Why Is Wall Street Surging Again?

Last week, after Chair Warsh’s FOMC press conference, we argued that the latest policy update was likely to support stocks in the near term while putting pressure on bonds. That bond-market judgement was partly provisional, because the Quarterly Refunding Announcement (QRA) had not yet been released.

We now know that Monday’s QRA was benign for markets. The projected increase in US deficit spending will be covered through bills rather than coupons, the estimated Treasury General Account (TGA) balance has been cut by US$100 billion, and Treasury has announced an enhanced buyback programme.

Two other events were significant. First, Monday’s ISM manufacturing survey (Purchasing Managers Index) jumped to 55.6 (from 53,3), paced by a rising order book and fewer inventories. Second, the US Treasury engaged with Japanese policy makers to head-off the weakening Yen. Concerted currency interventions are rare these days. The Yen abruptly recoiled.