Update 1:05 p.m.:

Unlike yesterday, there was no late-day fade in the euro today to drag stocks down.  The euro went out at the high of the day, 1.214, and the Dow did likewise closing at its high of +273 points. 

Bond prices had nowhere to go but down in this environment.  The 2-year closed at .78%, the 5-year 2.11%, and the 10-year lost well over a point to close at 3.32%.  The 30-year bond was down over two-points to yield 3.32%.  This is the first week of auctions in quite a long time when it appears that buyers will all end up with losses.  Of course these auctions also came at the lowest yields in months. 

Retail Sales will be out early tomorrow.  Economists are forecasting a small gain of .2%  But of course this won't matter any more than today's weak jobless claims number mattered.  It's still a euro game.  Several times today on CNBC reporters would say the market is rallying on strong economic data.  You'll probably read headlines along the same theme.  They are either lying or ignorant.  I believe it's the latter.  There was no strong data today.  It was purely and simply a euro trade.  That's the way it's been for days and will likely continue to be so.

Update 11:00 a.m.:

The Dow traded down to +160 from the +250 high as the euro slipped back below 1.21.  But the euro has rallied back above 1.21 and this has carried the Dow back to +215. 

The timing of the rebound in stocks wasn't good for bond traders.  The rally in stocks started shortly after the 30-year bond auction results were released.  (see below)  Dealers and trading accounts that bought bonds in the auction started selling.  The 2-year is now .78%, the 5-year 2.10%, and the 10-year is now down over a point to yield 3.30%.  The 30-year bond is now down almost two full points to yield 4.23%.  That issue was auctioned at 4.18%. 

With currency traders in charge of all markets, there is no safe place. 

Update 10:05 a.m.:

The rally in stocks didn't deter buyers of the Treasury's 30-year bond auction.  The auction results were in line with previous 30-year auctions in every way.  Bond prices remain lower on the day though with stocks holding higher.  The 2-year is .75%, the 5-year 2.05%, and the 10-year remains lower by 19/32s to yield 3.25%.  The 30-year bond was 4.18% heading into the auction and is now 4.17%.

The Dow is now up 166 points.  That's about 80 points off the high of the day.  That modest retreat is of course due to the fact  the euro has retreated from its earlier higher.  The euro is down from 1.213 but is still higher on the day at 1.208.
   
Update 7:35 a.m.:

As the euro surged to 1.213 the Dow obediently followed its master and hit +250.  The euro is down just a touch from the high, and the Dow is now up 219 points. 

The 2-year is .75%, the 5-year 2.04%, and the 10-year is down 19/32s to yield 3.25%.  This is not the best atmosphere for the 30-year bond auction today, but dealers are probably happy to see the slightly higher yields.  I think it is noteworthy that the 2-year is holding steadily at .75%, despite the glee in the stock market.  
 
Update 6:35 a.m.:

In pre-opening trading Dow futures were higher by 76 points on a rally of the euro to 1.205.  (see below)  By the time the market opened the euro broke above 1.21, and the Dow has traded to +175 points in the first five minutes. 

Bond prices are continuing lower.  The 2-year is .75%, the 5-year 2.05%, and the 10-year is lower by 20/32s to yield 3.25%.  The 30-year bond is down a full point to yield 4.17%.

As mentioned below, insanity is full bloom.

Morning Comment:

The stock market is truly a one-trick pony.  The Dow surged to +124 points on a rebound in the euro yesterday.  But the Dow fell to a close of -40 on the fall of the euro back below 1.20 in late trading yesterday.  This morning Dow futures are higher by 76 points strictly because the euro is now back above 1.20 at 1.205 vs. the dollar.  This is without a doubt absurd and tells you there are no investors active in the market.  This is nothing more than video game. 

Weekly Jobless Claims just refuse to come down.  Economists have been waiting for weeks for claims to fall toward 400k to give confirmation that private payrolls are ready to grow on a consistent basis, but claims rose again to 456k.  Historically, job growth does drag at the beginning of a recovery.  Most economists believe the recession ended in June of last year.  If so, we’re now one-year down the road with no real recovery in the job market.  We’ve only just stopped the bleeding.  There is no way an economic recovery can be healthy and long-lasting without a job recovery. 

But of course this doesn’t matter to the any market today, including bonds.  Bond prices remain lower on the expected rally in stocks.  The 2-year is .75%, the 5-year 2.02%, and the 10-year is down 12/32s to yield 3.22%.  The 30-year bond is down 22/32s to yield 4.15%.  The Treasury will auction $13 billion in 30-year bonds today. There is always a risk these auctions won’t go well, but there seems to be little reason to expect any big surprises out of this one. 

Yesterday morning traders thought they had the bull by the horns again only to get gored late in the day by the euro.  But traders are ready to play the same game today.  What’s Einstein’s definition of insanity?   Doing the same thing over and over again and expecting different results.  Rings a bell.   

I’ll be back with updates.

Dwight Johnston