Fear takes another breather in financial markets

"Maybe I ought to rethink."

Looks like there was some of that going on with investors and traders across the financial markets today.

Stocks posted decent gains, with the Nasdaq composite rallying 1% to 2,428.92, its highest since Jan. 14. The Dow industrials rose 0.7% to 12,848.95, and traded as high as 12,941 before pulling back. Merrill Lynch jumped $3.18 to $48.09 after the big brokerage kept its quarterly stock dividend at 35 cents a share, a sign of confidence on the part of Merrill Chief Executive John Thain.

But the bigger story may be what fell rather than rose: Stocks attracted money as investors again bailed out of Treasury securities, sending the bonds’ prices down and yields way up. The two-year T-note yield jumped to 2.39%, the highest since Jan. 17 and up from 2.22% on Wednesday. And the Treasury got a poor reception from investors at its sale of new five-year notes.

Commodity prices also (finally) pulled back, with oil down $2.24 to $116.06 a barrel. Gold plunged $19.40 to $886.80 an ounce. And the euro sank against the dollar.

One catalyst for today’s market moves was that some of the latest data on the economy were bad, but not so bad. The government said orders for big-ticket goods dipped 0.3% in March, but excluding the struggling transportation sector, orders were up 1.5%. New claims for unemployment benefits dipped to 342,000 last week from 375,000 the previous week. That was a pleasant surprise, although one week doesn’t make a turnaround, and employment trends in general remain weak.

On the housing front the news remains awful -- new home sales plunged 8.5% in March from February's pace -- but nobody seems all that surprised by awful housing reports anymore.

For much of this year the doomsday scenario for the financial system and the economy drove a lot of money out of stocks and into Treasuries, commodities and any currency other than the dollar. Today was another sign that some of the investors and traders behind those shifts are reconsidering how fearful they should be.

Posted April 24, 2008

Comments

[Schigolch]

I think currency intervention has begun.