US stock futures were lower Monday after strong rallies last week, but stocks have rallied on the open as investors digest the Fed's changed language, unchanged (for now) interest rate, and the uncertainty in the euro currency.
By Vikram Rangala
Monday, March 23, 2015
Stocks are now close to all-time highs after the Nasdaq Friday reached a high not seen since March, 2000. Several Federal Reserve Bank presidents and Vice Chair Stanley Fischer are due to give talks this week, as is typical after an FOMC meeting. Greek Prime Minister Alexis Tsipras is scheduled to meet German Chancellor Angela Merkel on Monday for further negotiations over Greece's financial reforms.
Today's release of the February Existing Home Sales number showed the housing market has improved since its dismal showing of 482,000 in January, the lowest level in nine months. The cold and snowy weather didn't keep home sales from rising to 488,000, which is still weaker than the consensus expectation of 494,000. Tomorrow's New Home Sales will give further insight.
Following last week's Federal Open Market Committee meeting, in which the Fed kept the Federal Funds Rate at 0.25% but suggested that a rate increase was possible as early as June, several regional Fed presidents are due to speak. St. Louis Fed President James Bullardtold CNBC Monday that the dovish statement from last week may have misplaced investor expectations about the first rate hike. Bullard, a nonvoting FOMC member, is thought to be a "hawk," but added that if the markets throw another “tantrum,” the Fed might wait till later this year.
If we see more of such "Could be this, then again could be that" commentary from Fed leaders, a market that is in the mood to react to the news may see some big ups and downs. More likely, the uncertainty is already priced in.
One big, new force is the news-driven algorithms, which can push the market around based on keywords appearing in headlines and trending on social media. But the bigger volume gets unleashed when the large MOC (market-on-close) orders come out to hedge the positions in large fund portfolios. Whether the MOC is net buy or sell is often an indicator of the big, long-term strategies of institutions. Last Friday, the market sold off 10 points at the close, but had $1.4 billion of S&P futures to buy MOC as hedges against an unexpected up move. It doesn't mean that funds are short, necessarily. It can also mean they are buying temporary insurance, in case stocks become more expensive before they've had a chance to load up.
All of this is purely my speculation, of course. Nevertheless, last Monday saw the return of a phenomenon veteran index futures traders call "Mutual Fund Monday," marked by a surge in buying off of early morning lows as funds add not only individual equities but index futures to their portfolios.
Markets are already retesting Friday's high and may push towards the all-time high set in late February. The housing number is as likely as anything else to be the trigger for any such move.
Europe's Stoxx 600(-0.98%) is down along with US stocks, the FTSE, and the German DAX (-1.42%) In Asia, the Nikkei (+0.99%) closed at a new 15-year high and the Shanghai Composite (+1.95%) closed up for the 9th session in a row.
Crude is down after Saudi Oil Minister Al-Naimi said that OPEC would not consider output cuts unless it was joined by non-OPEC producers, and gold is down slightly. The dollar and euro are in a sideways, choppy range, mirroring each other as Europe awaits a new meeting between Greek PM Tsipras and German Chancellor Merkel. Tsipras has indicated that the current ECB conditions make it "impossible" for his government, or "any government" to service its debt payments for the next few weeks without short-term aid from the EU.
Finally, former Singapore leader Lee Kuan Yew died today at 91. Yew led the 50-year-old former British colony with a combination of political repression and economic policies based on private enterprise and foreign investment, maintaining harmony among the Chinese, Malay, and Indian ethnic communities. Singapore enjoys one of the highest per capita GDP rates in the world.
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