The Dollar’s Impact On The Market

Daily State of the Markets 
Friday – May 13, 2011

As a young quarterback in high school, one of the first rules of play calling I was taught (in those days, the QB wound up calling a lot of the plays as there weren’t headsets in our helmets and the hand signals from the bench would inevitably get fouled up – we are talking about high school boys here!) was to run the same play over and over again until the defence proved they could stop it. And in short, traders appear to be implementing this approach right now. After all, if it ain’t broke, don’t fix it, right?

In case my introduction leaves you scratching your head and thinking about hitting the delete button, allow me a few more seconds to try a more traditional approach. As I’ve been saying for some time now, the current stock market is being driven by computer-based program trades that are tied to the movements in the dollar. While the logic behind such a game plan may require a fair amount of economic/market gymnastics and the logic behind the trade may prove elusive, at least we know what is behind the up-one-day-and-down-the-next action.

As I explained to a colleague on Thursday, if you didn’t know what was driving the market back and forth at the present time, you might be tempted to pull your hair out. One day everything looks great and the next, well, you’d think the sky was falling. And then the next day…

I’m of the mind that the current program-driven environment is due to the lack of what are called “directional macro drivers.” For example, if the jobs report had been gangbusters or if today’s retail sales data had shown consumers spending like mad, it is a safe bet that stocks would have blasted higher out of the gate.

But with the U.S. data falling into the shoulder-shrug category lately, the growing concerns about a hard landing in China, the incessant worries about peripheral Europe, the uptick in inflation, the end of QE2, the unrest in the Mideast, and fear growing that earnings may have hit their peak, well, you can’t really blame anyone for lacking conviction at the present time. And as a result, traders have turned to what works – the dollar trade.

I apologise to anyone thinking that I’m oversimplifying the situation right now. To be sure, there are a fair amount of crosscurrents at work in the markets that require a supercomputer to decipher. However, when the stock market makes a sudden turnabout and the dollar/euro makes the exact same move at the exact same time, we really don’t need to over think the action – or read too much into it.

To be sure, I don’t know how long the current trading environment will last. It could easily change on a moment’s notice and likely will once a “directional driver” shows up. But until then, it is a safe bet that the play being sent in from the bench will be, “Run it again.”

Turning to this morning… The ‘feel good’ environment continues this morning with GDP reports from both France and Germany coming in above expectations. However, there is some data to review before the open.

On the Economic front… The Consumer Price Index for April rose by +0.4%, which was in line with the consensus for +0.4%. When you strip out food and energy, the so-called Core CPI came in with a gain of +0.2%, which was also spot on with expectations for +0.2% and above March’s +0.1%.

Thought for the day… Best of luck on this Friday and be sure to enjoy the weekend!

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell…

  • Major Foreign Markets: Australia: +0.22% Shanghai: +0.98% Hong Kong: +0.88% Japan: -0.70% France: +0.51% Germany: +0.21% London: +0.63%
  • Australia: +0.22%
  • Shanghai: +0.98%
  • Hong Kong: +0.88%
  • Japan: -0.70%
  • France: +0.51%
  • Germany: +0.21%
  • London: +0.63%
  • Crude Oil Futures: +$1.20 to $100.13
  • Gold: +$2.80 to $1509.60
  • Dollar: higher against the Yen and pound, lower vs. Euro
  • 10-Year Bond Yield: Currently trading at 3.211%
  • Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: +5.20 Dow Jones Industrial Average: +41 NASDAQ Composite: +6.36
  • S&P 500: +5.20
  • Dow Jones Industrial Average: +41
  • NASDAQ Composite: +6.36

Wall Street Research Summary


  • Dell (DELL) – Estimates and target increased at BMO
  • NetApp (NTAP) – Canaccord Genuity
  • Dr. Pepper Snapple (DPS) – Mentioned positively at Citi
  • WW Grainger (GWW) – Citi
  • Aetna (AET) – Citi
  • Cigna (CI) – Citi
  • Coventry Health Care (CVH) – Citi
  • HealSpring (HS) – Citi
  • UnitedHealth (UNH) – Citi
  • WellPoint Health (WLP) – Citi
  • Alkermes (ALKS) – Cowen
  • Avon Products (AVP) – Deutsche Bank
  • Dean Foods (DF) – Goldman Sachs
  • Westlake Chemical (WLK) – JPMorgan
  • Amgen (AMGN) – Target increased at JPMorgan
  • Ventas (VTR) – RW Baird
  • Turkcell (TKC) – UBS
  • NII Holdings (NIHD) – Mentioned positively at Wells Fargo
  • TD Ameritrade (AMTD) – Wells Fargo
  • AIG (AIG) – Wells Fargo


  • Health Care REIT (HCN) – Jefferies
  • Animal Health (AHII) – RW Baird

Long positions in stocks mentioned: UNH, CI

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