The equity market in the US continued to move upward with the S&P 500 Index notching a 5 straight up day settling up 2 points to 1147. The market has continued to encounter low volatility at the VIX which measure implied volatility in the market dropped to a 12 month low close to 16%. Prior to the US trading session, traders were greeted with some strong export news out of China.
The 17.7% year-over-year surge in Chinese exports was better than expected and supports commodities and commodity producers in the Asian currency complex. The real importance of the strength of the Chinese economy is not so much its exports, but the import side. Imports surged almost 56% year-over-year. Imports from Australia and Malaysia, for example, have doubled. The strength of Chinese imports will help support numerous economies in the region and commodity producers including South Africa and Brazil. The news pushed Copper and Gasoline prices to new 12 month highs, but as the day progressed, ,most commodities pulled back.
With today’s gap higher, the Australian dollar has rallied 6.8% since a few days before Christmas. The gap itself could potentially be important. Gap theory suggests exhaustion after a brilliant rally suggesting a near-term reversal, a breakaway suggesting a near-term acceleration, or a normal gap that is filled in the near-term. Two of the three suggest at least a near-term pullback. With Employment in Australia on Thursday, traders might look for the gap to fill prior to taking long positions.
Venezuela effectively devalued the Bolivar from 2.15 to 2.60 per USD for essential imports of food, medicine, and machinery. A second rate of 4.3 per dollar was set for non-essential imports even as the parallel floating market remains in place, creating a three-tiered market. Since the last devaluation in March 2005, cumulative inflation has been about 165% through Dec 2009, so the rationale for devaluation is there. Indeed, devaluation was a regular event for Venezuela through much of the 1990s and early 2000s, and this almost 5-year period of exchange rate stability was actually quite unusual. The bottom line is the devaluation gives the government twice as many bolivars to spend from every dollar of oil it exports.
After the bell, Alcoa announce earnings to kick of the 4th quarter earnings season. The Aluminum giant beat on the top line, but missed on the bottom line. Alcoa was off 5% in after hours trading.