Good news reporting is objective and factual. Interpretation of the facts is the job of the reader. When analyzing economic or fiscal news for trading purposes, interpretation requires reading between the lines. For example, the straightforward news below, although seemingly “bad,” actually tells us something valuable about where to look for trades.
China’s holdings fell by $32.5 billion to $867.7 billion, the Treasury reported Friday. Total foreign holdings edged up $5.8 billion to $3.96 trillion. The drop in China’s holdings and the weak showing overall was a surprise. Analysts expected a sizable gain because they thought foreign investors would seek the safety of U.S. Treasury debt, responding to fears over the European debt crisis.
Lately, the euro has been on somewhat of a tear. The rise from its May and June lows to its current level around 1.29 is nothing short of impressive, given that in that May/June timeframe many pundits predicted parity with the U.S. dollar, or worse. In fact, many called the euro decline a sign the whole Euro zone would collapse. All of this Chicken Little spewing arose because of the sovereign debt issues of the European countries of Portugal, Italy, Ireland, Greece, and Spain (PIIGS).
If you recall, though, at the height of that “crisis,” China announced that it would continue to support European bonds. This announcement had a strong impact on easing the worries of investors around the world. As well, soon thereafter, the ECB announced measures to inject liquidity into the seemingly failing economies, which compounded the positive effect of China’s announcement. Some further handwringing about austerity and deficit/debt reduction, and some strong announcements from Germany, France, and England in that regard, eased investors worries further. Thus, the PIIGS issue dropped from the front page, and the market turned to the upside. The issue then became, would confidence in the Euro zone and the euro hold up. The answer seems to be in the reporting above.
Because investors are not “running for the shelter of mother’s of little helper” (U.S. Treasury debt), it means that money is going somewhere, and that somewhere just might be Europe, which explains the rise in the euro. It also might mean that investor confidence in the global, economic recovery might be returning, even if the steps back are just baby steps. So, to me, even though the above news comes off as not-so-good, it actually is good news. The big issue that spooked investors in May and June seems to be off the table as a catalyst for driving the market down further.
So what do you think about that?
Trade in the day; invest in your life …
