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How Fed Easing Distorts the Markets

S&P 500 futures index dropped, then quickly recovered, the dollar weakened, commodities rallied, all on the disappointing nonfarm payroll reports, which showed a loss of 57,000 jobs versus consensus expectation of a gain of zero.

There was little to cheer about in the report — even private payrolls, at 64,000, were below consensus, as was hourly earnings, which showed no gain versus consensus expectations of a gain of 0.2 percent.

So why didn't futures drop? Because traders believe Quantitative Easing is coming, protests or not from selective Fed members. "The bull case right now for market is 0 rates forever, continued easing with QE, etc...it's not an uptick in the economy," one trader said to me.

That's the problem: prospects for QE are distorting markets. Thank heavens traders will at least have the fundamental reality of earnings commentary coming in the next few weeks. (Read an explanation and analysis of Quantitative Easing here.)

Elsewhere:

1) Alcoa kicked off earnings season with some good news. The aluminum giant is up 4 percent pre-open after beating earnings estimates ($0.09 vs. $0.05 consensus). Sales were also ahead of forecasts as higher shipment volumes (up 3 percent) more than offset weaker aluminum prices (down 2 percent).

Also encouraging: the firm raises its 2010 global aluminum consumptions forecast to 13 percent from 12 percent as it sees "markets strengthening," particularly in emerging economies like China, Brazil, India & Russia.

Alcoa is heavily leveraged to aluminum prices; there has been talk of an aluminum ETF which would likely be supportive of aluminum prices.

2) Micron , in its earnings report (below expectations), affirmed what everyone has suspected for several months: that tablet (particularly iPad) sales were cannibalizing PC sales.

3) What's bad news to Micron is good news to Apple . Apple is down 1 percent despite seeing its estimates and price target raised at Oppenheimer. The main reason for the upwards revisions: raised expectations for iPhone and iPad sales.

Oppenheimer now sees Q4 iPhone sales at 12 million units, up from its prior estimate of 10.5 million and iPad sales at 4.5 million, up 3.9 million units — and it warns those new estimates “may still be slightly conservative!”

4) PNC Financial has reportedly become the latest lender to suspend sales of foreclosed homes (for 30 days), according to the New York Times. (UPDATE: BofA, PNC Announce More Halts in Home Foreclosures)

There's been much back and forth about the effect of an across-the-board suspension of foreclosures on bank profitability. Mike Mayo at CLSA said that since most foreclosures are already classified as nonperforming, the profit and loss impact should not be huge, but nonperforming assets will remain elevated and the suspensions "will only delay the housing recovery."

5) TD Ameritrade jumps onto the commission-free ETF bandwagon. The e-broker announced it will allow investors to trade 100 different ETFs from a variety of ETF providers commission free if the security is held for at least 30 days. Dozens of broad-based equity and bond ETFs are included as are several funds tracking baskets of foreign countries including the popular VWO (emerging markets, GXC (China), and EWJ (Japan). A small number of sector-based and commodity based ETFs are also available under this program.

This follows programs by TD Ameritrade's rivals like Schwab , Fidelity, and Vanguard who now offer commission-free trading on their own ETFs or in Fidelity's case, a select number of iShares ETFs.

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