hello and welcome back to the note we
have had a very dramatic round rebound
in world stock markets day started in
Asia strong rebounds also in Europe
and here in the US the question is
exactly what has driven it as you can
see the sp500 is now right back at the
top of its range since that dramatic
correction in August it hasn't broken
through that range but it's right at the
close of it you'll notice also that it
never got below the level from the last
very aggressive correction back in
October of last year widely referred to
as the bonds flash crash now what has
been driving this obviously we had
non-farm payrolls data on Friday which
was very disappointing initially you saw
a sell-off and then you saw a rebound
the most natural explanation would be
that in this case bad news is good news
because it means that rates stay lower
for longer however various other asset
classes don't fit with that we've seen
bond yields rise today not what happens
if you think rate sustained lower for
longer commodities really haven't done
very much maybe up very slightly today
but not an impressive clear-cut picture
then we get to the dollar which should
logically be weakens if people think
that the Fed really isn't gonna be
raising rates any earlier than anybody
else and if we take a look at this next
chart you can see that actually the
dollar hasn't done anything at all much
against its major major trading partners
that's
US Dollar Index in blue there which
includes currencies like the euro and
their yen where you do see quite quite a
dramatic rebound in the last few days in
emerging markets for an exchange about
noticeably the year the Brazilian trail
and the south african rand those
currencies had obviously been sold off
very aggressively there was a suggestion
that even if the news was very bad for
emerging markets which it is that that
sell-off had gone too far and we've seen
a very strong rebound from there this
could simply be a response to oversold
conditions and valuation now you get a
similar picture if you take a look at
the guts of what has happened in the US
equity market as we can see from the
next chart what we're looking at here
are the two best performing stocks today
in the S&P 500 richer Alcoa the aluminum
producer and micron technologies which
makes which makes a good actors both
very very cyclical stocks very prone to
the industrial global industrial cycle
and both had done really really terribly
for the year so far now in the case of
micron what is even more intriguing is
that they have been spurred by their
latest earnings announcements which came
out after the market on Thursday which
was bad and disappointing and involved
talking down estimates for the future
but didn't talk down estimates quite as
much as some brokers had feared the fact
that you've got that kind of a rebound
from what was essentially a very bad
very negative earnings report suggests
that some of the fear that has been
written into earnings forecasts has been
overdone and that you could we could
indeed be primed to see quite a rebound
without that much in the way of good
news from the earnings season once it
gets underway when it comes to alcoa of
course they will be the first company to
report later this week starting off that
earning season I do think the third
quarter earnings season really is now
critical if we want to see the SP break
up out of its range that will require
some reasonably good numbers from from
the earnings season it's still possible
if companies choose to the kitchen sink
throw lots of the bad data into their
into their numbers and to guide
downwards it's still possible that it
will take us back down again the bottom
line is that earnings season really
matters