Trader Talk

All's Right With the World! Really?


All's right with the world! Really? It sure looks like risk aversion is receding. Look at the evidence:

1) Stock rally: the S&P 500, as well as Germany's DAX Index, at five-month highs;

2) The two most beaten-up and unloved groups last year — housing and bank stocks — are this year's darlings. The Bank Index is up 10 percent, the Home Construction Index is up 15.1 percent in 2012, vs. a 4 percent gain for the S&P 500 index.

3) The euro has staged a powerful three-day rally, heading toward $1.30.

4) European debt auctions continue to be successful: Spain and France sold roughly 16 billion ($20.6 billion) euros of new bonds. Spain had planned to sell 4.5 billion euros ($5.8 billion) of debt, instead it sold 6.6 billion ($8.5 billion) at lower yields. For the 10-year, the yield was 5.403 percent (a lot better than the near-seven percent in the previous auction in November); the bid-to-cover ratio was at 2.17. Anything over 2.0 shows healthy demand.

5) Copper is at a four-month high, U.S. oil is steady at roughly $100;

6) The CBOE Volatility Index has remained stuck near 20 for most of this month;

7) Some signs of global coordinated policy actions. The International Monetary Fund's planned $600 billion lending boost, while greeted with skepticism by many — which states (outside of Europe) are going to pay in? Not the U.S. Not the U.K. — at least suggest that there is a trend toward coordinated policy actions. Brazil has cut rates; China is lowering its reserve requirement ratio; and the European Central Bank has cut its repo rate to 1 percent and is likely to lower it again shortly.

8) Finally, there is signs of progress in Europe:

a) The Greeks are making unusually positive noises about the debt negotiations, with one European Union source saying there is a "very good chance" a deal will get done this week, even though there does not seem to be an agreement on the crucial issue of what the coupon will be.

b) Italy's Mario Monti is making good on his promise to introduce a bill to reform the Italian economy before the EU summit on Jan. 29. Monti is expected to unveil new proposals tomorrow that would make it easier to fire employees, and attempt to open up many businesses to more competition, including taxi drivers, pharmacies, the retail industry. There's even a proposal to deregulate toll road tariffs.

c) The Irish finance minister said today that the final draft of the multilateral treaty on budgetary restrictions would be discussed at the EU finance ministers meeting on Monday.


1) Reality check: UBS downgrades home builders this morning, saying: "Conditions are getting better...just not quickly enough to justify current valuations."

2) Earnings: Freeport McMoran up fractionally as they beat expectations (67 cents a share vs. 60 cents a share consensus estimate).

3) Bank of America shares jump 5.7 percent, above $7, in pre-market trade after the bank reported fourth-quarter earnings per share in line with estimates at 15 cents a share. The bank reported quarterly revenue of $24.9 billion, which beat the Street’s $24.1 billion estimate. Bank of America shares last climbed above $7 on Jan. 12, and the last time they closed above $7 was on Oct. 28, 2011.

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