Duck and Cover - Dcember 9th, 2009

The trading theme this week appears to have a heavy emphasis on risk aversion. The post-Thanksgiving details out of Dubai, downgrading of Greece’s bonds, and a lowered outlook for Spain all seem to be adding fuel to the fire. The concerns over credit worthiness are resurfacing, and the markets are already seeing money flow out of commodities and into dollars.

Despite reassurances from Greece’s finance minister that default is not possible, their bonds “slumped the most in a decade”. This latest economic white flag can be added to the default concerns built up when Dubai World sent things into a tailspin during the post-holiday weekend.1 These fears may not be enough alone to sustain pressure on the markets as things move along to the close of the year.

All told, watch for a continued boost for the US dollar heading towards the upcoming Fed meeting next week, resulting in continued shakeouts. Concerns will likely fade in the coming weeks, after which the dollar will probably continue its downtrend. A correction for commodities and equities is not wholly unexpected, but path of least resistance towards year-end is likely higher. Several improvements have been seen on the horizon, enough to ignite fresh talk of the Fed’s potential for reexamining interest rates in the beginning of 2010. Optimism seemed to get a bit of play last week from employment and that could carry over into this week’s initial claims.

On the retail sales front, this week’s numbers from retailers are really the highlight of an otherwise light data week. Although the number is comparatively weighty to the overall sentiment of the market, it is probably still too early to truly gauge the holiday shopping season. Retailers won’t get a complete picture until next month, so it would be premature for anyone to call things one way or the other. Early appearances suggest that people are out and shopping, but not in full force.