This Has Never Happened Before . . .
There’s a first time for everything. Maybe they were
looking at more dismal economic data than we’ve yet seen. Maybe they were just
waiting until everyone thought such an event was out of the question in order to
maximize the impact the move. But in case you hadn’t heard, the Federal cut interest rates in between its regularly scheduled policy meetings for the second time in three months.Â
Although Wall Street has been begging the Fed to take
such action, the move is unprecedented. Never before during Alan Greenspan’s
tenure has the Fed cut rates inter-session in such a short time.Â
Stock index futures had already gotten off to bullish
starts after Intel and Texas Instruments beat lowered earnings estimates and
bolstered the semiconductor sector
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the rate cut. After the Fed announced the Fed Funds rate would be dropped to 4.5%
(and that the discount rate would drop to 4%), the SOX climbed to a 20% gain and
index futures exploded.Â
Dow futures
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catapulted a whopping 495 before settling 413.0 higher at 10,658.
Nasdaq 100 futures
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as 275 points before closing up 167.00 at 1839.50. And S&P futures
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shot up nearly 80 handles before a close 50.70 higher at 1246.20.
Although it has regularly voiced comments to the
contrary, the Fed is obviously worried about the stock market’s, and the related
wealth effect’s, impact on the economy. In its statement accompanying the
rate cut, the Fed stated that “The effects of early reductions in
equity wealth on consumption . . . threatens to keep the pace of economic
activity unacceptably weak.”
Perhaps it is just a coincidence that the cut came just
hours after an Institute of International Finance report which concluded that
the global economy was facing its worst crisis since 1973. The Fed may have
taken today’s unusual step to avert the collapse of a global international
economic house of cards: Japan still remains in the economic doldrums, Europe is
seen as being behind the curve in prodding economic growth, and investments in
lesser-developed countries, the life blood of poorer nations — has slowed
substantially.Â
June dollar index futures
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losses of over a dollar to close down .39 at 116.23. The tepid loss of this Momentum-5
List market shows that traders are satisfied with the economic effect that
the rate cut is likely to have on the economy and the expectation that
international investors will buy dollars to invest in US equities.Â
The Japanese yen
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gainer, rallying .0064 to .8237 after Finance Minister Miyazawa said that Japan
will announce at a G-7 meeting of the leading industrial countries later this
month that it will not pursue a weak yen policy to kickstart their
economy.Â
Energies fell after the
weekly API national inventory figures showed a build up in crude and a diminution
in demand for gasoline. This implies that retailers may already be stocked up to
avoid any shortfalls of supplies this summer during the heaviest demand period
for gasoline. May crude oil
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heating oil
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List leader
unleaded gasoline
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higher at 1.0590, a very constructive sign.Â
Â
In other markets, Implosion-5 List
contract soybean oil
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.1600 higher at 14.9300, coffee finally responded to its
Low
Volatility situation to log an outside day (up) at a seven-year low, and May pork bellies
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rejected the April 12 gap-resistance to close limit down at a a one-month
low.