The Best Since April
Some skeptics have pooh-poohed the Fed’s ninth
interest rate cut in nine months, doubting that historically low rates could
do much more to enhance consumer sentiment or kickstart idling factories,
but stock index futures roared ahead today, continuing yesterday’s late-afternoon rally as traders began to grasp the power of recent cuts.
But as I pointed out in this space yesterday, a
100-basis-point cut in two weeks to a 39-year low provides tremendous
potential fuel to the economy. Nasdaq futures traders realized that having
short-term “real” rates at zero (see bonds below) will have a
positive effect on demand and bought — sending the
December Nasdaq 100 futures
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months.
Stock index futures got going yesterday after the
typical three-wave head fake that pit veteran Lewis Borsellino mentioned
occurs often following Fed announcements. After a down and dour start today,
soured by Nortel’s word that the Canadian telecom giant would cut 20,000
workers, all three major stock futures contracts regained traction at the
low/opening tick and followed through on yesterday’s late surge.
S&P futures
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and
Dow futures
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entries after having each demonstrated upside momentum by registering on the New 10-Day Highs List.
December Nasdaq 100 futures
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as much as 9% before settling up 86.50 at 1250.00 (+7.43%).
Debt futures rallied for the ninth consecutive
session one day after the cuts as well. Yesterday’s cut in the federal funds
target rate to 2.5% risks sparking inflation, a phenomenon that has occurred
every time the rate has dropped below the current inflation level. With
inflation running at 2.7%, the “real” level, or yield of the fed
funds rate, is zero.
T-bonds normally tank in a scenario foreseeing
inflation. But a variety of factors are coalescing to take bond traders’
eyes off the inflation ball — at least for now. One reason is a shortage of
long-dated bonds to borrow in the repurchase or repo market for bonds, tightening
the supply of such securities in the wake of the 9/11 attacks. Second, a
huge portion of the debt will be mortgage debt, and homeowners are forecast
to refinance in record numbers. The “refis” will prompt bigger holders of newly issued paper to match
new, longer debt durations by
buying 10- and 30-year notes and bonds. This action should strengthen
the demand of
bonds. Third, President Bush said fiscal spending to beef up the economy will be
structured such that it will not push longer-dated interest rates higher. Fourth, lower
oil prices are easing some of the worry about energy costs as a source of
inflation. All are working to keep the debt rally alive.
T-bonds
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10-year notes
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List, surged to contract highs but were knocked lower by resistance. T-bonds
were contained by the 127% extension of the morning pullback in the 107
11/32 area and closed up just 5/32 at 106 23/32. 10-years also added 5/32 to
109 15/32.
November crude oil
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heating oil
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unleaded gasoline
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Petroleum Institute’s weekly report showed national inventories fell at
their fastest pace since July. The contracts gapped lower and continued down
to make good on their
Pullback
From Lows short setups. But the contracts held at the 61.8%
retracements of their recent pullbacks and closed near their opening
(gap-down) levels. November crude slipped .71 to 22.08, unleaded
gasoline edged down .0122 to .6293, and heating oil fell .0071 to
.6395.