Wednesday October 7, 2009 - 12:46:41 GMT
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U.S. Equity Traders Await Start of Earnings Season
There is very little news to trade off today. Crude inventories will be reported during the morning. Consumer credit and the Treasury budget later in the afternoon.
U.S. Equity markets are called steady to better. Traders are awaiting the start of the third quarter earnings season with the reporting of Alcoa. Investors are looking for increased earnings along with better revenues. They want to see that new money is coming in rather than expenses being slashed. Optimism for an economic recovery has been driving the stock markets higher the past three days, but now is the time when investors want to see some solid proof.
Treasury markets are called steady. The recent sell-off has been orderly which is most likely an indication that overbought conditions rather than a shift in thinking is triggering the weakness. Both December Treasury Bonds and Treasury Notes are nearing 50% support levels which could attract some fresh buying. A break in equity prices will be supportive to these two markets. The Treasuries are still reflecting a stable economy despite the rise in gold which is said to be triggered by fear of inflation.
Following a quiet overnight trade, the U.S. Dollar is set to open mixed to better versus most major currencies. Yesterday the Dollar took a beating following a rate hike in Australia and talk that it was going to be replaced as the pricing vehicle for oil.
The December Euro is trading slightly lower. If demand shows up again for higher yielding assets, then look for the Euro to push higher. Tomorrow the European Central Bank holds its monthly meeting. Expectations are for the ECB to hold interest rates steady and to continue to it stimulus plans. ECB President Trichet has already expressed concerns about central banks concluding their stimulus plans too early. He wants to make sure there are strong signs of a recovery before ending the stimulus programs.
Look for a lower opening in the December British Pound. The fundamentals remain weak as reports still show the economy hitting soft spots. Yesterday it was reported that Factory Output was lower than expected. In addition, last monthâ€™s comments from Bank of England Governor Mervyn King favoring a lower currency are still weighing on the market. Losses are most likely being limited because of the overall weakness in the U.S. Dollar. On October 8th the Bank of England is expected to leave interest rates at 1% while maintaining its asset-buyback program.
The U.S. Dollar continues to weaken versus the December Japanese Yen. For the past week, the Yen has been rangebound because of mixed comments from the Bank of Japan. A couple of weeks ago the Japanese Finance Minister said he was comfortable with the rise in the Yen if it was based on sound economic reasons. This was followed-up by comments that an intervention would be likely if prices became abnormal or trading too volatile. These comments confused traders who chose to take a wait and see attitude. Look for the Yen to gain steadily as traders still remain tentative about just what the BoJ means. Traders may continue to stick their toes in the water while supporting the Yen but remain cautious as the value of the Yen rises.
The technical picture in the December Canadian Dollar suggests a sideways, rangebound market. Traders are concerned that an overvalued Canadian Dollar will curtail demand for Canadian exports. On the other hand, rising crude oil and equity prices have been supportive for this currency pair. One side will eventually win over the other, but until then, expect more sideways action. Look for a steady to lower opening this morning.
December Gold is trading higher this morning following yesterdayâ€™s strong surge to the upside. Based on a stable bond market and no signs of inflation, some analysts feel that this market is forming a possible bubble. While bonds are reflecting no inflation and stability, gold is trading higher on the notion that inflation is coming. Something has to give. The vertical movement in the gold market suggests it is most vulnerable to a hard correction. Donâ€™t be surprised by a pull-back to $1020.00. Volatility is expected to be higher. Gold usually moves 1% a day which means this market could begin to see some wicked moves.
December Crude Oil is called a little better. This market is being supported by a weaker Dollar and firmer equities. Supply and demand are still the key factors driving this market. Todayâ€™s crude oil inventory report is expected to show a drawdown of 254,000 barrels.
December Corn is expected to continue to see short-covering. A widespread damaging frost is predicted for this week-end. Shorts are taking protection to combat the possibility that the cold weather may do some significant damage.
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