Equity markets will only make sustainable moves on good volume once the financial sector is bought, but will that be U.S. Banks getting bought? Treasury Income Data however has started to show that the net flow of overseas investment to the U.S. is not enough to fund the U.S. current account and trade balance, and as such more Treasury notes will be printed for the Federal Reserve to purchase in an effort to raise cash.
In 2009 global equity markets have found a base of sorts, where the massive equity selling binges have stopped and a semblance of normality has returned to intra-day price activity in stocks. “The S&P looks to have based around 750, and now floats in a 100 point channel, at the same time as the dollar index has traded in a range between 83.00 and 89.00” TheLFB Team said. “It is abundantly clear that the dollar and the S&P futures market are linked in a mirror image move; the days that equities are bought are the days that the dollar declines and vice versa”.
“Equity markets will only make sustainable moves on good volume once the financial sector is bought, but the XLF (exchange traded fund for the financial sector) is showing that banking is still definitely not the flavor of the month. The sector is struggling to break the one day up, one day down routine, and is fast becoming infamous as the sector that will easily move the equivalent of one month’s value in a day” TheLFB Team said.
The easiest way for the financial sector to move forward, and to lead equities to higher ground and by default send the dollar lower, is if the Stress Test results are delivered in a positive way. Not that the results are expected to be positive, that will be a lot to ask, but that the spin is played the right way. The reason for that being critical is that the banking sector in the U.S. does not compare in any way to the ‘safety’ of overseas banks in regard to long term bank deposit and foreign exchange currency ratings from Standard & Poors, Fitch, and Moody’s.
“The reality is that U.S, banking when compared to overseas counterparts is anything but ‘safe', and the flight to Usd safety may reverse more quickly than it started if equities find buyers, and risk tolerance investments in the financial sector drift towards overseas banks instead of the excess going from Treasuries to the U.S. based financial sector” TheLFB Team said. “We may see the scenario that equities move higher and new global rules push excess funds to the safety of overseas banks, a double whammy for the Usd”.