Friday October 29, 2010 - 13:13:24 GMT
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Treasury Bonds Higher; Stocks Mixed as Economy Sputters Along
December Treasury Bonds are trading higher and U.S. equities mixed following a report that
economic growth edged up as expected in the third quarter.
Gross domestic product reportedly expanded at a 2.0 percent
annual rate triggered mostly by aggressive consumer spending and inventory
build-up. The slight rise in GDP from
1.75% in the second quarter was probably not enough to improve high unemployment
or sway the Federal Reserve from additional monetary easing next week.
Domestic growth can best be described as disappointing.
Obviously the economy is not were the Fed wants it to be; therefore further
monetary easing is necessary.
December Treasury Bonds are following-through to the upside
following Thursdayâ€™s reversal bottom. Short-covering and position evening could
take the market up to 131â€™20 to 132â€™11 before Wednesdayâ€™s Fed announcement.
equities are trading sideways to lower, but lately, investors have been buying
the dips and selling the rallies. This pattern is likely to continue without
neither the bulls nor the bears gaining control.
The Greenback is trading mixed this morning as investors
prepared for next weekâ€™s U.S. Federal Open Market Committee Meeting.
Next Tuesday and Wednesday the U.S. Federal Reserve meets to
set its monetary policy. Traders expect the Fed to announce a second round of
quantitative easing. Strong speculation that the Fed will implement another
asset buying program has been in the market since early August. Traders arenâ€™t
focused on the event at this time as much as they are focused on the actually
amount of money the central bank will pump into the economy.
For months traders have been driving the Dollar lower in
anticipation that the Fed may inject as much as $1 trillion into the economy.
Earlier this month Fed Chairman Bernanke confused traders by saying the Fed may
use other monetary tools besides quantitative easing. This helped the Dollar to
bottom as investors pared short positions.
This week began with the Wall Street Journal saying that the
Fed may only use a quarter of billion dollars instead of the trillion. This
news helped support the Dollar. Finally, on Thursday, a report surfaced that
the Fed sent out a survey to dealers which suggested uncertainty about the QE
plan while questioning the Fedâ€™s credibility. Needless to say, the Greenback
gave back all of its gains from the previous day.
All of this news adds up to confusion and uncertainty a few
days before the Fed meeting on November 2 and 3. Look for institutions and big
traders to remain on the sidelines until the Fed announcement, thereby setting
the market up for a likely sideways trade.
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