Equity markets and high yielding currencies are seeing major advances higher as improved housing info in the States and cited optimism in German business confidence surveys helps fuel a low volume, pre-Christmas rally. Other pieces of supportive reports came with the ECB's release of the first tranche of funds in its 3 year loan program and the successful bond auction in Spain. Yesterday's monetary policy meeting with the Bank of Japan was typically uneventful, with no change in the country's base rate and no new additions to its asset purchase plan.
Yesterday's macro info focused on the US housing market and German business confidence. US Housing Starts info rose to its highest level in 19 months and researchers will use this with today's releases (MBA Mortgage Applications and Existing Home Sales) to determine the validity of the trend. We intend to also see some critical earnings releases in the household goods sector as Walgreen's and Bed Bath & Beyond will report along with CarMax and Micron Technology. The main strap-line in US shares came after Oracle released displeasing quarterly profits and dropped nearly 9% in the O.E.M session.
In ratings reports, Fitch placed Italian and Spanish non-public banks on "negative watch" and decreased its credit outlook on 4 additional French banks, on the debate the Western european Monetary Soundness Facility could become bankrupt itself and limit the capability of these banks to get non-public funding when needed. The total impact of these statements was limited, as order flows appear to govern price activity but the long term impact of these events is probably going to be reviewed next year.
In the USA, the Fed Reserve has initiated plans to need banks to increase their capital reserve proportions (in accordance with Basel III global needs and the present Dodd-Frank bill). The general view is that this is a defensive move (instead of an attempt to limit pricing pressures) with the primary target of safeguarding banks against potential liquidity shocks that might enter the finance sector at later.
Today's price activity is indicative of what can be seen when trading volumes reduce. At the beginning of this week's trade, volatility slowed to a near halt before posting intraday gains of over 3% in some indices with few fundamental drivers. Because of these possibilities, traders should prepare for the possibility of surprising and drastic moves in either direction and stop loss levels should be conservative.
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