also stronger yesterday and so were Pending Home Sales results. This combined with the news coming from the Fed, the ECB, and other Central Banks was enough to foster a strong move in riskier assets across the boards. The three major indexes on Wall Street performed with brazenly strong upward climbs. And while investors certainly will take the one day gains, it still must be pointed out that ‘coincidently’ that the gains took place on the last day of trading for the month. Now while that may not be considered an attempt at window dressing by investors, the long term question begs as to whether or not Thursday’s results will vanish over the next week or so when the E.U. crisis continues to produce harsh realities.
The U.K. will release its Manufacturing PMI data today. The Sterling did gain promptly on the heels of the strength via the EUR yesterday and its Single Currency mode will continue today. The U.K. is facing tough economic conditions. A massive general strike hit Britain yesterday via the efforts of trade unions protesting changes to pensions among other issues.
The JPY has traded in a tight fashion the past twenty four hours. Asian bourses gained in early trading this morning on the back of the strong gains elsewhere. Gold is trading near 1743.00 USD as of this morning, showing gains on the sudden burst of strength from the EUR. The precious metal has shown a strong USD correlation the past few months that should be monitored by traders.
Yesterday’s Central Bank coordination to help create better liquidity for the E.U. was their first unified move since the crisis of 2008 and the Lehman collapse. The move provided a boost in confidence among investors who have been seeking some form of acknowledgement from officials that the financial crisis must be dealt with in a proactive manner. The EUR was able to pick up good ground and now the question for the short term is what type of trend will be established for the Single Currency as ‘real values’ are sought.
