Morning Fundamentals: Evans Gives Investors Hope

Charles Evans, the Federal Reserve Bank of Chicago President, has given investors more cause for optimism with his latest comments. He said, “I’m optimistic that the labor market has been doing much, much better and that unemployment is going to continue to go down,” He went on to say about the Federal Reserve's current policy, “we have the appropriate monetary policy in place.” He also said that the Fed needs to be cautious about 'spillovers' from accommodative policy and that the Bank remains vigilant about possible excesses. He said, “while asset values have gone up, it still looks relatively reasonable. But we’re going to continue to monitor that.” He gave some indications to his stance in relation to when he thought stimulus may be curbed by saying that he would like to see monthly employment growth of 200,000 or more for at least 6 months before judging a marked improvement in the labour market.

In other news making headlines, the 26 year old Chief Executive Officer of Tumblr, David Karp, has accepted a $1.1 billion acquisition offer from Yahoo. Tumblr only started to adopt an approach to advertising last year and Karp was sure not to discuss Tumblr's revenue in recent media appearances. The company is yet to break even and provides the building blocks for blogs. After the announcement, it appears that many users may have been alienated with a surge of bloggers switching to another platform known as WordPress. Karp reportedly signed a note announcing the Yahoo acquisition of his company with the phrase, “F..k yeah.”

U.S. equity markets eased marginally as investors continue to weigh the chances of the Federal Reserve moving to change the pace of its easing programme that has seen asset prices rise as a result. The S&P 500 has barely moved, closing down just 0.07% at 1,666.29. After gaining more than 2% last week in a run of four consecutive weeks of gains, it appears that the mar-kets are overdue for a pullback. The acquisition of a company that is yet to break even by Yahoo for more than $1 billion should be a warning that we are once again seeing some irrational exuberance. Earlier in Europe, the EURO STOXX 50 rose 0.23%.

EUR/USD like the rest of the markets has been in a pending mode due to European and a Canadian Holiday. Also, helping the sleepy markets is the waiting expectations for Fed Bernanke’s speech on Wednesday. Everyone seems to think that the Fed will just turn off the money tap and that everything will be ok. The US data is still pointing to a soft but still very slow climb and turning the taps off now will scare the equity markets and that’s what its all about. And jobs! He may wind the amount back from $85bio to $50-65bio which may continue this rush of USD strength but remaining careful looks a better option and playing what’s in front of us at the moment looks better. Euro reached a 1.2875 high during European trade as the volumes looked very weak and flow took control with initially a pullback into the US morning
before the same names had the controls with the price topping out at 1.2900 resistance. We close the day still quite bid at 1.2885.

Compass Direction
Short-Term Medium-Term
NEUTRAL BEARISH

AUD/USD jumped a little at the opening bell as local names took the opportunity to squeeze some weekend bears out of the market and with the holidays in Europe and Canada nobody was expecting much in the way of price action. 0.9755 became the pivot for the Asia morning before the price tracked higher with the majors as the risk sentiment seemed to lift slightly or was it just because the volumes were down in Europe and recent bears were happy to be taking profit. 0.9795 offers capped the price until the late US morning with a lift in the majors across the board. AUD jumped above 0.9800 to a 0.9825 top and despite a slight dip into the close the pair looks to be support somewhat well. Today, the RBA minutes are to be released from the last meeting and with it being a record cut to 2.75% economists will be looking for signals about is this the beginning of a cutting cycle or a once off and wait and see! I have to feel the later at this stage but we wont have to wait long with it being released at 11.30am. Back to neutral on the short end with even though we could reach 0.9880-9920.

Compass Direction
Short-Term Medium-Term
BULLISH BEARISH