Christmas in July for the markets

In one short and sweet statement, Federal Reserve chairman Bernanke has flicked a switch on the markets.

The statement: ‘highly accommodative monetary policy for the foreseeable future is what’s needed in the US’ has seen a reverse only he can create.

No one will need Christmas lights for their July parties if you watch the markets today. Bond markets lit up initially on the Fed minutes adding 4.5 basis points to 2.68% as the document showed members are pretty divided regarding when tapering will be begin - most assume September. Following the statement above, 10-year bonds dropped six basis points to currently sit at 2.62%.

Currencies zigzagged in massive ranges on the contradictory piece of information. USD/JPY has now lost 2% inside three days and fell back below ¥100 to ¥99.78 as investors jump to the safety.

The charts of AUD/USD look like a U-bolt - it plummeted to $0.9100 (before settling at $0.9120) on the Fed minutes, traded completely sideways for two hours before rocketing back up and past the initial level of $0.9180 to $0.9219; and is heading higher as China fears are pushed to one side.

For the equities markets, Asia is going to be the first to respond to Chairman Bernanke’s aftermarket press conference. 6am calls have been thrown out the window which were based on the Dow snapping a four-day winning streak  and Fed minutes looking to taper.   

From 6.10am AEST the futures market also lit up on this news. At the close of trade in New York, the S&P was only 2% off its all-time intraday high however S&P Futures was trending lower post the Fed minutes. Since Bernanke’s testimony it only had one direction it could go.

The SPI futures were also well down pre-testimony, before completely doubling back on itself after the fact.

It will be another violent and volatile trading day on the markets. However, it will be volatile in the north direction. With the Fed holding rates near zero for months - to years - to come, and tapering now up in the air as the FOMC admits its targets are only guides, not certain cut offs. Liquid support will drive everything higher.

Moving to other markets and we again have seen falls in report inventories as WTI continues to spike higher. The news saw WTI hitting a high of $106.66 per barrel overnight. As we highlighted yesterday the high from March 2012 was $106.75 and it will be interesting to see if WTI can break this level. We have now seen inventories dropping 5.1% in the last two weeks, on Egypt fears and seasonally.

However it also needs to be remembered that inventories are still well above their historical average. Plus oil is 3.5 standard deviations above its 50-day moving average ($96.36), the most overbought since February 2012.

Other market sensitive data today is the much watched unemployment rate and employment change data drop at 11.30am AEST.  All lead up data is suggesting a tick up in the unemployment rate and a drop in the employment change. However since the February sample change this data has been highly volatile. Downside risk is most likely priced in and the fact that the USD is being shed globally right now - its influence may be diminished.  

Moving to the open, we are now calling the ASX 200 up 15 points to 4916 (+0.3%) after a point lower at 6am. The market has rallied 269 points in eleven trading days and should extend this gain today.

BHP’s ADR continues to support the current rally in BHP, with the deposit receipts suggesting the stock should add another 10 cents today to $31.93.

It will be an interesting trading day today as investors dissect the 6.10am game changer.

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