Monday, June 21, 2010

Markets fell after rethinking Chinese currency announcement

Markets gave up early gains after realizing the flexibility in exchange rates announced by China were not going to make a significant difference in trading habits. Dow fell 8, decliners over advancers 4-3 & NAZ declined a bigger 20. Lower bank stocks gave the Financial Index a modest decline.


Value199.30One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change-0.54 (-0.3%)

Gains for high yielders were trimmed in late day trading. The Alerian MLP Index was up a fraction in the 304s while the REIT index slumped 1½ to the 204s. Junk bond funds were flat to lower. The VIX rose 1+ to the 25s, little changed from where it was for much of last week. The yield on the 10-year Treasury bond gained only 2 basis points to 3.24%.

Alerian MLP Index --- YTD

Dow Jones REIT Index --- YTD

Like the stock market oil lost early AM momentum, but remained higher in its pursuit of 80. Gold prices advanced for a month & could remain in record territory on continued momentum. But gold's safe-haven appeal diminished when China announced that it will take steps to end the yuan's 2-year peg to the dollar & allow the Chinese currency to trade more freely. China will increase its exchange rate's "flexibility." That optimistic sentiment gave a boost to investor confidence & reduced some demand for the safety of gold.

CLN10.NYM..Crude Oil Jul 10..77.63 ..Up 0.45

GCM10.CMX..Gold Jun 10..1,236.70 ..Down 20.50

Gold Super Cycle!!
Click Here

BP (BP) diverted 23K barrels of oil from its well to ships on the surface yesterday, an 11% increase from June 19, when part of the operation was shut down. But oil is still flowing from the well at a rate of 35-60K barrels a day, according to an estimate by a gov scientific team. Total costs of the spill response, including collection, cleanup & relief wells to permanently plug the leak have risen to $2B. BP fell 1½, hanging in just above 30.

BP's Oil Recovery Rate in Gulf Increased 11 Percent

BP --- YTD

Upon reflection, traders realized that changes announced by China were not that meaningful. Quibbling about the yuan's exchange rate at 6.8 or 6.9 to the dollar & tiny refinements to those numbers is not going to make a big difference in trading patterns with China. Big picture, it remains the elephant in the room. Its large holdings of US Treasuries make reevaluation of the currency more difficult. Strengthening the currency reduces the values of its holdings, something the US doesn't care about but they do. The month & qtr are closing, which will influence trading into next week.

Dow Jones Industrials --- YTD

Get your favorite symbols' Trend Analysis TODAY!
Click Here

Get 10 Trading Lessons FREE!!
Click Here

No comments: