Friday, December 11, 2009

US Dollar albatross now hangs around the Bull's neck as it has broken to the upside.

Brazil leads the world in exporting Orange juice, Sugar, Coffee, Beef and Chicken, CNBC's Erin Burnett reported live from Rio de Janeiro, Brazil.

When I spend months in Rio back in 1982, my personal driver and bodyguard was a former police officer and he told me many stories of street gangs that were arrested and executed on the spot in the streets of Rio's "Fabelas". I used to think that US police officers were inclined to be brutal with excessive force !

Two Treasury Auctions gone bad and the Dollar starting an uptrend.

NO, it doesn't look good for Equity Indices. As long term interest rates go up less home and commercial loans and mortgages are made and small businesses will also be affected.

When long term rates go up with the dollar also appreciating at the same time the combined effect on businesses is much higher.

The day's top news was released by the Commerce Department; it reported that November retail sales (as indicated by the so-called Advance Retail Sales Report) had grown unexpectedly by 1.3%, above the consensus estimate of a rise of merely 0.6%. Excluding autos, sales were up 1.2%, also better than the anticipated rise of 0.4%. Furthermore, consumer confidence also appears to be on the mend. The Reuters / University of Michigan Consumer Confidence Index also rose, exceeding analysts' expectations. Even more positive economic news emerged, as business inventory data came in higher for the first time in over a year as well.

Crude oil futures have been tumbling lately, now down eight straight sessions - the longest losing streak in some six years - to below the psychologically significant level of $70 a barrel. The recent rebound in the US dollar is largely to blame for this; the greenback surged to its highest level in two months today following stronger consumer confidence data. Crude oil continued to slide today even though the International Energy Agency had released a report stating that world demand for oil would increase in 2010 somewhat more than previously forecasts. And the commodity was weak even in the wake of reports from China about strong growth in that country's industrial production.

Analysts comment how today's trading showed 'extra-light' volume. We are also seeing multiple references to a Santa-Claus rally, although some commentators warn that after a more than 60% rise off the March lows, Santa may not necessarily be visiting Wall Street this year. On the other hand, it is noteworthy to point out that the broad market has been able to rise for two days in the face of a strongly rising US dollar. The old pattern of higher dollar, lower stocks may thus be starting to wane, or even break. The US Dollar Index gained 0.8% over the last two sessions.

Despite today's upside, the market showed a split performance. The Dow outperformed, the S&P 500 advanced modestly, but the Nasdaq lagged and closed red, due to weakness among large-cap tech issues and in the semiconductor space (the Philadelphia Semiconductor Index lost 1%).

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