It’s No Safe Haven
British and European central bankers each cut
short-term interest rates a half-point today and market action suggested
that money wanted to get out of safe havens like bonds and gold and more
seriously into speculative assets. Stock index futures have continued to
rally over the past month despite some of the worst economic statistics in
10 years.
Today’s rate cuts from across the pond came as a
surprise — a quarter-point was priced in. The cuts further prime the pump
that could fuel corporate profit growth and rising stock prices as global
demand, wrought by cheaper money, picks up. Where traders had been seeking
the haven of “safe” assets like gold and bonds just two
months ago, the past month has
seen torrid gains in the 50% area in the semiconductor,
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Internet
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sectors. Today’s interest rate cuts only seemed to legitimize and confirm
the rally in these sectors, which are among the most speculative.
Coinciding with the cuts from the European Central
Bank and the Bank of England came outside days in T-bonds
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December gold
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high, suggesting a deeper correction. Gold’s “engulfing” bar took
out the previous 10 sessions and closed below the up-slanting neckline
of a head-and-shoulders top.
T-bonds closed down 32/32 at 110 16/32, and gold
slipped 4.2 to 277.1. Notice gold was primed for a larger-than normal move
after registering a Multiple Days Low
Volatility reading.
The euro FX
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British pound
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the ECB gives the impression that the euro-zone economy may perform worse
than expected. Another negative for the euro is the less anti-inflationary
stance of the normally hawkish ECB. The euro has essentially sold off in
each of the past eight sessions to close in the bottom 50% of its range, a
sign of weakness.
Energies rallied,
turning around severely oversold conditions after OPEC said it is
considering lowering output quotas to the lowest level in 11 years to
contain the slide in the price of oil. OPEC has a meeting scheduled for next
Wednesday, and output cuts, originally not expected to come before the
beginning of next year, could arrive as soon as December. Crude, unleaded
gasoline and heating oil all closed over 5.3% higher.
Also in the momentum department after rallying 5%
yesterday and scoring a
New 10-Day High,
December cocoa
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close at 1099. There were reports of farmers holding back the crop due to
low prices.