Bernanke Keeps Talk of QE3 Alive

April 26, 2012 01:06 AM

What Traders are Talking About:

* Fed speak: No QE3 yet, but there if needed. The mention of additional quantitative easing was missing from the statement following the Federal Open Market Committee (FOMC) meeting. In fact, there were just minor tweaks to comments made following the March 13 FOMC meeting. But in his quarterly press conference after the FOMC meeting, Fed Chairman Ben Bernanke says the Fed is there to help the economy if needed. But while the possibility of QE3 remains on the table, most economists don't expect any movement on that front until after the November elections unless there's a sharp economic downturn. In its longer-term view, the Fed raised its outlook for GDP growth while unemployment is expected to gradually ease.

The long and short of it: With QE3 on the table -- if needed -- investors in risky assets like commodities and the stock market have somewhat of a security blanket to carry with them. That should keep them from full-fledged risk aversion unless there's a major global economic meltdown.

* Chinese corn buys fail to support futures. USDA has announced 1.2825 MMT of corn sales so far this week -- some old-crop, some new-crop -- with unknown destinations buying 1.02 MMT and China accounting for 262.5 MT of the business. It's assumed China is the buyer of most -- if not all -- of the "unknown" purchases. Despite the strong purchases, corn futures are holding right around where they finished last week. Typically when markets fail to move higher on bullish news, it's not a positive sign. But given tight old-crop stocks, downside risk is also limited.

The long and short of it: For now, traders are content to let the cash market do the "heavy lifting." That attitude could change if there's a weather scare.

* BSE backlash limited. Backlash from trading partners with the U.S. in reaction to Tuesday's confirmed case of BSE in a California dairy cow has been limited. That allowed cattle futures to post a modest price recovery Wednesday. But the cattle market faces additional hurdles. Demand for beef was a concern before the BSE news surfaced. Beef stocks in storage at the end of March were much higher than anticipated, indicating demand isn't living up to expectations. And high gas prices and macro-economic headwinds are threats to beef demand moving forward.

The long and short of it: If the BSE backlash remains limited, it should allow cattle futures to stabilize, but there are other hurdles the market must clear before investors' confidence in the long side of the market is restored.


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