As March winds down, traders say portfolio reshuffling ahead of the end of the first quarter could mean buying for stocks and more trouble for Treasury bonds.
The betting is that some investors will need to increase their exposure to stocks before the quarter ends because of the stock market's big run up. In the bond market, a weak five-year auction Wednesday and continued heavy buying in short-term t-bills is causing some unease. Treasurys fell over concerns about growing debt supply to finance the budget deficit.
From 'Fast Money':
On Thursday, investors will be watching weekly jobless claims and the final read on fourth quarter GDP, both reported at 8:30 a.m. There's plenty of Congressional testimony and a flurry of Fed speakers. Several earnings reports are also expected, including Best Buy , Gamestop and Dr. Pepper Snapple ahead of the open, and Lululemon Athletica and Accenture after the bell.
"Traders are looking to buy the dips" for the next several days, said LaBranche Financial's Patrick Boyle. He said the momentum on the buyside should draw in more buyers ahead of the quarter end Tuesday. "It could be a decent markup at quarter end.. and then you want to sell it into the G20 meeting," he said.
Boyle said uncertainty around the G20 meeting next Thursday could result in dollar weakness, which would also be a negative catalyst for stocks.
For the first time Wednesday, the Fed bought Treasurys under the new program it announced last week. It bought heavily, mainly in 7-year paper. But other investors continued to rush into the safety of short-term t-bills, said Kevin Ferry of Cronus Futures Management.
'Fast Money' Web Exclusive:
The Treasury auctions 7-year notes Thursday, but Wednesday's $34 billion auction of 5-years was not well received. Investors had expected better results, after a strong $40 billion 2-year auction Tuesday.
The yield on the 10-year rose to 2.79 percent, from 2.71 percent Tuesday, as investors sold the notes.
"The calendar is affecting the timing of what they're trying to do," said Ferry of the Fed. He also said the dual impact of fewer U.S. firms able to participate at high levels and a pull back by foreign investors is affecting Treasurys.
"The system isn't breaking down right now, but it is starting to show cracks. The very entities that you need to be well capitalized and willing to play to get this game to work are being vilified for their capital ratios and they don't want to play and they don't know the rules," he said.
From 'Mad Money':
At the same time, foreign buyers are stepping back. "If you were an international buyer and you weren't sure about what they (the government) is doing and you thought they might debase their currency over the medium term, why wouldn't you park your self in a short-term security?" he said. "It just means the street's role in this has to be increased. Foreign buyers are afraid they're going to get burnt."
Ferry said time will tell if the Fed's program is working, and the market's response in the beginning of April will be telling. "You can't say for sure it's not working," he said.
Thursday Look Ahead
Fed speakers out on Thursday include Atlanta Fed President Dennis Lockhart, who speaks in Paris at 5 a.m. Then, Dallas Fed President Richard Fisher speaks at the University of Dayton at 12 p.m. Richmond Fed President Jeffrey Lacker speaks at 12:40 p.m. on the economic outlook in Charleston, S.C., and Minneapolis Fed President Gary Stern speaks at the Economic Club of Minnesota at 1 p.m.
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Traders say Thursday's market could be constrained by hearings on securities regulation at both the Senate Banking Committee and the House Financial Services committee. Treasury Secretary Tim Geithner speaks at the latter on the role of a super financial markets regulator. At the second hearing, SEC Chairman Mary Schapiro is among those testifying on enhancing investor protection and the regulation of securities markets. A parade of former SEC chairmen and market regulators speak at that 9:30 a.m. hearing.
Speaking of Geithner, the White House late Wednesday declared the dollar would be the world's reserve currency for a long time. Comments Geithner made at the Council on Foreign Relations Wednesday morning in response to a question about the dollar as reserve currency resulted in a sell off. Geithner clarified his comment, helping the dollar, but the White House gave the green back another endorsement late in the day.
Earlier this week, People's Bank of China Gov. Zhou Xiaochuan called for a new international reserve currency to replace the dollar.
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