Research for Online Investors
The Peoples Bank of China cut
deposit interest rates to 3.25% this morning. This cut of 0.25% was the
first since 2008. The Bank of England held rates steady at 0.50% and did
not announce an increase in their Quantitative Easing program.
Spain was successful in their bond
auction this morning, albeit at higher interest rates. Spain sold $2.6
billion dollars in medium and longer term debt. Yield on the 10-year
bonds finished at 6.04%, this was higher than the 5.74% at last month’s auction but lower than the secondary market
pricing yesterday. This was the highest yield at a Spanish debt auction
Fitch downgraded Spain’s debt rating
three notches to BBB this morning. The ratings company warned they would
downgrade Italy, Portugal and Cyprus if Greece left the Eurozone. Ed
Parker, a ratings analyst with Fitch, said the U.S. and U.K could be downgraded in 2013. Parker is concerned about the British economy slowing and the U.S. not addressing
the deficit and debt through a “credible fiscal consolidation plan.”
The hot video clip on business
programs today is from a live Greek TV discussion. The Neo-Nazi party
politician got upset with the SPARIZA and Communist Party spokeswomen.
He was able to splash one with a glass of water and get a right, left and right on the Communist sitting next to
him. The video is available at the Guardian, for those of you with prurient interests. Just imagine it is Nancy
Ben Bernanke testified before the
Joint Economic Committee in Congress this morning.
He disappointed precious metals traders by not overtly endorsing more quantitative easing. The Federal Open Market Committee (FOMC) meets in a week and a
half. Traders were hoping for follow on clarity from Bernanke
mirroring the dovish comments made by Vice-Chair Janet Yellen last night. Yellen cited high unemployment and slowing economic indicators would justify
quantitative easing to ‘insure against the risk of a downturn.’
The Fed’s Operation Twist ends this
month. Operation Twist is the program started last fall to sell shorter
term Treasuries and buy Long Term Treasuries. The Fed is also investing
money from interest received and maturing Treasuries in longer term paper. This has extended the maturity of the Fed’s book and bought down interest rates on
long term bonds. Analysts estimate the Fed has bought as much as 75% to
90% of all Treasury bonds over 7 years maturity at many auctions.
Working against an announcement of
quantitative easing at the June meeting is an observation I heard for the first time this week. In the past, the Fed has not announced one program to start until a previous
program has ended. This seems accurate and may indicate there will be
disappointment on June 19.
The market continues in rally mode
today after the interest rate cut in China. Freeport-McMoran Copper and
Gold (FCX) is rallying on the prospect of China increasing activity that requires raw materials. We think there is some room for selected stocks to move higher from here, but the
market is pushing up against resistance at 1331. It is a good time to be
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