Stock Index futures are pointing higher this morning as speculators brace for the U.S. Gross Domestic Product Report which is expected to show that the recession eased during the second quarter. Today’s report is expected to show a second quarter decline of 1.5% versus a drop of 5.5% in the first quarter.
The slowdown in the decline of the GDP is a sign that the recession is easing and could prompt traders to buy equity futures as appetite for risk assets is likely to rise. A strong rally today will put a cap on a great month that saw a major rally in equities ignited by much better corporate earnings. News that the economy is improving could trigger a strong rally as traders may try to close this market on its high for the month to set the tone for next month.
The key area that needs to be penetrated is the psychologically important 1000 price in the September E-mini S&P 500. Currently this market is up but trading neutral for the week. 985.75 is acting like a key pivot. This price should control the short-term direction of the market. Look for strength to develop over 985.75 and weakness to develop under this price. Traders should be aware that a close below 977.75 will turn this market negative for the week.
The U.S. Dollar is trading down overnight as traders are taking on a little more risk in anticipation of an improvement in U.S. Second Quarter GDP. Speculators are gaining confidence that a recovery is taking place in the U.S. economy and are willing to increase demand for higher yielding assets.
September Treasury Bonds are holding on to gains from yesterday that were triggered by an improvement in demand for U.S. debt. Investors stepped up on the last day of the Treasury auction to produce the best results for the week. Technically this market is up for the week and signs are developing that indicate this market may have put in a short-term bottom. An improvement in GDP and a strong rally in equities could once again drive this market lower.
The weaker Dollar is helping December Gold and September Silver to mount a good comeback after a hard sell-off earlier in the week. A better than expected GDP number could trigger a sell-off in the Dollar that will boost the precious metals markets. September Copper made a new high for the year as traders have regained confidence in this market following a sharp loss earlier in the week triggered by an unstable Shanghai Composite Index. Traders are now trading with the greater confidence that an improvement in the U.S. economy will lead to greater demand for industrial metals.
Higher equity markets and speculation that the U.S. GDP will show signs of an improving economy are helping to boost September Crude Oil overnight. Earlier in the week a higher than expected crude oil inventory number broke this market hard, but yesterday’s strong gains in the equity markets helped the energy markets erase those losses.
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