Intraday Market Thoughts

SNB Boosts Franc, QE3 Talk Helps Stocks

by Adam Button
Aug 4, 2011 1:27

The stock market avoided 9 consecutive days of losses, gold hit another record and the CHF bounced after the Swiss National Bank lowered interest rates. 2 Important trades in Wednesday's Premium Section on S&P500 that could indicate a sea change in sentiment.

The S&P 500 rebounded 0.5% to 1260. Aside from the effects of a risk rebound, talk of QE3 is ramping up as the stock market kicks and screams in the face of slumping economic data. Given overwhelming negative sentiment that has driven down stocks and risk assets over the past two weeks, its easy to envision a relief rally prior to Fridays non-farm payrolls report as shorts cover due to the risk of an upside surprise. The chief risk is from S&P who has yet to deliver a verdict on the US credit rating.

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The WSJ reported comments from three former FOMC members calling for further action from the Fed. The most likely course of action from the Fed is for some type of commitment to keep rates low rather than outright bond purchases. In any case, with yields near the lowest levels of the year, there is little the Fed can do besides boost sentiment and devalue the dollar.

The SNB aimed to reverse the rally in CHF by pledging to lower rates to as close to zero as possible from 0.25% and also signalled that it would inject USD$104-billion into the Swiss economy. The also called the CHF massively overvalued in a hyperbolic comment that sounded more like desperation than a threat.

Undoubtedly, the SNB squeezed out some short-term franc shorts but even in EUR/CHF, the rebound wasnt enough to erase the losses from a day earlier. A side effect from the SNB action was to highlight the safety of precious metals. Gold gained $22, or 1.3%, to $1666/oz. Silver outperformed once again as it climbed to 4.2% to $41.76. Oil fell below $92/barrel on growth worries.

The July ISM non-manufacturing index fell to 52.7 from 53.3 in June and missing the 53.5 consensus. The ADP employment report also boosted optimism with a reading of 114K compared to the 100K expected. Unfortunately, the prior was revised 12K lower to 145K. The round of US growth downgrades continues as JPMorgan cut its Q3 forecast a full handle to 1.5% from 2.5%.

Earlier in Asia-Pacific trading, New Zealand released Q2 jobs data. Employment increased 2.0% y/y and the unemployment rate was at 6.5%, both were in line with expectations.


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