Why Did the Dow Rise 379 Points today ?
Stocks are higher primarily because the CEO of Citigroup came out and said that
the bank is having its best quarter since Q3 2007 when they earned $2.2
billion. This is great news because most people thought Citigroup was losing
money and if they are doing well, it reduces the likelihood of nationalization.
However are the problems in the financial sector really behind us? Probably
not. Even if Citi manages to rise from the ashes, when the U.S.. government
announces the results of their stress tests on banks, any surprises about who
fails to make the cut could drag all the financial stocks down once again.
Wholesale inventories also fell less than expected in January while the
IBD/TIPP Economic Optimism index reported an improvement in confidence. We
have stopped seeing back to back weakness in U.S. economic data and have
started to see the good mixed in with the bad. According to the Manpower
employment index, job prospects in the U.S have hit 27
year lows. The main reason why we are suspicious of today’s rally and believe
that it could be a dead cat bounce is because the recent strength of the dollar
is having a negative impact on U.S. corporate earnings. The consequences of a
strong dollar are beginning to appear once again and that is another reason why
we believe that the Dow could see 5,000 before 10,000. In this case, the
dollar could resume its rally once again
Currency:
EUR/USD: RALLY FIZZLES
The euro strengthened against the U.S. dollar today but the rally has fizzled
significantly. The biggest news out of Europe is their reluctance to help
themselves and their peers. Although the U.S. government has been pressing
Europe for more stimulus, countries like Germany responded by saying that they
have no plans to add to their already announced fiscal stimulus packages.
Having already committed 1.5 percent of GDP, they want to first see how the
economy responds. Germany also expressed reluctance about providing aid for
other Eurozone nations which is why the IMF is considering stepping up to the
place. They are talking about extending a new credit line for emerging market
countries. The German trade balance increase in the month of January but the
current account surplus shrank. This confirms that investors have been pulling
money out of Euros. German producer prices are due for release tomorrow and we
believe that price pressures may
have actually increased due to the weakness of the currency and a smaller
decline in wholesale prices
