US stocks rallied Tuesday, adding more than one percent for the day on hopes of extension of the Operation Twist as the US central bank’s two-day long FOMC meeting started today.
Resilient housing data for May boosted sentiments further, pushing US indexes to a five-week high.
Treasuries declined after three continuous gain-days amid growing chatters that the Fed will extend its accommodative policies while investors remained hopeful EU leaders will initiate decisive measures to contain the sovereign debt crisis.
The housing sector showed signs of recovery as application for building permits filed by homebuilders grew the fastest in nearly four years though housing starts, more dependent on weather than permits, fell a little short of forecasts.
The Dow Jones Industrial Average (DJIA) jumped 96 points, after rising as much as 157 points during the day and the S&P 500 Index (SPX) climbed 13 points with materials and financials fronting the winners among the 10 business groups.
Following EU leaders’ indication that they may ease Greece’s tough fiscal targets set as pre-condition for receiving further bailout money, the benchmark 10-year Treasury yield rose four basis points to 1.62 percent as risk sentiments improved, diminishing demands for safe have assets. US 30-year bonds trimmed yesterday’s gains as yields jumped seven basis points to 2.73 percent from the lowest level in almost two weeks in late afternoon trading, New York time.
ETFs in the news:
As the Midwest continue to witness hot and dry weather that threatens to spoil harvests, farm commodities including corn, soybean and coffee rallied. US corn inventory is expected to hit a 16-year low this summer, according to the US Department of Agriculture though the USDA has projected a record large harvest of 14 billion bushels this autumn.
Agricultural ETFs are trending lower since Sep and are trading far below their 52-week highs. The Teucrium Corn Fund (CORN) emerged one of the top gainers for the day, vaulting 4.48 percent for the day. Some analysts believe agricultural commodities have fallen too much and an uptrend may have started. Be sure to watch the trend line break to the upside, if AG ETFs are of interest to you.
Other agri-commodity linked funds such as the iPath Exchange Traded Notes Dow Jones – AIG Agriculture Sub-Index Total Return ETN (JJA) also made impressive progress, jumping 3.98 percent for the day.
The basic materials and energy focused iShares MSCI Brazil Index Fund (EWZ) also rallied, gaining 3.65 percent for the day as Brazil joined an emerging market currency rally belatedly that started Monday following Greece elections over the weekend. The Brazilian Reais strengthened against the USD on Tuesday, raising hopes of lower inflation that may ultimately boost growth as central banks across the world prepare for further monetary stimuli. The ETF traded 28 million shares today, nearly twice as much its daily average of 16 million shares.
The natural gas futures-focused United States Natural Gas Fund (UNG) plummeted 3.44 percent today, snapping a multi-session rally. UNG broke its winning streak as investors rushed to lock-in gains though other NG related products like the Barclays iPath DJ-UBS Natural Gas Subindex Total Return ETN (GAZ) closed in the positive territory.
Our Trend Tracking Indexes (TTIs) improved as well and are showing the following positions in regards to their long-term trend lines:
Domestic TTI: +3.02%
International TTI: -1.82%
Right now, nothing matters until the Fed has spoken tomorrow about its QE intentions.
My view is that a continuation of the current Twist program is highly likely, however, the markets has priced in far more in terms of accommodation than the Fed may be willing to deliver.
Remember, the past 2 years, Bernanke bailed out the markets after they’ve dropped some 20%. We’re currently only 4% off the highs YTD, which is not enough to count as a crisis situation, so I have my doubts as to the Fed bringing out whatever big guns they still mighy have in their arsenal. And, if they don’t, there will be major market disappointment.
Disclosure: No holdingsContact Ulli