U.S. equity markets are called higher this morning after a flat trading day on Wednesday. Global markets received a boost a short while ago after it was reported that the auction of Spanish Bonds was oversubscribed.
This news helped ease concerns amongst traders who were taking a cautious approach to the long side of the equity markets after it was reported on Wednesday that the International Monetary Fund, the European Union and the U.S. Treasury had opened a $307 billion credit line for Spain.
Risk appetite rose on the news about the Spanish Bond auction sending stocks higher after a lackluster night session. On Wednesday, U.S. equities finished flat after a mid-session attempt to continue the recent rally failed because of risk fears in the Euro Zone and a weaker than expected U.S. Housing Starts number. Now that tensions have eased about Spain, traders will focus on the slate of U.S. economic reports today.
The first reports this morning are the Weekly Initial Claims and Consumer Price Index. New jobless claims are expected to fall to 450K this week versus last week’s figure at 456K. Economists peg CPI at -0.1% and Core CPI at 0.1% for May. In keeping with the Fed’s outlook, traders want to see improvements in the job market and low inflation. Signs that the U.S. economy is improving may help to increase demand for higher risk assets.
Later in the morning, the U.S. will report Leading Indicators and the Philadelphia Fed number. Leading Indicators should show an increase of 0.5% versus a loss of 0.1% in April. The June Philly Fed is expected to show a slight setback from 21.4 in May to 20.0 for June. Once again better than expected numbers are likely to trigger increased appetite for risk.
Stocks opened lower on Wednesday after an overnight sell-off triggered by news that Spain may need financial aid. Reports are circulating that the International Monetary Fund, the European Union and the U.S. Treasury are seeking to create a credit line for Spain. Additional selling pressure hit the markets when it was reported that U.S. housing starts fell 10% in May. The markets stabilized, however, after a better than expected U.S. industrial production report.
After turning the main trend to up on the daily chart on Tuesday, the September E-mini S&P closed in a position to push higher, but early morning weakness and the inability to hold on to gains late in the session seem to be indicating the rally may be running out of steam.
Investors demonstrated early in the session today that they were in the “buy the dip” mood. Wednesday’s early session sell-off stopped on a 50% level at 1101.25, indicating that a drive to 1117.50 may be developing. Another upside target is 1122.00. This price represents a 50% retracement of the major 1211.75 to 1032.75 range.
The late session weakness in the E-mini S&P 500 was an indication that investors were once again becoming concerned about risk issues in the Euro Zone, this fear has diminished since this morning’s successful Spanish Bond auction. This leaves worries about the slow pace of the U.S. economic recovery as the main concern for investors. Should these problems continue to plague traders then look for more position paring today, leading to the start of a possible retracement to 1076.00 to 1065.75.
September Treasury Bonds are called slightly better this morning after finishing better on Wednesday, but off its high. The rally in the equity markets is helping to pressure the T-Bonds after a small overnight rally into a 50% level at 123’22. Treasury traders are waiting for the U.S. economic reports before taking positions today. Weak reports will send T-Bonds higher. Strong reports will bring the Fed closer to hiking interest rates which will lead to higher yields and weaker T-Bond prices.
The main trend is up, but the T-Bonds are showing signs that a major break may be coming. Wednesday’s concerns about the weak economy seem to be the only factor holding the T-Bond market up at this time. The formation of a secondary lower top at 125’00 indicates that the selling may be greater than the buying at current levels. The bigger picture indicates that the market may be on its way to a full 50% retracement of this spring’s rally. This makes 119’22 the near-term downside target.
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