Optimism in the Market Continues



By: YOSEF TASTASSA  
Published: November 3rd 2010
in Economics » World

Ben Bernanke
Pic: WikiMedia Commons

It was the second day of November 2010, and the markets kept moving up. Does this mean that the investors believe in Bernanke's plan? The answer is probably more of a yes and less of a no. There are few more questions to ask, and data to look at.

 

The most significant indicator in the markets came from the foreign currency arena. The Australian Dollar was roaring against the US by 1.4 per cent and the two currencies are equal in terms of the exchange rates.

 

A weak US Dollar is good for the markets. It is the first sign that the Fed is about to increase liquidity as it will buy US Government bonds from the market and flow them with Dollars at a pace of 50-100 billion Dollars a month.

 

As of yesterday at noon, the Dow Jones was at 11,187 points, the NASDAQ added twenty points to a peak of 2,524 points, and the Toronto TSX kept climbing in small steps toward 13,000 points.

 

The Metal & Mining sectors were the locomotive of the TSX Index in the past two weeks and kept doing so yesterday. As I speak, the Metal & Mining Index are jumping by nearly 1 per cent to 1,252 points on Bay Street.

 

What is next?

 

We all have to wait and be patient for three things to happen:

 

a)    US elections – The Republican victory may make it difficult for President Obama in continuing his policy with regards to the economic recovery. On the other hand, the Republican approach is considered better for the US economy. Cooperation between the President and the newly elected Congress may keep markets boosting.

 

b)    Employment data – This is a very significant parameter, which is the bottom line for everything. Economists may think, speculate, analyze etc. The data will firmly say: is what we do working, or is it not? If unemployment remains high, then the markets may slip down the hill with no one to stop them from falling.

 

c)    Home and real estate markets – The Fed's plan is to boost the labour market, but at the same time it wishes to increase liquidity and through that reduce the interest rates for mortgages. This should make people decide on buying their homes now despite the negative sentiments by consumers. 4Q housing data will tell us in about three months from now what has really happened, and whether the economy is boosting again or we are artificially trying to pump fire to a worthless piece of wood.

 

Summary

 

The markets wish to keep the positive momentum. The Fed's liquidity plan may keep boosting them. However, bad unemployment data and the Republican victory in the US elections may hold the markets or even pull them down to the "red territory". The eyes in Bay Street are focused on Washington and New York.



Related articles: (markets, Ben Bernanke, optimism)
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