A Home Bias Whats that adage? Its not how you start, but how you finish? Well, that adage applied to Tuesdays market, which was down big shortly after the start of trading but then quickly went into its buy-the-dip mode that made things look much less bothersome by the close of trading. The S&P 500, down 1.3% at its low, ended the day basically unchanged. It is currently indicated to start todays session slightly lower. Were calling out Tuesday as a notation-rotation day. That is, the difficulties reported for China and Greece were noted early and profit-taking ensued, yet money was soon rotated back into the market on the idea that those difficulties simply made the U.S. economy (and market) look comparatively better. Accordingly, small-cap stocks, which have a strong domestic orientation, fueled the turnaround bid, garnering some added support in the process from the recognition that the NFIB Small Business Optimism Index hit its highest level in November (98.1) since February 2007. The home bias, if you will, could come into play again today after China reported its lowest year-over-year increase in CPI (1.4%) since November 2009, feeding concerns about the economic slowdown taking place in China. Of course, bad economic news is just about the best news a Chinese investor could get (right?), because it will presumably invite more policy stimulus from the central bank. Despite the clearly bad economic news, which also produced a 2.7% year-over year decline in producer prices, the Shanghai Composite rose a tidy 2.9% on Wednesday. Japan didnt follow suit. The Nikkei dropped 2.3%, having other fish to fry with the recent bounce in the yen and a cabinet minister suggesting measures should be taken to deal with the negative effects of yen weakness. Well, one thing is for certain: higher policy rates arent going to be part of any measures to deal with the negative effects of yen weakness. Moving on. European bourses are making a rebound try of their own today -- and why not? Their sharp losses on Tuesday, a 0.8% month-over-month decline in French industrial production, and the political uncertainty surrounding Greece only help the case for the the ECB to do more. See? Sometimes less really is more. Elsewhere, oil price action remains a focal point for market participants. Crude futures are currently down 1.9% at $62.68/bbl after OPEC lowered its forecast for OPEC-supplied oil demand in 2015 by 300,000 to 28.92 million barrels per day. The latter is the lowest forecast for OPEC oil demand in 12 years and was pinned on increased supply from non-OPEC producers and a downward revision to global demand. The continued slide in oil prices is apt to keep the pressure on the energy sector, which would be a drag on the broader market. The airlines could potentially provide some offsetting support. Lower fuel costs were among the main drivers behind the International Air Transport Associations projection that the airline industrys collective global net profit after tax will increase to $25 billion in 2015 from an estimated $19.0 billion in 2014. At the moment, though, the market is expected to remain grounded at the open as the S&P futures are trading 0.2% below fair value.
Posted on: Wed, 10 Dec 2014 14:34:36 +0000
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