While the general outlook on May has been bullish, this week has shown more mixed results. Here are a few market drivers from the shortened week.
Super Tuesday’s Allure
Positive momentum and the predictive expectation that the market would close up for the 20th straight Tuesday in a row, was boosted by reassuring comments from central banks around the globe that monetary support would continue. Add to that economic reports that helped drive investor sentiment including reports that showed US home prices increased as consumer confidence reached its highest level since February 2008 of 76.2. It is hard to bet against Tuesday, however it left traders questioning if the market wasn’t due for a correction.
Questions over the Fed’s Continued Support
What goes up may come down, and who lends a hand may take it away. Selling was driven on Wednesday in part by traders who continued to question whether the Fed would curb its stimulus program. Despite the fact Fed officials stressed that data dependency and a slowdown in asset purchases would not signal a shift to tighter monetary policy. Some of the concerns driving the fear the Fed would curtail support were MBA’s Market Composite Index, which measures mortgage loan application volume, that indicated rates were down as a result of the potential that the Fed would curtail asset purchases. The Composite fell 8.8% with the refi component falling 12% - the largest single week drop this year and the lowest level since December 2012. Thursday the markets were back on board with the idea that the Fed would continue stimulus efforts due to weak economic releases including unemployment claims (rose 10K to 354K versus the 340K estimate) and weak U.S. growth (2.4% in the 1st quarter vs estimates of 2.5%).
Volatile Japan
Japan continued to be an erratic market driver this week as Wednesday saw the Nikkei Stock Average drop 5.2% overnight, as investors questioned the continued success of government's policies aimed at re-inflating the economy. Japanese Economy Prime Minister, Akira Amari, commented that investors should not overreact to the declines and that economic policies should be continued. In after-hours, the Index rallied. Following this news came out that Japannese government pension funds may make rule changes to allow for equity holdings in pension funds. Add to that word that Japan would tighten currency trading caused a spike in the yen. Before the recent volatility began last week, the Nikkei had run up 84% since November.
BONUS: Computer Jockeys
This week I read a fascinating article called the City of Light in Popular Science on Masdar City, a solar powered metropolis by Abu Dhabi. The author ended this trip at the Al Wathba camel-race track. There he found that the riders on the camels were not humans but a “metal contraption with three-foot stick poking out the back.” Apparently after deciding it was a bad idea to press children into service a jockeys where they faced being trampled to death, the regulators of the sport decided to use robots instead. As the author reported the drivers in SUVs follow the camels with their robots on back honking horns and pushing a button to remotely tap a button with the stick to make them go faster. Now that is something I would like to see!
