3 Factors Driving the Market Higher – 03/17/2013

3 Factors Driving the Market Higher
by Mitch Zacks, Senior Portfolio Manager

The stock market is hitting multi-year highs as U.S. equities are shrugging off any negative news. We’ve identified 3 factors that are driving this market higher. We discuss each of them below:

1. US Jobs Numbers

Around 200,000 jobs were added in November, December, January, and now, just recently, in February. We haven’t seen this strong of a flow in jobs data in over five years. Both ADP jobs data and the Federal government payroll data have showed strength. Unemployment claims were also recently reported at a five-year low.

In September 2012, we saw the U.S. economy adding 100,000 jobs a month. At that time, there were concerns of an economic slowdown caused by the “Fiscal Cliff”. This resulted in the most recent round of Fed bond purchases. In other words, poor fiscal behavior brought monetary authorities to action once again.

We believe the Fed’s quantitative easing program (essentially printing money) has triggered these improving monthly jobs numbers.

We are in the intermediate phase of GDP growth now. With sequestration spending cuts in place, we were looking to see 1.3% to 1.9% GDP growth for the U.S. economy. However, given the strength of these job numbers, our expectations are now up to 3.0% GDP growth for 2013.

Strength in the stock market seems to be predicting this enhanced GDP outlook for 2013. A fairly solid, full-steam ahead economy appears to be here.

One major risk is that the Fed takes its foot off the gas pedal earlier than expected. Therefore, we are watching the FOMC minutes closely.

2. Mario Draghi and Europe Relief

Mario Draghi, the head of the European Central Bank (the ECB), recently kept his short-term policy rate fixed at 0.75%.

In a press conference, Mario Draghi said, “You know the rules. The ball is in the government’s hands”. This is the language of Draghi and the market is buying it. The ECB has made it clear that they will take whatever steps necessary to stabilize the European economic situation.

Mario Draghi also spoke of rising cross-border flows of capital in Europe. This is a sign of the beginning of stabilization. In addition, policymakers have decreased their rhetoric associated with an economic “Domino Effect” caused by peripheral EU countries. As a result, a total collapse of Europe’s financial system is less of a concern.

As the risk of a financial systemic shock in Europe declines, U.S. stock markets rise.

We think another round of policymaking in Europe is needed to help GDP growth. Policymakers at the EU and at the ECB have to go further; and if they do, it will push the S&P 500 higher.
3. Hugo Chavez and Oil Prices

Recently, WTI Crude Oil fell to about $90 from close to $98 a barrel. In other words, we’ve witnessed a nearly 10% drop in oil prices over the last month. The oil markets may be pricing in the passing of Hugo Chavez.

Venezuela is a part of OPEC, and the change in the profile of oil risk, via OPEC, went down. It is now less likely that OPEC will keep their strident pace of collusion on course. As a dictator that nationalized oil companies and sought control with an iron fist, his passing is viewed as a positive sign for the region. His passing may allow Venezuela to embrace a free market, something that would certainly be a chink in the armor of OPEC.

There also continues to be a North American advance in oil and natural gas production. These fresh techniques can be applied to Venezuela, which has the world’s largest oil reserves when the heavy oil sands are included that are located there.

We are still range bound in oil between $90 and $100, but we may remain towards the bottom of that range. As geopolitical risks fall, volatility in oil decreases and this price range shrinks. The increasing stability in the energy market is important to the U.S. economy.

As the global economy gets stronger, demand for oil usually rises, and so does its price. With the potential for new Venezuelan supply, and lower political risk, oil prices are likely to remain stable.

What Does this Mean for Investors?

We are faced with an increasingly rosy economic scenario. Investors are beginning to expect positive things to happen. However, when expectations get high, the risk of disappointment is great.

Market movements are independent of one another over time. Historically, the stock market rises about 70% of the time and declines 30% of the time. This probability is independent over time. In other words, don’t become overly optimistic. Markets rise and fall and it would be normal to see a 10% correction in this market.

As we previously stated, another round of policy activity in Europe could lead to GDP growth there. That is one catalyst to look for which could take U.S. markets even higher.
About Mitch Zacks

Mitch is a Senior Portfolio Manager at Zacks Investment Management. He wrote a weekly column for the Chicago Sun-Times and has published two books on quantitative investment strategies. He has a B.A. in Economics from Yale University and an M.B.A. in Analytic Finance from the University of Chicago.

Mitch also is a Portfolio Manager for the Zacks Small Cap Core Fund ( ZSCCX ).

Key Market Reports and Commentary for Friday 01/03/2013

F R I D A Y   M O R N I N G   E X T R E M E   M A R K E T S
A complimentary service from INO.com ( http://www.ino.com/ )

KEY EVENTS TO WATCH FOR:
Thursday, February 28–

U.S. economic data due for release Thursday includes the weekly jobless claims report, the fourth-quarter GDP estimate, the ISM Chicago business survey, and the Kansas City Fed manufacturing index.

Key Events and Commentary available earlier every morning, via MarketClub (http://www.marketclub.com/)

U.S. STOCK INDEXES

GENERAL STOCK MARKET COMMENT: The U.S. stock indexes closed
higher again today on another “risk on” day in the market
place. The U.S. government’s likely inability to agree on a
taxing and spending plan by the March 1 sequestration
deadline on Friday is being mostly ignored in the world
market place late this week. President Obama will meet with
congressional leaders Friday on the budget matters. Traders
and investors are becoming somewhat numb to the ongoing
squabbling in Washington, D.C. The European Union and its
sovereign debt problems have surfaced again this week. The
Italian elections failed to show a clear winner as voters
ostensibly rebuked present government austerity measures.
The head of the Organization for Economic Cooperation and
Development (OECD) said Thursday the Italian election
gridlock will not significantly impact the EU debt crisis
and efforts to stabilize it. There were Italian government
debt auctions Tuesday and Wednesday that were deemed
successful, even though yields were a bit higher. On
Thursday, Spanish and Italian bond yields fell slightly, in
another positive sign the EU debt crisis is now stable. The
latest episode in the EU debt crisis appears to be calming
down just a bit as the week progresses. European Central
Bank chief Mario Draghi said Thursday he will continue to
“preserve the integrity” of the Euro currency. European
stock markets were mostly higher Thursday on better
corporate earnings reports coming out of Europe. The
seemingly improved attitudes in the market place, regarding
the EU debt crisis, are also an underlying bullish factor
for stocks this week.

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INTEREST RATES http://quotes.ino.com/exchanges/?c=interest

June U.S. T-Bonds closed up 2/32 at 143 23/32 today. Prices
closed nearer the session low today. Bulls and bears are on
a level near-term technical playing field. The next
downside price breakout objective for the T-Bond bears is
closing prices below solid technical support at this week’s
low of 141 25/32.

NYMEX CRUDE OIL

NYMEX CRUDE OIL

Crude oil prices are lower early today and hit a fresh two-

month low overnight. Bears have downside technical momentum.
In April Nymex crude, look for buy stops to reside just
above resistance at $91.00 and then at $92.00. Look for sell
stops just below technical support at $90.00 and then at
$89.00. Wyckoff’s Intra-Day Market Rating: 4.0

CURRENCIES http://quotes.ino.com/exchanges/category.html?c=currencies

U.S. DOLLAR INDEX

The U.S. dollar index higher early today and hit another
fresh six-month high overnight. The greenback bulls have the
solid near-term technical advantage. Slow stochastics for
the dollar index are neutral early today. The dollar index
finds shorter-term technical resistance at 82.500 and then
at 82.750. Shorter-term support is seen at 82.000 and then
at the overnight low of 81.850. Wyckoff’s Intra Day Market
Rating: 6.0

PRECIOUS METALS http://quotes.ino.com/exchanges/?c=metals

METALS: April gold futures closed down $16.90 an ounce
at $1,578.80 today. Prices closed nearer the session low
again today as the bears tighten their near-term grip on
the yellow metal. There has been better risk appetite in
the market place late this week, amid some stronger U.S.
economic data, and that has helped to pressure the safe-

haven gold market. Gold prices are in a six-week-old
downtrend on the daily bar chart.

May silver futures closed down $0.505 an ounce at $28.49
today. Prices closed nearer the session low today and
closed at a fresh monthly low close today, which is another
bearish clue. May silver bears have the near-term technical
advantage. Prices are in a six-week-old downtrend on the
daily bar chart.

May N.Y. copper closed down 195 points at 354.75 cents
today. Prices closed near the session low today and closed
at a bearish monthly low close. Prices Tuesday hit a three-

month low. Copper bears have the overall near-term
technical advantage.

FOOD & FIBER http://quotes.ino.com/exchanges/category.html?c=food

SOFTS: May sugar closed up 37 points at 18.45 cents
today. Prices closed nearer the session high today, hit a
fresh three-week high and scored a bullish “outside day” up
on the daily bar chart. Good follow-through buying interest
on Friday would give the bulls some fresh upside near-term
technical momentum and it would also begin to suggest a
market bottom is in place. But right now the sugar bears
have the overall near-term technical advantage. A two-

month-old downtrend on the daily bar chart was at least
temporarily negated today.

May coffee closed down 105 points at 142.40 cents today.
Prices closed nearer the session low today as prices hover
just above the recent contract low. A stronger U.S. dollar
index today was bearish for coffee. The coffee bears have
the solid overall near-term technical advantage.

May cocoa closed up $2 at $2,133 a ton. Prices closed near
mid-range again today. Prices are hovering near an 8.5-

month low. A stronger U.S. dollar index limited the upside
in cocoa today. The cocoa bears have the solid overall
near-term technical advantage. Prices are in a three-month-

old downtrend on the daily bar chart.

May cotton closed up 110 points at 85.48 cents today.
Prices closed nearer the session high and hit another fresh
9.5-month high today. Prices also closed at a bullish
monthly high close today. The cotton bulls have the solid
overall near-term technical advantage and have gained fresh
upside power late this week.

May orange juice closed down 75 points at $1.2490 today.
Prices closed near the session low today and saw more
profit taking. FCOJ bulls still have the slight overall
near-term technical advantage. A six-week-old uptrend is
still in place on the daily bar chart, but just barely.

May lumber futures closed up $9.90 at $385.80 today. Prices
closed near the session high today. Bulls have the near-

term technical advantage. The next downside technical
breakout objective for the lumber bears is pushing and
closing prices below solid technical support at this week’s
low of $372.50.

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GRAINS http://quotes.ino.com/exchanges/category.html?c=grains

GRAINS: May corn futures last traded up 9 cents at $7.04
1/4 today in late trading. Prices were near the session
high and hit a fresh two-week high today. Price action also
saw a bullish upside “breakout” from a sideways trading
range at lower levels. If there is follow-through strength
and a bullish weekly high close on Friday, that would give
the bulls some fresh upside technical momentum to suggest
that a near-term market low is in place. A four-week-old
downtrend on the daily bar chart was also negated today. A
bullish double-bottom reversal pattern also could be
forming on the daily bar chart, to also suggest a market
bottom is in place.

May soybeans were up 17 3/4 cents at $14.57 1/4 a bushel in
late trading today. Prices were nearer the session high
again today on more short covering and bargain hunting.
Bulls and bears are now back on a level near-term technical
playing field.

May soybean meal was up $8.60 at $437.20 today in late
trading. Prices were nearer the session high on short
covering and bargain hunting. Prices were poised to close
at a bullish monthly high close today. Bulls today regained
the slight near-term technical advantage.

May bean oil was down 34 points at 49.33 cents in late
trading today. Prices were nearer the session low and
poised to close at a bearish monthly low close today.
Spreaders have been selling bean oil and buying meal. Bean
oil bears have the near-term technical advantage. Prices
are in a four-week-old downtrend on the daily bar chart.

May Chicago SRW wheat was up 3 1/2 cents at $7.15 1/2 in
late trading today. Prices were near mid-range and saw more
tepid short covering in a bear market. Prices Tuesday hit
an eight-month low. Prices are in a six-week-old downtrend
on the daily bar chart. Wheat bears have the solid overall
near-term technical advantage.

May HRW wheat was up 8 1/4 cents at $7.51 in late trading
today. Prices were near mid-range and saw more short
covering in a bear market. Prices Tuesday hit an eight-

month low. HRW bears have the solid overall near-term
technical advantage.

LIVESTOCK http://quotes.ino.com/exchanges/?c=livestock

LIVESTOCK: April live cattle closed down $0.10 at
$129.77 today. Prices closed near the session low today.
Cattle futures bears have the overall near-term technical
advantage. Prices are in a two-month-old downtrend on the
daily bar chart. A close on Friday at or near the weekly
high would be a clue that a market bottom is in place.

April feeder cattle closed up $0.55 at $144.92 today.
Prices closed near mid-range today and saw more short
covering in a bear market. The feeder bears have the solid
near-term technical advantage.

April lean hogs closed up $0.05 at $81.05 today. Prices
closed near mid-range today and did poke to a fresh 8.5-

month low. The hog bears have the solid overall near-term
technical advantage. A choppy three-month-old downtrend is
in place on the daily bar chart.

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T H A N K   Y O U
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Copyright 2012 INO.com. All Rights Reserved.

DailyFX Morning Slices: Euro Maintains Gains After LTRO Repayments Announced

Forex: Euro Maintains Gains After LTRO Repayments Announced

More of the same in FX markets as the Japanese Yen is sliding into the weekend, while the Euro maintains its gains after generally improved economic data out of Germany, as well as some interesting news from the European Central Bank. As today approached, the Euro’s main driver was speculation over how much capital Euro-zone banks would return to the ECB, after the central bank injected over €1 trillion ($1.33 trillion) via its longer-term refinancing operations (LTRO) between December 2011 and February 2012.

The results of the first LTRO repayment option are promising: €137.2 billion will be repaid; well-above the €100 billion “whisper” number that had been circulating the past few days. For now, this has lended to Euro strength; if Euro-zone banks are willing to repay borrowed funds from the peak of the financial-aspect part of the crisis, then it is assumed that the interbank market has to be healthy.

Likewise, these repayments represent a form of monetary tightening by the ECB: the balance sheet is shrinking. At a time when the Federal Reserve, the Bank of Japan, and the Swiss National Bank (the Bank of England soon as well) are all flooding the market with liquidity (expanding their balance sheets), any measures brought forth by the ECB that shrink the balance sheet are inherently Euro positive.

On the other hand, it should be noted that the money borrowed from the ECB early in 2012 was mainly used to help cover positions in peripheral bond markets. With bond yields compressed, thanks to ECB President’ Mario Draghi’s mid-summer pledge to do “whatever it takes” to save the Euro, it is possible that as these funds are returned to the ECB, short-term Italian and Spanish bond yields rise. Any near-term Euro weakness is an opportunity to get long, both fundamentally and technically (more below).

Taking a look at European credit, peripheral yields continue to edge lower amid the LTRO news, providing support for the Euro once again. The Italian 2-year note yield has decreased to 1.429% (-1.7-bps) while the Spanish 2-year note yield has decreased to 2.407% (-2.2-bps). Similarly, the Italian 10-year note yield has decreased to 4.088% (-6.4-bps) while the Spanish 10-year note yield has decreased to 5.152% (-6.3-bps); lower yields imply higher prices.

Best,

Christopher Vecchio, Currency Analyst
cvecchio@dailyfx.com

Benzinga Market Primer for January 25, 2013

Futures Rise on Earnings, German Sentiment

•U.S. equity futures rose in pre-market trading following continued strong earnings and a better than expected report on German business confidence.
•The IFO Business Climate Index rose to 104.2 in January from 102.4 in December, better than economists forecasts of 103.
•Further, the Expectations Index released alongside the main index, a measure of the outlook of business leaders in the near term, rose to 100.5 from 98 in December, besting estimates of 99.

Top News

In other news around the markets:

•ECB President Mario Draghi spoke at the World Economic Forum, saying that the LTRO’s and OMT helped to save the euro, that the second half of this year should see accelerating economic momentum, that the OMT will remain in place as long as needed, and that pan-European deposit guarantees are some way out.
•The Bank of Japan released its latest policy meeting minutes, revealing that the BoJ is taking on aggressive easing, that it is not appropriate to be pessimistic on Japanese growth prospects, that the BoJ will act independently of the government, and that beating deflation, not devaluation, is its biggest task.
•Thursday, German Prime Minister Angela Merkel became the latest leader to criticize Japan’s currency policies, following central bankers such as the Bundesbank’s Jens Weidmann and the Fed’s James Bullard questioning the politicization of the exchange rate.
•S&P 500 futures rose 3.5 points to 1,495.30.
•The EUR/USD was was higher at 1.3432.
•Spanish 10-year government bond yields rose sharply to 5.163 percent.
•Italian 10-year government bond yields fell to 4.087 percent.
•Gold fell 0.07 percent to $1,668.80 per ounce.

Click here for more of Benzinga’s Top News stories.

Asian Markets

•Asian shares were mixed overnight led by significant strength in Japan following the release of the Bank of Japan minutes.
•The Japanese Nikkei Index rose a monstrous 2.88 percent and is up 8.4 percent in the past month while the Shanghai Composite Index fell 0.49 percent and the Hang Seng Index fell 0.08 percent.
•Also, the Korean Kospi declined 0.91 percent and Australian shares rose 0.52 percent on hopes that the RBA will cut rates at its next meeting.

European Markets

•European shares were stronger overnight on the back of the strong IFO survey despite British GDP in the fourth quarter missing estimates.
•The Spanish Ibex Index rose 0.66 percent despite a strong move higher in bond yields and the Italian MIB Index gained 0.53 percent.
•Meanwhile, the German DAX rose 1.09 percent and the French CAC rose 0.74 percent while U.K. shares rose 0.19 percent.

Commodities

•Commodities were mixed overnight with oil rising and copper futures rallying nicely.
•WTI Crude futures rose 0.39 percent to $96.32 per barrel and Brent Crude futures rose 0.1 percent to $113.42 per barrel.
•Copper futures rose 0.45 percent to $369.30 on hopes of an RBA rate cut.
•Gold was lower and silver futures were flat at $31.73 per ounce.

Currencies

•Currency markets saw euro strength and yen weakness in overnight trading following the BoJ minutes and the IFO survey release.
•The EUR/USD was higher at 1.3426 and the dollar rose against the yen to 90.85 but was capped by reports of a large option barrier near 91.75.
•Overall, the Dollar Index fell 0.16 percent on weakness against the euro and the Swiss franc despite strength against the pound, the yen, and the Canadian dollar.
•Also, the AUD/USD traded like a roller coaster over the past 48 hours or so as the pair popped on Chinese Manufacturing Data above 1.05 only to retreat lower on increased hopes that the RBA will cut rates.

Pre-Market Movers

Stocks moving in the pre-market included:

•Starbucks (NASDAQ: SBUX) shares rose 2.35 percent pre-market as the company reported stronger than expected earnings.
•Microsoft (NASDAQ: MSFT) shares fell 1.38 percent pre-market despite reporting earnings that beat estimates.
•Nokia (NYSE: NOK) shares fell 0.94 percent after declining over 8 percent Thursday following the company’s earnings release as the company suspended its dividend to preserve cash.
•Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) shares rose 0.3 percent pre-market as the stock closed in on its 52-week high at $97.73.

Earnings

Notable companies expected to report earnings Friday include:

•Halliburton (NYSE: HAL) is expected to report fourth quarter EPS of $0.61 vs. $1.00 a year ago.
•Honeywell (NYSE: HON) is expected to report fourth quarter EPS of $1.09 vs. $1.05 a year ago.
•Proctor and Gamble (NYSE: PG) is expected to report second quarter EPS of $1.11 vs. $1.10 a year ago.
•Weyerhaeuser (NYSE: WY) is expected to report fourth quarter EPS of $0.20 vs. $0.14 a year ago.
•Kimberly Clark (NYSE: KMB) is expected to report fourth quarter EPS of $1.35 vs. $1.28 a year ago.

Click here for more of Benzinga’s earnings news.

Economics

•On the economics calendar Friday, New Home Sales are the only relevant piece of data on the calendar ahead of the ECRI weekly index.
•In addition, Canadian CPI data is due out.

Good luck and good trading.

©2013 Benzinga | 24471 West Ten Mile Rd. | Southfield MI | 48033

DailyFX Morning Slices: Euro Rally Versus US Dollar on Pause While Yen Continues to Slide

Forex: Euro Rally Versus US Dollar on Pause While Yen Continues to Slide

Yesterday’s potential groundbreaking European Central Bank policy meeting produced a massive rally by high beta currencies and risk-correlated asset; however, there’s been little continuation of this move today. The US Dollar has emerged as the top performer thus far through Friday, as investors take profits and reconsider positioning as various major currencies hover near pivotal levels ahead of next week.

There are two main focuses in FX right now: will the Japanese Yen onslaught continue; and whether or not the Euro is at a fundamental turning point. With respect to the first point, Japanese Prime Minister Shinzo Abe has stepped up his rhetoric for the Bank of Japan to implement a +2.0% yearly inflation target, meaning that speculation about potential policy changes will continue to run high until the January 22 policy meeting. As the meeting approaches, however, it is worth pointing out that the Japanese Yen is simply a very oversold currency. In fact, according to the CTFC’s COT report, net non-commercial futures positioning is at its shortest level since July 2007; the short trade is very crowded. A look at the weekly chart shows that the USDJPY hasn’t posted a negative period since the first week of November. In fact, last week’s RSI was above 80 – the last time that happened was in December 2005, which produced a pullback of >500-pips. Accordingly: seeing the Japanese Yen bottom (xxxJPY pairs top) after the BoJ would not be surprising; the conditions are ripe for a significant turnaround.

In terms of the Euro, the shift in rhetoric by ECB President Mario Draghi from ‘this is a financial crisis’ to now ‘this is an economic-growth crisis’ signals what could be a shift in policy making. Indeed, with no governments requesting a rate cut, a period of calm has descended on Europe. With the US budget negotiations set to reenter the conversation in a few weeks, the Euro could be setting up for a solid 1Q’14.

Taking a look at European credit, there’s only been slight follow through after yesterday’s strong performance, which could be constraining the Euro. The Italian 2-year note yield has increased to 1.332% (+0.7-bps) while the Spanish 2-year note yield has increased to 2.055% (+4.3-bps). On the contrary, the Italian 10-year note yield has decreased to 4.129% (-1.9-bps) while the Spanish 10-year note yield has decreased to 4.859% (-1.2-bps); lower yields imply higher prices.

 

Best,

Christopher Vecchio, Currency Analyst
cvecchio@dailyfx.com

Quartz Daily Brief—Foreclosure abuse settlement, Xinhua IPO, table PCs, fusbands

Good morning, Quartz readers!

What to watch for today

US banks pay up for turfing people out of their homes. Federal regulators are expected to announce a $10 billion settlement with 14 banks over claims of foreclosure abuse. The banks would extend $6 billion to homeowners behind on their mortgages and in danger of losing their homes, while $3.75 billion would go to 4.4 million people who went through foreclosure in 2009 and 2010.

More bad news for Japan’s car makers. Analysts are expecting the fourth straight month of decline in Japanese domestic auto sales. In November they were down by 3.3% over the same period of the previous year. The decline in sales has been blamed on the end of subsidies for fuel-efficient cars, and adds to the woes of car makers already hit by falling exports because of a Japan-China diplomatic dispute. The fresh data come as word emerged that Toyota—Asia’s largest car maker—plans to hold off on building new factories for the next three years.

Reading Taiwan’s export tea-leaves. Smartphone geeks will parse December export data on electrical components for an update on trends in mobile device sales. In the fall of last year, Taiwan producers benefitted from a jump in stateside sales of such new products, including the iPhone 5. In November however, export growth slowed.

Obama to nominate Hagel for defense.  US President Barack Obama is expected to nominate former Nebraska senator Chuck Hagel, a Republican, for Secretary of Defense. Hagel, a veteran of the US war in Vietnam, may face stiff opposition from former Republican colleagues who think he is too unfriendly to Israel and too soft on Iran. Some officials say the president will also announce his nominee for a new CIA director to replace David Petraeus. Leading candidates are Michael Morell, the acting director, and and John Brennan, counterterrorism and homeland security adviser.

Draghi speaketh—in semi-secret. European Central Bank president Mario Draghi will speak about ”the political shape of the new Europe” in Berlin at 7:30 p.m. CET. The discussion will be held under Chatham House rules and no transcript will be published recounting the conversation at the conference, which is sponsored by German newspaper Die Welt. But it comes ahead of the ECB’s first rate decision of 2013, due Thursday Jan. 10.

Karzai comes to Washington. Afghan President Hamid Karzai is set to meet with President Obama in Washington early this week, as the US weighs whether to leave fewer troops than considered earlier after it pulls out of Afghanistan in 2014, as well as how quickly to bring home the 66,000 service personnel it currently has there.

While you were sleeping

Lenovo introduced its table PC. No, that’s not a typo. The Chinese computer maker showed off what it calls the first “interpersonal computer”, a 27-inch touchscreen machine that, laid flat, allows four people to use it together and responds to movements by up to 10 fingers at the same time. Targeted as a gaming device, the IdeaCentre Horizon Table PC runs Windows 8 with a multi-user interface on top, and will come packaged with air hockey paddles, joysticks and “e-dice” that communicate directly with the computer.

Xinhua planning an IPO. The internet news arm of Xinhua, China’s state news agency, has applied to launch a domestic initial public share offering but has not put a size on it.

China resumes nuclear construction. Workers broke ground on the 3 billion yuan ($476 million) nuclear power plant in the coastal province of Shandong, the first since Beijing halted development plans after the Fukushima nuclear accident in Japan. The Shandong plant is to be the first built with “fourth-generation” safety features, and should begin generating power by the end of 2017.

China backed off on yellow lights. The Ministry of Public Security will set aside plans to fine drivers who go through yellow traffic lights and instead issue warnings, after a public outcry over the new rule came into effect last week. Xinhua, the state news agency, said some drivers and netizens had complained that the rules ran “contrary to the laws of physics as vehicles travelling at normal speeds cannot stop within seconds of seeing a yellow light.”

Quartz obsession interlude

Naomi Rovnick on how the slumping demand for potash undermines the rationale of investors in commodities who assume Indian and Chinese demand will keep growing: ”Indian farmers tend to be extremely poor and their Chinese counterparts are not too wealthy either. They are bound to look for bargain alternatives to potash where they can. Successive food scandals and snafus in China, from poisoned milk to exploding watermelons, provide ongoing evidence of farmers choosing price over quality. China is also cutting back on potash strategically. Earlier this year it delayed new purchases to strengthen its negotiating position with suppliers; it eventually won a huge discount from Canadian producers.” Read more here.

Matters of debate

Ignore forecasts. Wall Street got pretty much everything wrong in 2012.

China to get a Jinping jolt. Nicholas Kristof’s case for Xi Jinping as a reformer, contrary to the common view of the new leadership as conservative.

How much government debt is too much? Nobody knows.

The US should repeal the Second Amendment. The latest on the US gun quandary.

The e-book moment is over. Why the printed book is proving resilient.

Surprising discoveries

Japan tries to play it cool through TV. The government’s “Cool Japan Fund” is supporting the launch of TV channels around Southeast Asia to promote Japanese culture and products, in an attempt to catch up to South Korea’s newfound cultural cachet.

So that’s what a cat burglar is. Brazilian prison guards apprehended a white cat with drill bits, hacksaw blades, a mobile phone and other paraphernalia taped to its body. ”It’s tough to find out who’s responsible for the action as the cat doesn’t speak,” one of them explained helpfully to the press.

Twitter doesn’t play nice. The microblogging service is making it tough for researchers to parse massive Tweet troves.

POSSLQs, fusbands, mujeres and baby-daddys. The US still doesn’t know what to call people with partners they’re not married to.

Our best wishes for a productive day. Please send any news, comments, and giant tablets to hi@qz.com. You can follow us on Twitter here for updates during the day.

Thursday Gold +9.52 USD -0.560 NAS +14.14 CRB +1.97 DOW +80.75 S&P +10.41

E X T R E M E   M A R K E T   C O M M E N T A R Y
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STOCK INDEXES & MARKETS http://quotes.ino.com/exchanges/?c=indexes+

GENERAL STOCK MARKET COMMENT: The U.S. stock indexes closed
firmer again today. Stock index bulls still have the
overall near-term technical advantage. At Thursday’s
monthly European Central Bank press conference, ECB
president Mario Draghi reiterated the ECB is prepared to
sop up the excess debt following treasury auctions of
stressed European Union countries. He also pledged full ECB
support for the Euro currency. Draghi’s comments boosted
the Euro currency, which in turn pressured the U.S. dollar
Thursday. At the monthly ECB meeting, the central bank kept
its interest rates unchanged. In other news Thursday, the
Bank of England left its interest rates unchanged, as
expected. China is on holiday this week, celebrating Golden
Week. On the geopolitical front, fresh violence in Syria
this week and rising tensions between Iran and Turkey
pushed the market place a just a bit more toward risk
aversion Thursday. Reports said Iranian and Turkish troops
were mobilizing near their shared border. There was also
protesting in Iran this week due to the severe devaluation
of the Iranian currency recently. The release Thursday
afternoon of the FOMC minutes from the last Fed meeting
contained no major surprises and did not significantly
impact the market place. Now, Friday’s important U.S. jobs
report is squarely in the sights of traders. The key non-

farm payrolls component of the jobs report is seen rising
by 118,000 in September.

_____________________________________________________________________

INTEREST RATES http://quotes.ino.com/exchanges/?c=interest

December U.S. T-Bonds closed down 31/32 at 148 23/32 today.
Prices closed near the session low and saw profit taking.
Prices also saw a mildly bearish downside breakout from the
recent sideways trading range. The bulls still have the
slight overall near-term technical advantage but did fade
today.

ENERGY MARKETS http://quotes.ino.com/exchanges/category.html?c=energy

ENERGIES: November crude oil closed up $3.53 a barrel at
$91.66 today. Prices closed near the session high today and
gained back most of Wednesday’s big losses. Some fresh
tensions in the Middle East today prompted short covering
and bargain hunting in the crude oil market. Bulls and
bears are now back on a level near-term technical playing
field. A three-week-old downtrend is still in place on the
daily bar chart.

November heating oil closed up 1,115 points at $3.1768
today. Prices closed nearer the session high and hit a
fresh three-week high today. Bulls still have the overall
near-term technical advantage and regained upside momentum
today.

November (RBOB) unleaded gasoline closed up 1,375 points at
$2.9375 today. Prices closed nearer the session high today
and closed at a fresh six-month high close. There were more
problems at U.S. refineries today that helped drive
gasoline futures sharply higher. Bulls have the solid
overall near-term technical advantage and regained upside
momentum today.

November natural gas closed up 1.6 cents at $3.411 today.
Prices closed near mid-range today. Bulls still have upside
near-term technical momentum and have the near-term
technical advantage.

CURRENCIES http://quotes.ino.com/exchanges/category.html?c=currencies

CURRENCIES: The December Euro
currency closed up 117 points at 1.3026 today. Prices
closed nearer the session high today and hit a fresh two-

week high. The Euro bulls have the solid overall near-term
technical advantage and gained fresh upside momentum today.

The December Japanese yen closed up 4 points at 1.2745
today. Prices closed near mid-range today and hit another
fresh two-week low early on. Bulls still have the slight
overall near-term technical advantage but need to show
power soon. There is some stiff overhead resistance that
has stalled recent rallies and such appears to be the case
again.

The December Swiss franc closed up 96 points at 1.0757
today. Prices closed nearer the session high and hit a
fresh two-week high today. The Swissy bulls have the
overall near-term technical advantage and gained fresh
upside momentum today.

The December Canadian dollar closed up 78 points at 1.0181
today. Prices closed nearer the session high today. Bulls
have the overall near-term technical advantage. Prices have
been trending lower for three weeks, however.

The December British pound closed up 111 points at 1.6181
today. Prices closed nearer the session high today. Bulls
have the overall near-term technical advantage and regained
some upside momentum today.

The December U.S. dollar index closed down 60 points at
79.46 today. Prices closed nearer the session low today.
The bears have the solid overall near-term technical
advantage and gained fresh downside momentum today. Prices
are in a 10-week-old downtrend on the daily bar chart.

PRECIOUS METALS http://quotes.ino.com/exchanges/?c=metals

METALS: December gold futures closed up $13.50 an ounce
at $1,793.60 today. Prices closed nearer the session high
today and hit another fresh seven-month high. The key
“outside markets” were fully bullish for gold today as the
U.S. dollar index was sharply lower and crude oil prices
were sharply higher. Gold bulls have the solid overall
near-term technical advantage. Prices are in a three-month-

old uptrend on the daily bar chart.

December silver futures closed up $0.029 an ounce at $34.98
today. Prices closed nearer the session high today and
closed at a fresh seven-month high close today. The key
“outside markets” were in a fully bullish posture for
silver today as the U.S. dollar index was sharply lower and
crude oil prices were sharply higher. Silver bulls are in
firm near-term technical command. Prices are in a 10-week-

old uptrend on the daily bar chart.

December N.Y. copper closed up 25 points at 378.65 cents
today. Prices closed near mid-range again today. The key
“outside markets” were in a fully bullish posture for
copper today as the U.S. dollar index was sharply lower and
crude oil prices were sharply higher. Copper bulls have the
overall near-term technical advantage. Prices are in a two-

month-old uptrend on the daily bar chart.

FOOD & FIBER http://quotes.ino.com/exchanges/category.html?c=food

SOFTS: March sugar closed up 7 points at 21.65 cents
today. Prices closed nearer the session high today and hit
a fresh two-month high. The key “outside markets” were fully
bullish for the sugar market today, as the U.S. dollar
index was sharply lower and crude oil prices were sharply
higher. Sugar bulls have upside near-term technical
momentum and have the slight near-term technical advantage.

December coffee closed down 625 points at 174.80 cents.
Prices closed nearer the session low today. The key
“outside markets” were fully bullish for the coffee market
today, as the U.S. dollar index was sharply lower and crude
oil prices were sharply higher. Yet, coffee prices sold off
sharply, which is a bearish clue. Coffee bulls and bears
are now back on a level near-term technical playing field.

December cocoa closed down $9 at $2,407 a ton. Prices
closed nearer the session low today and hit another fresh
six-week low. The key “outside markets” were fully bullish
for the cocoa market today, as the U.S. dollar index was
sharply lower and crude oil prices were sharply higher.
Yet, cocoa could make no gains, which is a bearish clue.

Cocoa bulls are fading. Prices are in a four-week-old
downtrend on the daily bar chart.

December cotton closed down 16 points at 72.00 cents today.
Prices closed nearer the session low today. The key
“outside markets” were fully bullish for the cotton market
today, as the U.S. dollar index was sharply lower and crude
oil prices were sharply higher. Yet, cotton could muster no
gains, which is a bearish clue for cotton. Cotton bears
have the near-term technical advantage.

November orange juice closed up 45 points at $1.1645 today.
Prices closed nearer the session high today in quieter
trading. Bears have the overall near-term technical
advantage.

November lumber futures closed down $2.90 at $274.60 today.
Prices closed nearer the session low. Bulls and bears are
on a level near-term technical playing field, but the bulls
are fading.

GRAINS http://quotes.ino.com/exchanges/category.html?c=grains

GRAINS: December corn futures were up 3 cents at 7.59
3/4 in late trading today. Prices were near mid-range. The
key “outside markets” were fully bullish for the corn
market today, as the U.S. dollar index was sharply lower
and crude oil prices were sharply higher. Prices remain in
a seven-week-old downtrend on the daily bar chart, but now
just barely. The corn bulls have the slight overall near-

term technical advantage.

November soybeans were up 20 3/4 cents at $15.52 1/2 a
bushel in late trading today. Prices were near mid-range
and saw some short covering and bargain hunting. The key
“outside markets” were fully bullish for the soybean market
today, as the U.S. dollar index was sharply lower and crude
oil prices were sharply higher. Bulls and bears are now
back on a level near-term technical playing field.

December soybean meal was up $6.30 at $470.70 in late
trading today. Prices were near mid-range and saw short
covering and bargain hunting. Meal bulls and bears are back
on a level near-term technical playing field. However,
prices are still in a four-week-old downtrend on the daily
bar chart.

December bean oil was up 80 points at 51.53 cents in late
trading today. Prices were nearer the session high and saw
short covering and bargain hunting after hitting a 3.5-

month low on Wednesday. The key “outside markets” were
fully bullish for the bean oil market today, as the U.S.
dollar index was sharply lower and crude oil prices were
sharply higher. Bean oil bears still have the overall near-

term technical advantage.

December Chicago SRW wheat was down 2 3/4 cents at $8.70
1/4 in late trading today. Prices were nearer the session
low. The key “outside markets” were fully bullish for the
wheat market today, as the U.S. dollar index was sharply
lower and crude oil prices were sharply higher. Yet, wheat
could muster no gains, which is a bearish clue.

December K.C. HRW wheat was down 1/2 cent at $8.90 1/2 in
late trading today. Prices were nearer the session low
today. Trading remains in a choppy and sideways trading
range at higher price levels. The bulls still have the
slight overall near-term technical advantage.

LIVESTOCK http://quotes.ino.com/exchanges/?c=livestock

LIVESTOCK: December live cattle closed down $0.32 at
$125.70 today. Prices closed nearer the session low today.
The key “outside markets” were fully bullish for the cattle
market today, as the U.S. dollar index was sharply lower
and crude oil prices were sharply higher. Yet, cattle could
not rally, which is a bearish clue. Cattle bears have the
overall near-term technical advantage.

November feeder cattle closed down $0.97 at $145.82 today.
Prices closed near the session low and scored a bearish
“outside day” down on the daily bar chart. Bears have the
near-term technical advantage.

December lean hogs closed up $0.17 at $76.05 today. Prices
closed near the session low. Hog market bulls have the
slight overall near-term technical advantage. A four-week-

old uptrend is in place on the daily bar chart.

______________________________

______________________________________________

E X T R E M E   F U T U R E S
____________________________________________________________________________

Updated every 10 minutes around the clock.
More at http://quotes.ino.com/analysis/extremes/futures/

WINNERS

BCX.U13 SOYBEANS CRUSH INDEX Sep 2013               71.00      5.75  +8.81
HO.Z12  HEATING OIL Dec 2012                       3.1604    0.1149  +3.77
GI.V12  S&P GSCI Oct 2012                          666.85     17.85  +2.75
LH.V12  LEAN HOGS Oct 2012                         81.800     1.775  +2.22
BO.N13  SOYBEAN OIL Jul 2013                        52.62      0.74  +1.42
YK.X12  SOYBEAN (MINI) Nov 2012                   1551.50     19.75  +1.29
S.X12   SOYBEANS Nov 2012                         1551.50     19.75  +1.29
CSI.X12 SOYBEAN-CORN PRICE RATIO Nov 2012           2.050     0.026  +1.28
SM.V12  SOYBEAN MEAL Oct 2012                       470.8       5.3  +1.14
RV      RUSSELL 1000 VALUE INDEX MINI              721.95      6.67  +0.93

LOSERS

BCX.Z12 SOYBEANS CRUSH INDEX Dec 2012                46.0      -2.0  -4.17
LB.K13  LUMBER (RANDOM LENGTH) May 2013             304.1      -5.4  -1.75
KW.N13  HARD RED WINTER WHEAT Jul 2013             869.75     -6.75  -0.77
LH.J13  LEAN HOGS Apr 2013                         88.075    -0.675  -0.76
FC.F13  FEEDER CATTLE Jan 2013                    148.500    -1.075  -0.72
LC.V12  LIVE CATTLE Oct 2012                      122.325    -0.750  -0.61
US.Z12  T-BONDS Dec 2012                        148.81250  -0.87500  -0.58
W.H13   WHEAT Mar 2013                             879.75     -4.25  -0.48
ED.M18  EURODOLLAR Jun 2018                        97.680    -0.075  -0.08
C.H13   CORN Mar 2013                              757.25     -0.25  -0.03

———————————————————————

Free Video Seminar – “Spotting breakouts that lead to trend reversals”

http://broadcast.ino.com/redirect/?linkid=1952

———————————————————————
____________________________________________________________________________

E X T R E M E   S T O C K S
____________________________________________________________________________

Updated every 10 minutes around the clock.
More at http://quotes.ino.com/analysis/extremes/stocks/

WINNERS

CLRX    COLLABRX                                     5.26      1.47  +38.79
VRNG    VRINGO                                       5.15      0.85  +19.77
INSM    INSMED                                     6.3299    0.9899  +18.54
SLOU    SLOUD                                        6.25      0.90  +16.82
RLOG    RAND LOGISTICS                              7.665     0.835  +12.23
ASPS    ALTISOURCE PORTFOLIO                       114.10     11.41  +11.11
CYCC    CYCLACEL PHARMACEUTICALS                   5.3999 0.5099  +10.43
XYIGY   XINYI GLASS HOLDINGS                        10.06      0.86  +9.35
IMH     IMPAC MTG HOLDINGS                         10.600     0.900  +9.28
SO      SOFTCHOICE CORP                             12.80      1.05  +8.94

LOSERS

NUVA    NUVASIVE                                    15.19     -7.43  -32.85
INFA    INFORMATICA                                 26.03     -7.60  -22.60
SRPT    SAREPTA THERAPEUTICS                        37.85     -7.08  -15.76
NWBOD   NORTHWEST BIOTHERAPEUTICS                    5.80     -1.05  -15.33
HMSY    HMS HOLDINGS CORP                           27.79     -4.45  -13.80
ISCA    INTL SPEEDWAY                               25.51     -2.94  -10.33
WLFCP   WILLIS LEASE FINANCE                         9.97     -0.92  -8.45
HOD     HB NYMEX CL BEAR                             5.77     -0.50  -7.97
BONT    BON-TON STORES                            11.0201   -0.9399  -7.86
GMED    GLOBUS MEDICAL                              17.00     -1.35  -7.36
_____________________________________________________________________

T H A N K   Y O U
_____________________________________________________________________

TITOLI SOTTO LA LENTE

Le Borse europee sono indirizzate verso un avvio positivo. I future sugli indici di Londra, Parigi e Francoforte salgono dello 0,4%.

Ieri sera a New York il Dow Jones è salito dello 0,09%, S&P +0,3%, Nasdaq +0,4%.

La Borsa di Tokio ha chiuso stamattina il rialzo dello 0,8%, interrompendo un ciclo di quattro sedute negative consecutive. Hong Kong è invariata, Seul scende dello 0,1%, Mumbai +0,9%. Ancora chiusa per festività la Borsa di Shanghai.

Gli investitori attendono i nuovi dati macroeconomici sensibili sull’economia americana, in particolare domani quelli sull’occupazione. Oggi parlerà Mario Draghi al termine del Consiglio direttivo della Bce. L’interrogativo principale è se e quando la Spagna chiederà l’aiuto per calmierare gli spread.

L’euro è scambiato a 1,293 contro il dollaro, da 1,290 di ieri sera.

Il petrolio è drasticamente caduto nella notte: Wti a 88,1 dollari al barile (-4%), Brent a 108,5 dollari (-3%).

Oro al nuovo massimo dal luglio 2011 a 1.781 dollari l’oncia.

Fra i titoli che potrebbero muoversi in Piazza Affari, segnaliamo:

Lottomatica (LTO.MI): la controllata GTech ha vinto la gara per gestire la lotteria dello Stato dell’Indiana (Usa) per 15 anni.

Eni (ENI.MI): Credit Suisse ha alzato il target price a 21,2 euro da 20,5 euro. Confermato il giudizio outperform.

Fiat Industrial (FI.MI): la fusione con la controllata statunitense CNH potrebbe subire dei ritardi.

Saipem si è aggiudicata dalla compagnia petrolifera norvegese Statoil un contratto della durata di tre anni da 550 milioni di dollari che estende l’utilizzo del mezzo di perforazione semisommergibile Scarabeo 5 per attività di perforazione nella parte norvegese del Mare del Nord.

MONETARIO – Cosa succede oggi, giovedì 4 ottobre

* Riflettori puntati sulla Spagna. Il Tesoro di Madrid offre oggi 3-4 miliardi di titoli a 2, 3 e 5 anni. La speculazione sull’imminenza di una richiesta di aiuti finanziari da parte della Spagna hacaricato di attese l’asta di oggi. Il direttore generale del Fondo Monetario Internazionale, Christine Lagarde, ha dichiarato, in un’intervista a Le Figaro, che l’organizzazione è pronta ad aiutare Madrid in diversi modi, se venisse sollecitata in tal senso. In calendario anche un’asta di titoli di stato francesi. Il Tesoro di Parigi offre 7-8 miliardi di Oat a 6, 10 e 30 anni.

* A Lubiana, in Slovenia, si riunisce il consiglio della Bce. Scontata la conferma dell’attuale livello dei tassi, il focus sarà concentrato sulla successiva conferenza stampa. Il presidente dell’istituto di Francoforte, Mario Draghi, potrebbe tornare sul tema del nuovo programma di acquisto bond. In arrivo anche la decisione sui tassi di Bancad’Inghilterra.

* Il risultato finale dello stress test dell’Eba conferma il superamento del requisito di un Core Tier 1 ratio pari almeno al 9% per Unicredit (UCG.MI), Intesa Sanpaolo (ISP.MI), Ubi (UBI.MI) e Banco Popolare (BP.MI), mentreper Mps (BMPS.MI) rimane una carenza di capitale per 1,73 miliardi (news).

* In un’intervista al quotidiano ‘La Stampa’ il presidente dell’Eba Enria valuta positivamente le mosse attuate negli ultimi mesi dalle banche italiane perrafforzare il proprio capitale (news) .

* Si allungano i tempi di un accordo tra la Grecia e i creditori internazionali in merito al pacchetto delle misure di rigore richieste ad Atene per ricevere il versamento della prossima tranchedi aiuti internazionali. A detta di funzionari, si sono ridotte le speranza di colmare il gap prima del meeting dell’Eurogruppo della prossima settimana.

* Demetris Christofias, presidente di Cipro, ha detto che Nicosia non intende accettarele raccomandazioni contenute nella bozza presentata dalla troika, in particolar modo quelle relative alla vendita di asset statali o la deindicizzazione dei salari all’inflazione (news)

* Un appoggio esplicito a Grecia, Spagna e Italia è arrivato dal segretario generale dell’Ocse, Angel Gurrìa, che ha detto che i paesi europei in difficoltà meritano di essere sostenuti perché hanno messo in atto politiche di austerità. (news). E restando ai paesi periferici della zonaeuro, ieri il ministro delle Finanze portoghese ha annunciato che il Pil nel 2013 scenderà dell’1%. (news)

* Giornata densa di appuntamenti sul fronte governativo italiano. A Roma, il presidente del Consiglio, Mario Monti, incontra”Intergruppo parlamentare per l’Agenda urbana”. Ma il clou sarà la riunione del Consiglio dei ministri per varare il decreto sviluppo. In agenda anche il decreto legge in materia di enti locali. (news)

* Attenzione anche sugliinterventi dei ministri Vittorio Grilli e Corrado Passera al Question time mentre Elsa Fornero, titolare del Welfare, è attesa a Lussemburgo per il Consiglio degli affari sociali.

* In Giappone comincia la riunione di politica monetaria della Bancacentrale. La BoJ, che già il mese scorso ha ampliato il suo programma di acquisto asset, nelle ultime settimana è stata al centro di forti pressioni politiche perchè offra ulteriore stimolo all’economia.

* E proprio la speculazione su un nuovoallentamento a sorpresa da parte dell’istituto centrale nipponico – escluso dagli analisti – spinge lo yen ai minimi da due settimane sul dollaro. Il biglietto verde passa di mano a 78,55 da 78,46 dell’ultima chiusura <JPY=>. Yen debole anchesull’euro, che sale a 101,56 da 101,27 <EURJPY=>. Euro in rialzo su dollaro a 1,2928 da 1,2904 <EUR=>.

* Dopo il brusco calo di ieri, innescato dai timori di un rallentamento della domanda mondiale, a fronte del rallentamento dell’attivitàeconomica messo in evidenza dai dati cinesi, greggio in recupero sulle piezza asiatiche. I future sul Brent avanzano di 62 centesimi a a 108,79 dollari il barile <LCOc1>; i derivati del Nymex guadagnano 27 centesimi il barile a 88,41 dollari.

*Chiusura poco variata per i Treasuries Usa, in attesa della pubblicazione dei verbali dell’ultimo meeting della Federal Reserve e della pubblicazione dei dati sull’occupazione. Il decennale benchmark ha chiuso stabile, tasso invariato all’1,63% <US10YT=TWEB>.

DATI MACROECONOMICI ITALIA
* L’Istat pubblica i dati dei Pil 2009, 2010 e 2011.

USA
* Il calendario macroeconomico prevede il dato sulle richieste di sussidi alla disoccupazione settimanali, stimate a 370.000 unità. In agenda anche gli ordini di beni durevoli e gli ordini all’industria di agosto.

BANCHE CENTRALI USA
* A Washington, la Fed pubblica i verbali della riunione dei giorni 12 e 13 settembre.

* A Memphis, intervento di JamesBullard, presidente della Fed di St.Louis.

ZONA EURO
* A Francoforte, intervento di Joerg Asmussen, membro dell’esecutivo della Bce.

5 Economic Keys Driving Stocks to New Highs by Kevin Cook – 09/29/2012

Since the May correction, the market has scaled a big wall of worry that kept many investors on the sidelines and put lots of bears in the trading ICU.

Central bank words from both sides of the Atlantic helped propel the S&P 500 from 1300 to 1400 in June through August. And then central bank actions and short-covering launched us to 1,475 in mid-September.

But last week, I made the technical case for new highs this year because the charts said big investors must actually like the fundamentals too – not just unlimited QE.

Now that the first significant pullback since July is in progress, it’s time to look at the five fundamental drivers that will motivate money managers to buy the dips.

1) Europe on the Mend

Europe is definitely in a recession and no doubt will remain so for all of next year. But the heavy lifting required to backstop their sovereign debt crisis is finally occurring. Against the wishes of the old guard inflation hawks of Germany’s Bundesbank, the ECB is slowly evolving to become a lender of last resort.

When Mario Draghi took office one year ago, he ridiculed those who suggested this was the destiny of Europe’s central bank. But he and more moderate members of the ECB have recognized that the “irreversibility” of the euro is paramount and they will now do whatever it takes to save their grand experiment.

2) US Economic Resiliency

The big mistake that big investors made in 2010 and 2011 was in believing that an economy approaching stall speed was one headed toward recession. But after two years of sending stocks into steep corrections near 20%, they finally realized that corporate earnings were still growing despite a slew of problems:

• 1% GDP
• Debt-ceiling debacle
• Euro meltdown
• China slowdown
• 8% unemployment

What’s the fundamental case for a US economy that can continue to see corporate earnings grow? Some themes are very persistent, and some are just being realized:

• Record low interest rates and corporate cash, which make stocks the place to be
• Housing bottoming and brewing with animal spirits, which predicts job creation
• While 45% of S&P profits come from abroad, the impact of Euro-China has been small and the worst was priced-in at S&P 1,300
• S&P earnings estimates for 2013 are slowly inching down from above $110 toward $105, and that makes S&P 1,450 trade under 14X. Still very attractive!
• Energy sector is in a “sweet spot” feedback loop where booming domestic exploration and production raises supply, keeps prices stable and creates jobs
• US innovation creates the future – and tomorrow’s profits – from technology, biotech and high-tech manufacturing industries to financials, retailing and energy

3) Fiscal Cliff Navigable

What are the chances that Congress comes together and works out the tax and spending compromises necessary to reduce the deficit but not derail the economy? That’s a scary question to even think about. Some of the worst estimates are a 5% blow to GDP if all the tax cuts expire and all the automatic spending cuts go into effect.

In May, I also thought this brick of uncertainty in the wall of worry was too heavy and unpredictable to ignore. But the market began shaking it off this summer, almost as if investors could imagine the worst impact and then begin seeing all the ways it could be avoided. Either that, or they are waiting for more visibility on the election before the “fiscal cliff” hand-wringing returns.

Though we are seeing some impact on business spending and confidence in the second half of this year, this is not affecting investors who are discounting fundamentals out into the first half of next year. I think the market has got this right and that our Congress men and women will not jeopardize the economy again for political gain.

4) China Not So Bad

We’ve been hearing it for a year now. When Chicken Little and the Boy Who Cried Wolf aren’t crying about Europe or US manufacturing, they are wailing about the hard-landing in our biggest trading partner. There’s some substance to their complaints, with Caterpillar and FedEx feeling the global slowdown and rumors of Chinese economic stimulus coming this year being sorely over-exaggerated.

But the truth is that China has engineered a soft landing. It’s still in progress because they are still concerned about over-heated property markets. And a big stimulus package seems inevitable for a country with hundreds of millions of citizens migrating to new cities for jobs and housing.

China cannot afford to slip much below 7% growth and word is that this package is on the runway, ready for take-off. What are they waiting for? The new regime to take office and hit the launch button with a chunk of their $3 trillion plus in foreign exchange reserves.

5) Central Banks All-In

Finally, we have to talk a little about QE. I started this piece suggesting that part of the summer rally was fueled by expectations for central bank actions on both sides of the pond. And you may have noticed that these did not unfold into “sell the news” events.

Why? Because market players needed to know that central banks were all-in on the war against deflation here and banking weakness over there. There was doubt over whether the Fed and the ECB could both overcome political entanglements and criticism to win the long-term economic war.

The most important banks in the world have spoken and acted. We can only hope their work has enough momentum to get some inflation cooking. The alternative is a Japan-style zombie economy.

Let’s say that I am far too optimistic and wrong about each of these drivers to some degree. Guess what? Stocks can still go higher because Mr. Market still climbs walls of worry and will always fool the most investors.

And even if a bigger market top is building, we aren’t there yet. S&P 1500, here we come.

Good Investing,

Kevin Cook