The dollar is rallying, hurting commodities and commodity stocks. Why is the dollar rallying? Better economic news implies higher rates, which makes the dollar more attractive as an investment. A higher dollar means dollar-denominated commodities are more expensive to buy.
Gold, platinum, copper, natural gas and oil down 1 to 3 percent.
S&P futures popped almost 10 points as the Maynon-farm payrolls showed much less of a decline (345,000) than expected (520,000), and the two prior months were revised higher by 82,000. Of course, the unemployment rate continued to climb to 9.4 percent, the highest since August of 1983.
Stocks are set for another set of weekly gains - with its 11th weekly gain in the last 13 weeks. If the strong pre-market gains hold at the end of the day today, the S&P 500 will close at its highest level since the beginning of November, as will the Russell 2000. The NASDAQ is at the highest levels since October.
Crude oil continues to rise today, and has pushed above the $70 level for the first time since early November.
1) A much-maligned deal is called off due to improving conditions. BHP Billiton and Rio Tinto are both up about 8 percent as Rio Tinto has canned a $19.5 billion deal with Chinalco of China. RTP instead announced a secondary offering of about $15 billion and will set up a joint venture with BHP. This secondary will dramatically reduce RTP's debt level.
2) Mortgage rates are increasing FAST: call a mortgage broker and ask for a loan, and you're in for a shock. Bankrate.com says average 30 year mortgage rates have have risen to 5.65 percent, up 41 basis points in just the past two weeks. One month ago, I refinanced my home for 4.75 percent!
There is something of a vicious cycle going on between mortgage backed securities (MBS) and Treasury bonds. As Treasury yields have risen, mortgage rates have also risen.
One effect of this rising rates is that refinancing activity has stopped. As a result, portfolios of MBS have seen fewer prepayments, lengthening the duration of the portfolios. Duration measures how sensitive portfolios are to changes in interest rates, and since portfolios of MBS are long-dated, they are considered very sensitive to those interest-rate changes.
To offset the longer duration of their portfolios, MBS players in turn sell US Treasuries to hedge this event and that is what is exaggerating the downward move in Treasuries.
3) Dow component Merck will not seek FDA approval for its heart failure drug rolofylline this year after the pharmaceutical giant revealed that the drug failed to show satisfactory effectiveness in a phase 3 study.
4) General Motors has reportedly decided to sell its Saturn brand to Roger Penske, CEO of Penske Automotive Group (PAG). No terms of the potential deal have been disclosed yet.
5) The Semiconductor Industry Association (SIA) now expects global chip sales to fall 21 percent this year - more than it had previously forecast. Sales projections for 2010 and 2011 were lowered too, but are expected to grow 6.5 percent in each year.
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