Charts: The S&P 500 closed at 1142, up .6%. Uptrend intact. Leadership has weakened as tech deteriorates. Credit, commodity, currency, and stock markets are no longer moving in unison, a sign that normal conditions are replacing the carry trade.
Fundamentals: China raised interest rates on a short term government bond overnight, a potential forerunner to generalized tightening by the Asian giant. This hurt stocks levered to China, especially where currency is a factor such as Korean stocks. Steel stocks took it on the chin in the morning but then recovered as investors remembered that recently India slapped a tariff on its iron ore exports to China. The Indian government sees so much demand for iron ore inside India that it doesn’t want to export very much to China. The spot price for iron ore is currently about 80% higher than last year’s contract price, bullish for the 2010 contract price currently under negotiation. US retail continues to look better, which speaks to being diversified, not just making a one way bet on China.
Geopolitics: In Pakistan, CIA drones have moved on to another N. Waziristan village. Five drones have established a multi-day vigil over the town in question, methodically blowing away Taliban houses and bad guys and afterwards staying in place, establishing an ominous death watch. This is triggering the whack-a-mole effect. Bad guys are hitting both India and Pakistan on either side of the line-of-control (boundary) in Kashmir, stirring up tension between the nuclear armed adversaries. Massive drone strikes are very unpopular in Pakistan and the media is lashing out against America. Normally this would elicit a slowdown in drone strikes but the CIA is still extremely pissed off and there is little sign that its anger is yet under control.
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