Equities Soar But We Won’t Know Until Next Week If The Rally Is Superman Or Super Mouse

There sits the U.S. dollar versus the euro, only a couple of 100ths or so from 1.10/1.00. Much has happened since yesterday afternoon and much of it can be explained by the People’s Bank of China’s 25-basis-point cut in interest rates.

That gave Asian equities reason to jump a bit, the biggest beneficiary of the increase being the Nikkei. Europe really soared with the DAX leading the way up around 2.9% on the day heading into the weekend. France’s CAC was right on the heels of its German counterpart, rising about 2.5%.

In New York, the Dow, S&P 500 and NASDAQ are all up substantially, mostly being led by tech issues as well as the China rate chop.

The NASDAQ is flirting with a close above 5000, and the S&P seems to be holding firm over 2000. Most investors are marrying yesterday’s European Central Bank’s hints that it could expand or extend its QE program with China’s rate cut. Officiating at this merry little wedding will be the Fed, which meets again next week and will probably hold U.S. rates where they are.

The serious money doesn’t believe the Fed is going anywhere even into the first part of next year unless something drastic changes. And that something drastic may be prompted by the ECB and PBC actions yesterday and today. (It’s about time the other economic blocs started acting, we say.)

"The China cut removes some of the pressure on major central banks to deliver further easing or postpone rate hikes," said Jens Pedersen, analyst at Danske Bank. "For the Fed next week, the Chinese headache will be slightly less."

Gold had fallen to 5-1/2 year lows as of late on expectations the Fed would raise rates this year, potentially lifting opportunity costs of holding non-yield bullion. We think that read was misguided and gold should be able to ride the easy money as well as Wall Street stock exchanges or the other world bourses.

Gold was pressured today by the dollar, which rose to its highest since August 19 against a basket of currencies, as we touched upon above. Strong upward action in regular trading wasn’t enough to offset a $9 loss due to a weaker greenback.

And now, as we often do, we close on the mess that is oil.

The monetary moves in Europe and Asia certainly gave some support to crude prices on the notion that rate cuts and QE will stimulate industry and therefore demand expectations.

However, to put a twist on Bill Clinton’s watch-phrase during his campaigns for president: It’s the glut, stupid. The glut, the glut, the glut.

No matter how much U.S. rig counts go down, no matter how much Canada, the U.S. and other non-OPEC producer countries are squeezed by OPEC, until the Saudis give a few twists to tighten the spigots on their end, prices have to stay low, barring a major conflagration in the Mid-East.

Wishing you as always, good trading,