U.S. stocks are trading weaker ahead of the opening. The market started to weaken on Tuesday following a drop in consumer confidence. This report seemed to carry more weight than a string of better earnings reports. Equity futures actually reached their highs shortly before the opening and never really got on track, forming a top even before the consumer confidence data was released.
Last night’s high in the September E-mini S&P 500 was at 1115.75 and occurred close to the German stock market opening leading me to believe that Europe may be behind this morning’s weakness.
This morning’s U.S. Durable Goods Report was disappointing. The consensus was looking for an increase at 1.0%. The report actually showed a loss of 1.0%. Stocks sold off following the news. This bearish report is likely to set a negative tone for the day.
Later this afternoon the Fed releases the Beige Book, but the bad news is already out in the form of durable goods. The bearishness of this report makes Friday’s GDP Report all the more important. It is likely that traders will lighten up positions ahead of Friday’s number, leading to the possibility of a sharp sell-off into this number.
Technically, major cycle watchers are looking for a top this week and the start of potential hard down move. The key number to watch is 1100.50 in the S&P 500 which was last week’s close. A break through this number will turn the week lower and erase all of its prior gains. This will most likely cast a negative pall on the market.
U.S. Treasury futures contracts have reversed a lower opening and are now trading higher. The weak durable goods report has driven up demand for safer government assets. Currently the September Treasury Bonds are still in an uptrend despite the five day set-back. This trend will remain intact as long as the swing bottom holds at 125’07.
The upside momentum in the Treasuries may be limited today because of the increase in supply this week. On Tuesday the Treasury’s 2-Year Note auction yielded a record low. Demand was down since investors had the option of seeking higher yields in the stock market. If stocks should begin to weaken significantly, then look for demand for government assets to increase leading to a strong rally in T-Bonds and 10-Year Notes.
The U.S. Dollar is picking up strength this morning as traders shed risky assets. Investors are lightening up positions because of the weaker durable goods data, but the actual selling pressure may have started last night following a disappointing Australian Consumer Price Index number. The Aussie CPI rose less than economists had expected, curtailing gains and leading to the possibility the Reserve Bank of Australia will refrain from hiking interest rates for the third consecutive month.
Overall, the weak durable goods report sets a bearish tone in the stock market ahead of the opening. This is likely to lead to a profit-taking break. Investors are taking a defensive position this morning. The shedding of risky assets is likely to benefit the Dollar and Treasury markets as traders seek safety in lower yielding assets. 
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