How about that market ride yesterday? True, it hardly compared to the wild rides back in 2008, and compared to the Flash Crash last year, well, it doesn’t, but it was still fun. Did I just write “fun?” Okay, maybe not fun, but exciting in what I perceived it to mean.
The market reacted negatively to the announcement that the IEA would release up to 60 million barrels of oil into the market. Now, one would think that this would have had the opposite effect on the market. After all, adding more oil to a market shy of spare capacity means more supply for a world economy in soft patch, which should mean further reductions in the price of oil. The price of oil dropping further is good for a global economy slowing down from the higher price of oil, right?
Yes, that is the case, but the market did not see it that way. Perhaps it perceived the release as a desperate measure from governments worried about the global economy. Then again, perhaps it had nothing to do with perception, at least not perception about the global economy. Maybe, the negative reaction came from 1) oil traders realizing that the long-side speculation trade could be over for the near term and 2) ill-liquid traders having to unwind other positions to cover margins as the price of oil dropped quickly.
If this is correct, things will change for the better economically, even as the market continues its current wariness about other global issues. No matter what happened yesterday in the market, lower oil prices can only help a global economy stymied from higher oil prices.
The Commerce Department said that the economy grew at an annual rate of 1.9 percent in the first quarter, slightly higher than the 1.8 percent estimated a month ago. Separately, the Commerce Department said businesses increased their orders for machinery, electronics products, and airplanes last month. Durable goods orders increased 1.9 percent in May after a 2.7 percent decline in April.
Well, the increase in GDP is helpful, but not overwhelming. The switch from positive to negative in durable goods orders is, however, good news. Combine that with the earnings reports/guidance from FedEx and Oracle, Japan’s emergence from its economic catastrophe, the price of oil remaining steady or going lower, and the global economic picture looks a bit brighter.
Yes, the continuing obscurity of the U.S. and European debt issues could easily override the slightly brightening economic picture, and if either of those “blowup,” the market could easily head south strongly. But, in the coming weeks, if either of those issues come to an acceptable near-term solution, the uncertainty driving market behavior could easily turn to certainty, certainty that the market is going higher and getting in at the market lows is the thing to do. As always, we will see …
Trade in the day – Invest in your life …
