Intraday Market Thoughts

Stocks Post Best Week in Two Years

by Adam Button
Jul 2, 2011 0:46

Risk trades continued to rally after an upbeat ISM manufacturing report and stocks closed out their best week in two years. CAD and AUD were the days top performers; JPY and CHF lagged. Fridays CFTC report showed that forex traders were quick to jump on the risk rally.

Junes ISM manufacturing index came in stronger than expected at 55.3 versus the 51.5 consensus and 53.5 prior. The market had largely priced in a strong reading after yesterdays upside surprise in the Chicago PMI. The details of the report were weak as inventory building inflated some of the data. Somewhat overlooked was the fall in prices paid to 68.0 from 76.5. This was below the consensus and shows that inflation pressures in the US are dissipating something that is absolutely essential if the Fed wants to think about QE3.

At the moment, however, further stimulus is off the menu with stocks absolutely buoyant. The S&P 500 posted its largest gain of the week, climbing 1.4% to close at 1339. That extends the 5-day rally to 5.6%. Conversely, the bond market took a thrashing with 10-year Treasuries leaping to 3.18% compared to 2.87% a week earlier.

On the week, the Canadian dollar tops followed by AUD and EUR. The Swiss franc lagged badly after leading the week before. Gold closes the week before $1500 at $1488; its the lowest weekly close since early April.

The strong ISM data overshadowed signs of a slowdown in Chinas manufacturing PMI and further weakness in Japans economy. It also overwhelmed a slight fall in the final U Mich consumer sentiment reading as it slid to 71.5 from 72.0. US vehicle sales fell to 11.45m in the month from 11.75m in May.

Fridays CFTC report showed EUR longs increasing 11%. The overall USD short position decreased 25% but it was a result of falling CHF and JPY (especially) longs. Commodity currencies were in demand. The results are from the close on Tuesday and those trade undoubtedly extended afterwards.

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