Last week the S&P climbed over 3.6% as the Fed announced a $600B Treasury buying program that will focus on bonds between 2 and 10 years. The program will last 8 months and can be increased or decreased at any time. The Republicans took the majority in the House of Representatives and gained a few seats in the Senate, virtually promising two years of Congressional gridlock and the impossibility of further fiscal stimulus. I do however secretly believe that John Boehner is being more than a touch coy when he says that Republicans in Congress will 'listen to our constituents' and deliver what is expected/desired. This could mean that Boehner and Co. run on a platform of fiscal austerity but when push comes to shove may deliver the medicine that the Democrats should have with 'just giving the people what they want' as an excuse. We also got the October NonFarm Payroll number last Friday. Unemployment still officially stands at 9.6%, although the private sector added 159k jobs which was the largest since March 2007. This string of at least technically good news has pushed the three major indices to two year highs. The Dow is now up 9.7% YTD, the S&P up 9.9%, and the Nasdaq is up 13.7%.
This morning, futures are looking down a bit as the market looks to take a breather after last week's surge. A breather, if one occurs, will probably only last until 7:15 am PST, when the FRB NY launches its last scheduled POMO under the current schedule. The amount should be approx $6.5B (assuming the PD's are willing sellers...) at which time the Nasdaq led by AAPL and AMZN takes off and brings energy and commodity prices and equities up with them.
The EUR/USD is below 1.40 this morning as the dollar gains on several major world currencies. World Bank president Robert Zoellick actually suggested that the world's leading economies should adopt some form of modified gold standard. Zoellick, in an OpEd in the FT, called for a Bretton Woods II where countries agree to a system of floating exchange rates. Gold hit $1,398.35 this morning in response.
Also this morning, Zhu Guangyao, China's vice finance minister told reporters that the QE2 suggests that the US "does not recognize, as a country that issues one of the world's major reserve currencies, its obligation to stabilize capital markets...Nor does it take into consideration the impact of this excessive fluidity on the financial markets of emerging countries." Mr. Guangyao also mentioned that he expects China to have a very 'candid' conversation with the U.S. at the G20 meeting in Seoul this weekend regarding QE2. "This second round of quantitative easing is a shock to the stability of global financial markets." With every major world economy - Japan, China, Brazil, Germany, etc - decrying QE2 as essentially insane and combative to our trading partners, I can't imagine that headlines out of the G20 will suggest any sort of successful resolution to the growing calls for the US to change its policy approach or lose reserve currency status.
We have a rather light economic calendar scheduled for the week. We have wholesale inventories tomorrow, trade balance on Wednesday, and Michigan sentiment on Friday.
Also this week will be an announcement of a schedule for the next 4 weeks of POMO, which will be announced on Wednesday.
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