Brave New World

Equity market rallies on ‘hope’ 26/05/2009

Equity markets have been given a boost with US consumer confidence data showing its highest reading since September last year. But most of the rise is accounted for in the expectations component: 72.3 from 51.0 prior. The present situation has increased to 28.9 from 25.5; still below the January level. So hope wins the day. The current the Case-Shiller Index shows that housing remains in an shocking state. House prices declined 18.7% y/y in March, versus the 18.4% market expectation and the 18.6% fall in the year to February. Meanwhile the $40bn Treasury auction- the bid to cover ratio is 2.94, versus the 3 month average of 2.69. 

The US Dollar has been on a rollercoaster ride today giving back all of the gains made against most currencies earlier in European trading. Better than expected Durable Goods figures on Thursday and GDP figures on Friday should lead to a further sell-off in the Dollar as investors look to take advantage of the reflation trade towards riskier assets. Two further Treasury auctions on Wednesday and Thursday hold some event risk, although if they prove as successful as today, the sell-0ff witnessed last week should not be repeated. The issue of US creditworthiness will not have gone away, but it will be a background consideration for the time being in the FX market.