Beige Book Disappoints, U.S. Equities Rise In Anticipation Of Bernanke’s Congress Testimony June 7, 2012:
Stocks gapped-up in pre-market trading and continued to rise today as traders jumped out of short positions and became believers that the Fed as well as other central banks around the world would not remain idle and allow the current global economic downtrends to gain momentum.
The U.S. Federal Reserve Chairman Ben Bernanke is set to give testimony tomorrow to Congress and many economists expect he will be lenient towards adding more liquidity to the U.S. financial system.
Bernanke is already getting heat from Democrats and some economic forecasters for not moving sooner. We don’t expect Bernanke to give a “glass half full” view of the economy in an environment where GDP and jobs have clearly slowed. Jobs growth has been dismal for the last three months and we would not expect the Fed Chairman to appear surprised in front of Congress.
Expect the Fed or Congress to mention several data points that show economic contraction and most importantly the U.S. jobs trends as opposed to the Beige Book which was released today and car sales data. Weakness overseas is even clearer compared to last year with China and Europe economic growth slowing.
If Bernanke disappoints with news about added liquidity or QE3, many market participants who decided to remain in short positions (or could not get out of them quick enough), will double up on their bets which will bring the market beneath support levels and the next range for equities is extremely low. The results of tomorrow’s testimony largely depend on how economically prepared Democrats are to push their agenda which is to keep the economy moving forward – even though many policies they espouse have been viewed as unfriendly to business.
The S&P rose 29.63 points to 1,315 rising by 2.3 percent and cleared downtrends that began after the U.S. government reported only 69,000 jobs were added in the month of May 2012 on Friday.