by: IntegrityFX
US equities were bullish today. The DOW gained 101.63 points, up 1.21%. The S&P gained 15.73 points, 1.74%, to close well above the 900 level at 919.53. Behind the moves were better than expected ADP non-farm employment data and leaked information about the bank stress test results. The information will not be official until tomorrow, but anonymous sources are saying that approximately 10 of the 19 banks will need to raise capital. Among those that need to raise capital are Bank of America, Citigroup, and Wells Fargo.
One option for them to do so is to convert their bailouts funds they previously received from the government into common stock. However, that would make the government a major shareholder and owner of the bank, which is undesirable. Among the banks named as not needing to raise capital are Goldman Sachs, JPMorgan Chase, Morgan Stanley, and American Express. Despite the mixed leaked information, banks stocks, including those that needed to raise capital, were bullish. It seems market sentiment is that the banks will be able to raise the capital and prosper. The risks are whether or not the market believes the stress test was stressful enough and how much ownership or control the government takes in the banks.
Commodities were also bullish. Oil rose to a new year to date high above $56. Gold is currently trading at $912 and heading up to retest its recent highs at $917. The Bank of England and European Central Bank have interest rate decisions tomorrow. Expect the BOE to hold and thus not release a statement. Expect the ECB to cut by 25 basis points, from 1.25% to 1.00%, and then signal they are done cutting rates. With that type of statement, look to buy the Euro.