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For the second day in a row, the market ended the day in a mixed fashion. The Dow, buoyed by strong performance in Coca-Cola, was up fractionally while the other two major indices were lower modestly. The news on the economic front was more or less in line with expectation. Trade Balance for April came at a deficit of $60.9 billion, up from $56.5 billion in the previous month. However, after adjusting the numbers for inflation, the trade deficit shrank to $46.9 billion, the lowest in almost 5 years. It looks like narrowing trade deficit will give the economic another boost in the second quarter.
Actually some of the most significant news these days was outside the equity market. Late yesterday, the Fed Chairman Bernanke said in a speech to a Boston Fed conference that “central bankers will strongly resist an erosion of long-term inflation expectations”. The statement essentially means that the Fed may raise the interest rates much sooner than what the market is currently expecting. As a result of his speech, the US dollar jumped by more than 1% against the euro(apparently there is a race between the ECB president Trichet and Bernanke when it comes to who will be the first to increase the interest rate as similar comments by Trichet last week boosted the euro almost 3% back then). Treasuries and commodities were two unfortunate victims of Dr. Bernanke’s speech. The yields on 2-year treasury notes jumped another 21 bps following yesterday’s 33 bps advance, marking it the biggest 2-day jump in at least 20 years. Traders are now betting more than 50% chance that the Fed is going to raise interest rates as early as its August meeting. Gold price dropped almost 3% following a stronger dollar and crude oil had a volatile session before finishing the session lower by another 2%. The VIX index changed little from yesterday. The market breath continued to be negative.
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