Bullish News Out of China Helps Spike Equity Markets Higher
James Hyerczyk from ForexHound.com at 12/11/09
Bullish reports out of China helped stock markets recover in Asia, leading to a strong rally in the December E-mini S&P 500. News that China’s November exports fell 1.2 percent following a 13.8 percent decline in October helped spike U.S. equity markets to the upside. The strong rally overnight helped take out yesterday’s high, and a retracement level in the S&P contract at 1106.25. The key to a rally today will be whether investors are willing to chase this market higher.
Increased demand for risk will be the deciding factor as to whether the stock indices continue their strong surge. If retail sales come out better than expected, then look for higher prices. Volume has been low, but investors may return to the markets today with conviction if they get clarity from the Retail Sales Report.
March Treasury Bonds and Treasury Notes are feeling downside pressure following yesterday’s poor 30-year Bond auction. Investors are asking for higher yields because of concerns over the U.S. Treasury’s ability to pay its debt obligations.
February Gold is mounting a strong comeback after the hard sell-off earlier in the week. The weaker Dollar is helping to ignite this rally along with oversold short-term conditions. Technically, this market crossed to the bull-side of a downtrending Gann angle which put it in a strong position overnight. The chart indicates that building upside momentum could take this market back to 50% of the recent break to $1172.25.
March Crude Oil is trading slightly better overnight. Currently, this market is holding .618 support at 73.63. Oversold short-term conditions are helping to limit downside pressure. A weaker Dollar and a strong stock market could trigger a short-covering rally back to 75.53. A bearish supply/demand picture is likely to limit gains.
The U.S. Dollar is trading lower against most major currencies ahead of this morning’s retail sales report. Economists are calling for an increase of 0.6% in retail sales for the month of November. The University of Michigan Consumer Confidence report is expected to rise to 68.8 from 67.4.
Market participants want to see stability in the labor market and an increase in consumer spending. In my opinion, a bullish retail number today is likely to support the Dollar because it will increase speculation that the Fed will hike interest rates sooner than expected.
Some traders feel that a bullish retail number will be bearish for the Dollar because it will add to increased appetite for risky assets. If this is the case then appetite for risky assets will be the primary catalyst behind a weaker Dollar today.
This clash between those who believe the Fed is closer to raising rates and investors who feel it is still a long way off, may trigger a stalemate in the Forex markets until the Fed clarifies the situation at its next meeting on December 16th.
The December Euro is posting a modest gain overnight. After experience stress earlier in the week because of downgrades of Greece, Spain and Portugal, traders have reassessed debt conditions and decided that the price drop may have been excessive.
The December British Pound is trading slightly better. Today the U.K. is expected to report that the Producer Price Index rose by 2.9%. Yesterday the Bank of England decided to leave interest rates unchanged while leaving its quantitative easing program intact. Like the Euro, losses earlier in the week may have been overdone, leading to oversold technical conditions.
Increased demand for higher yielding assets is pressuring the lower yielding Japanese Yen. This week the Yen was hit with slew of bearish events leading to the recovery in the Dollar against the Yen the past two days. Last night it was reported that Japanese Consumer Confidence dropped more than expected for the first time this year. Earlier in the week, the Third Quarter GDP number disappointed investors along with the approval of a new 7.2 trillion yen stimulus package.
The December Swiss Franc is trading higher. Yesterday’s closing price reversal bottom is a bullish indicator but the pair has to confirm the bottom first. Look for an acceleration to the upside if .9768 is broken. Yesterday the Swiss National Bank agreed to leave interest rates unchanged while announcing plans to end its bond purchasing program. The SNB feels that the economy is still too fragile to begin hiking interest rates. They also added that they will not be shy about intervening if the Swiss Franc appreciates too much.
Overnight, the December Canadian Dollar is experiencing upside pressure in a continuation of the strength which began on Wednesday. Yesterday’s better than expected Canadian trade balance report was the catalyst behind the strong surge in the Canadian Dollar. Higher precious metal prices helped the trade balance achieve a surplus.
