April 6. Fed’s in a bind
New high in silver, gold, corn. CRB index is near high set in early March. SPM had an outside day and closed lower, but volume was light. Google notably down 3%.
–FOMC minutes released yesterday afternoon showed some divisions, but QE2 expected to run its course through June. Inflation still expected to be transitory.
–Interest rate futures gave back Monday’s gains, with ten year again retesting 3.5% yield. New highs in near euro$ calendar spreads, with EDU1/U2 up 5 bps to 122.5. The widest one year spread is EDH12/H13 at 144.5 bps. ED$ straddles up 1-2 bps.
–The Fed is in a bind. Bernanke likes the rise in stock prices engineered (in part) through QE, but doesn’t like oil and food price increases, which he blames on demand from other economies. What if he said, “the rise in stock prices will prove transitory”? As QE2 ends, we’ll see whether stocks and commodities are linked by easy money or not, or whether, as Michael Steinhardt said on a CNBC interview, better economic numbers are “superficial”. After all, commodities are now considered an alternative asset class, non-correlated to stocks (except they ARE correlated now). The asset class showing NON-correlation is real estate.
–From ZH: “The current jobless rate runs at +20 percent in Spain, which is more than twice the European avg (9.9%). Unemployment is especially raging among the younger population of Spain.
–The ECB will likely hike tomorrow, not bound by the Fed’s dual mandate of employment and price stability.
