In financial markets these days, bad news is bad but really bad news can be good. Conversely, good news can be bad.Confused?
The classic example is of intervention by the Federal Reserve. If economic data deteriorates, then it becomes more likely that the Fed will be more dovish which some traders believe could be bullish for stocks in the short run.
According to Art Cashin, UBS Financial Services’ director of floor operations, Friday proved to be especially confusing with favourable jobs data, mixed messages from Europe, and rumours hitting oil prices.
Check out Art Cashin’s market narrative from today’s Cashin’s Comments:
Traders have been reading the market signals lately about as well as a dyslexic student in Semaphore school. The unexpected signal on Friday came from the currency markets where the dollar confused traders in several arenas.
Dollar Rallies. Euro Slumps. Markets Shift Allegiances – Friday morning trading began with a kind of uncertain optimism. The 80% to 85% “voluntary” participation in the Greek debt swap that had been rumoured after Thursday’s 3:00 p.m. deadline seemed to hold up in the European dawn. The CDS trigger had not been resolved but the swap had not brought panic. European markets moved unenthusiastically higher.
Over in the U.S., the payroll numbers came in better than expected, especially the revisions. U.S. futures moved higher.
The better than expected payroll news told traders that further Fed easing might be more doubtful. So, if U.S. rates might not move lower, traders began to bid up the dollar. As the buck firmed, naturally the Euro fell. Bullion traders said – we’ve seen this movie and gold sold off.
U.S. stocks opened better but worried about the dollar rise. Recently, a higher dollar has led to lower stocks, gold and other commodities. Since gold was following that pattern, stocks and oil wondered if they were the odd men out. So, stocks stuttered, gold sank, and other markets muddled in confusion.
Then the rumormongers chimed in. Several blog sites claimed the U.S. was evaluating a “twofer” hit on both Syria and Iran. Briefly, crude spiked on the rumours but a site check suggested the rumour might have been planted by a Mid-East source just to keep up tension for the weekend and so the risk premium soon disappeared.
By mid-morning stocks tried to see the upside of the Greek deal and payroll data. They climbed to the day’s highs. About then gold reversed its selloff and rallied. Were assets suddenly saying that Europe was yesterday and a rising dollar was OK? That debate occupied the day, getting a bit frenzied in the final two hours.
At day’s end, stocks were mixed to mildly better in the same lackluster volume they had seen since Tuesday’s selloff. Looks like some questions still are unanswered.