Euphoria Replaced By Reality of Macro-Economic Fears

June 8, 2012 01:43 AM

What Traders are Talking About:

* Back to reality as euphoria fades. Fed Chairman Ben Bernanke in his testimony to the Joint Economic Committee yesterday said the Fed is ready if needed to provide additional economic stimulus, but he failed to say additional quantitative easing was imminent, as many investors had hoped. The result has been an general disappointment over Bernanke's comments. The euphoria from China's surprise rate cut has also subsided. In fact, there is now concern China preemptively cut interest rates ahead of the May CPI and industrial output data that will be released Saturday, suggesting the numbers will be worse than hoped. The disappointment with Bernanke's remarks and fear China's economy is in worse shape than believed has shift investors' focus back to the mess in Europe.

The long and short of it: The euphoria that fueled broad-based "risk-on" trade Thursday has been replaced by a more realistic "risk-off" stance to close out the week.

* Spain's troubles build. Credit rating firm Fitch cut Spain's rating three notches, which is now just two rungs above junk status. That will complicate the country's struggles to rescue its failing banking sector. Spain will reportedly ask European Union leaders for bailout funding for its banks this weekend. How European leaders respond to that request will have potential major market implications.

The long and short of it: While Greece is a relatively small fish in a big pond economically, Spain is the European Union's fifth largest economy based on GDP, making its economic stability a "must" for the bloc.

* Warm and mostly dry into next week. Temps are expected to run above normal across much of the Corn Belt into at least the middle portion of next week. While the National Weather Service forecast indicated normal to above-normal rains for the first part of next week, most private forecasters see limited rainfall chances for the region. The combination of warm (hot in some areas) and dry will stress crops in areas where soil moisture is depleted, which is a growing area.

The long and short of it: Weather is an increasing concern for many producers, but markets have been slow to react thus far, largely due to strong crop ratings. How traders position themselves ahead of the weekend should be a good indication of whether they are starting to pay more attention to weather.


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