US stock indices were down slightly Thursday morning though still within the upward sloping range they have occupied all week. Asian stocks closed mixed while European indices rose roughly one percent. The S&P 500 dropped roughly ten points in the first hour of trading.
By Vikram Rangala
Thursday, April 9, 2015
Trading volume in the S&P futures has been extremely low, suggesting both a lack of direction and low need to hedge major stock purchases. Low volume can make for volatile price movement, but that price movement may reflect the bias of only a small number of traders, especially when much of it is algorithmic trend following.
The morning’s major news was the increase in weekly jobless claims to 281,000, up 14,000 from the previous revised number of 267,000. The context of the increase however, is more optimistic. The four-week moving average dropped for the third straight week and overall claims have been under 300,000 for four weeks in a row.
The price of gold dropped below $1200 an ounce once again. Gold is typically thought to be the metal—and one of the non-ag commodities—most tied to the dollar. The strong dollar of recent days is certainly one source of downward pressure on the price of gold.
However, gold does sometimes go its own way, so traders should beware of simply becoming bearish on gold whenever the dollar surges. The dollar has come off its recent highs reached after an unprecedentedly steep rally. The main reason is an obvious drop in demand.
The global bond funds which were the most aggressive dollar bulls have reduced their exposure to dollar risk significantly. That risk includes not just currency hedges (outright buying of the dollar and shorting of other currencies), but also holdings of US corporate bonds, US Treasury bonds, and “dollar-denominated bonds issued by foreign governments and corporations,” according to Thomson Reuters.
With soft economic numbers like the March Nonfarm Payroll, as well as technical analysis that shows a possible top in the US dollar charts, funds are having trouble seeing much further upside to the dollar, according to Michael Collins, manager of the $398 million Prudential Global Total Return Fund. Rather, he sees “the strong US dollar as a headwind” on the economy.
Crude oil is hovering about 50 cents above the 50-dollar mark, with Bloomberg reporting that energy companies hurt by the drop in prices since last year are about to receive a $26 billion consolation prize. Energy firms collectively took out roughly that much in insurance against a sudden drop in oil prices and now they will collectively collect.
Drillers and refiners don’t always or only hedge in the futures and options markets on their own. “More than a dozen energy companies say they buy hedges from their lenders, including JPMorgan, Wells Fargo, Citigroup and Bank of America,” says Bloomberg.
Obviously, both the producers and their financiers would rather be making money from selling their energy products at higher prices. But it may be that the insurance policy will make them less desperate to see prices go up.
Finally, the Greek government made its 450 billion euro payment to the IMF on outstanding debt on time and in full today. Greece got further good news as the latest figures released today show unemployment dropping and industrial production rising. And the ECB ramped up emergency cash to the Greek banking system as Finance Minister Yanis Varoufakis expressed “100%” confidence that Eurozone finance ministers would reach a successful next-step agreement. Both the Greek stock market and three-year-notes rose on the IMF and other good news.
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