The snapback in the Dow Jones Industrial Average today was nothing short of impressive. Having been down over 100 points yesterday, the Dow slid another 86 points at the onset of US trading. Fortunes were reversed however as the Dow rebounded just as quickly as it fell. Yields suffered the same fate as they sold off sharply ahead of the US equity market open but rebounded shortly afterwards.
The US dollar was the only asset that refused to fall. In fact, the biggest loss that we saw in the US Dollar against the Japanese Yen over the past 24 hours was a modest 20 point drop. The Euro on the other hand remained trapped within a 30 point trading range throughout the day. Although the rise in bond yields as well as the jump in the Philadelphia Fed index could be credited for taking the dollar and the Dow higher, the market?s feel-good factor is primarily keeping risk appetite high. The US economy faces problems from the fallout of the Bear Sterns hedge funds, but with no new bailouts surfacing the market is hoping that this is an isolated incident. Whether or not this is true remains to be seen. Like the Empire State manufacturing survey, the Philly Fed index jumped to a 2 year high in the month of June. The rise was driven almost exclusively by an increase in new orders since both the employment and prices paid components dropped. Underlying weakness capped any major movements in the dollar despite the magnitude of the surprise. Trading should continue to remain quiet over the next 24 hours with no US data due for release. This type of market has been perfect for range traders.