Additional Fed-led follow-through leads to an optimistically fearful bid in Friday’s first half. As of 12:10 ET the SP-500 (SPY) is up 0.50% as bulls “stretch” to not miss out on fresh four year highs.
The anecdote “Don’t fight the Fed” is continuing to influence investors Friday following policymaker’s surprise QE3 open-ended initiative to purchase $40.0B of mortgage-backed securities monthly until the US labor market improves.
Elsewhere and making less an impact on bulls, China’s central bank warned the Fed’s program could ignite global inflation. At the same time, Hong Kong’s Monetary Authority chimed in the risk of a property bubble has likely increased due to Thursday’s stimulus action from Helicopter Ben & Co.
Across the other pond, whether or not Spain will require a full-blown ECB bailout remains a question mark. Unemployment in the Eurozone held steady for the first time this year, but remains at record levels of 11.3% and underscoring the region’s considerable economic weakness. And consumer prices rose by 2.6% year-over-year and matching analyst views.
On the officially-sanctioned US economic docket, reports have been mixed but more pleasant sounding than not. A preliminary reading on Michigan sentiment for September saw a surprise upward spike to 79.2 compared to August’s 74.3 reading and forecasts of a dip to 73.5.
Total CPI data for August rose by 0.6% and in-line with estimates, while core levels rose by just 0.1% compared to forecasts of 0.2%. Separately, business inventories doubled Street views of 0.4% with an actual increase of 0.8%. And for those taking headlines at face value, the bears owned today’s industrial production data which showed a stiff decline of 1.2% compared to estimates calling for a dip of 0.2%.
In those intertwined markets of influence, the EUR/USD is up another 0.70% and establishing a fourth straight day of strong gains since breaking out above key long-term technical resistance. Eurozone country ETFs are mixed with Spain (EWP), Italy (EWI) and Germany (EWG) showing gains of 0.80% to 1.25%.
The Global X FTSE Greece 20 ETF (GREK) is breaking from its constituents for a second day as it loses 1.2% within an inside doji pattern following a report the Troika sees the country receiving “more time, not more money” to clean its fiscal house and reach financial targets under its existing EUR 130.0B rescue package.
Elevated Middle East tensions have, along with the Fed’s “risk on” stimulus program, prompted a technical breakout in the US Oil Fund (USO). Shares of USO are up 0.55% after gapping narrowly above its 200SMA for the first time in four months.
The 20-Yr (TLT) and US Dollar (UUP) appear to be reacting to investors reinvigorating “risk on” agenda and maybe the potential threat of inflation tied to the Fed’s open-ended monetary action. Intraday, the TLT is under continued aggressive pressure of 2.35% after gapping below its 200SMA, while the UUP is off 0.50% and hitting ten-month lows.
Finally and in those sometimes accurate heat-seeking option markets, overly-bullish investor sentiment has manifested itself in the VIX ($VIX). The Fear Gauge is up 2.5% at 14.4% but not before putting in a test of its August and five year lows and an intraday complacency differential reading of 15.5% as the only risk is that of missing out and not holding onto risk assets in front of the weekend.
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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