Increased Demand for Higher Yielding Assets Fuels Stock Market Rally

James Hyerczyk from ForexHound.com at 11/09/09

 

The weaker Dollar is triggering a huge rally in U.S. equity markets at the mid-session as aggressive investors seek higher yielding assets. Last week’s news that the Fed will leave rates unchanged for a “prolonged period” combined with the refusal by the G-20 to discuss the weaker Dollar and the IMF’s statement calling the Dollar overpriced is helping to ignite the rally.

Treasury markets are trading flat to higher after earlier weakness. The first move was to the downside after traders sold fixed income financial instruments and reinvested the funds into the stock market. Pressure was also coming from traders anticipating this week’s auction.

The U.S. Dollar continued to get pounded at the mid-session in a move that was triggered over the week-end when the G-20 finance ministers failed to discuss the weakness in the Dollar. In addition, the IMF issued a report basically saying the Dollar was overpriced versus Asian currencies especially the Chinese Yuan.

The Euro broke through the psychological 1.50 barrier. Upside momentum could carry this market to the high for the year at 1.5063.

December Gold broke through and is now holding above the $1100 price level. The weaker Dollar is triggering this move. For several weeks, gold has been disjointed from the Dollar. The current action suggests that this correlation may once again re-establish itself.

December Crude Oil took back all of last Friday’s break with a strong move to the upside. Higher equities, a weaker Dollar and increased speculation are providing the major support. Traders are speculating that the Dollar will continue to erode in value. In addition, news that a hurricane is heading toward a major refining area in the Gulf of Mexico near Louisiana is also helping to boost unleaded gasoline futures.