Treasuries are feeling pressure overnight. Sellers are moving money into equities in an effort to capture a better return on their investments. The biggest factor for the decline, however, is traders taking protection ahead of the Treasuries $115 billion government debt auction this week. Today will feature the initial offering of $6 billion of 20-year TIPS.
Stock Index futures are indicating a higher opening this morning. Better-than-expected earnings have been the most influential factor driving equity prices higher. Today’s key earnings reports will be Honeywell and Verizon. Much of the rally has been led by the NASDAQ as technology stocks have been on fire despite poor reports from Microsoft and Amazon last week.
Although equity indices have reached their highest levels of the year, they have hit technically overbought levels. In addition, some traders feel that under invested portfolio managers have been chasing this market higher which makes it vulnerable to a correction if the continuous flow of new money begins to subside. This could make the markets vulnerable to a sizeable correction this week.
Overall, stronger stocks, higher crude oil and the weaker Dollar are all signs that the global recession may be abating. Stocks and commodities are up on increased demand for risk and the U.S. Dollar is down on less demand for safety.
Last week it was reported that German Consumer Confidence rose for the third month while climbing to a 14 month high. This news is helping the September Euro gain on the Dollar. There are also signs coming out of Europe that credit quality may be improving.
The bullish move in the equity markets last week may be signaling a global economic recovery that will lead to increased demand for crude oil. This is helping to boost prices this morning despite the fear that increased gasoline inventories will limit these gains.
Finally, another sign of an impending economic recovery is the sharp rise in industrial metals. Last week September Copper hit a new high for the year and is expected to open higher this morning. The weaker Dollar is also leading to increased demand for precious metals. August Gold is up over $5.00 this morning.
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