Stock indices, gold and
crude oil are all expected to open lower due to lower demand for higher
yielding assets. The weaker Euro and British Pound are helping to
spread fear and uncertainty around the markets this morning.
June E-mini S&P 500 is expected to open lower after yesterday
closing price reversal top was confirmed. The daily chart indicates
that a break to 1198.25 to 1194.00 is likely over the near-term.
Treasury Bonds are expected to open higher due to increased demand for
safety and lower yielding assets. Gains could be limited as traders may
be a little reluctant to increase their long positions amid this weekâ€™s
auction and subsequent increases in supply.
The stronger Dollar
is pressuring June Gold and June Crude Oil. Both markets are also down
because of the weaker Euro. Goldâ€™s losses could be limited if
speculators decide to buy the metal as a hedge against a collapse in
Uncertainty over whether a Greece financial aid package
would be worked out in the short-run and fear that sovereign debt
problems are spreading across Europe to other countries is pressuring
the Euro overnight.
The lack of clarity is helping to pressure
the Euro. Investors were expecting to hear by now that the European
Union and International Monetary Fund were on the same page with Greece
and that a bailout plan was getting close to be hammered out. Instead
uncertainty continues to linger and the Greek financial problems seem
far from over.
One of the problems is investors want to know
how the borrowing mechanism proposed by EU/IMF a couple of weeks ago
works. Itâ€™s one thing to propose a bailout plan, but apparently another
thing to actually know the details. It now appears that the original
proposal was enacted to try to stem the decline in the Euro rather than
fix what ails Greece.
Another issue plaguing a quick solution
to the problem is Germany. Clearly Germany does not want to fund any
plan to bailout Greece with the struggling nationâ€™s promise to make
even more austere budget cuts than previously agreed upon several
As long as the debate goes on, the Euro is expected
to weaken. This is twice within the past month where good news
triggered a short-covering rally only to be met by fresh shorting
pressure. Overnight the spread between Greek Bonds and German Bunds
neared 700 basis points. This indicates that fear and uncertainty is
driving the markets and that capital market traders may be in charge of
Greeceâ€™s fate rather than the EU and the IMF.
additional information from Portugal showed that the cost of insuring
its debt also widened. This is causing more uncertainty and leading to
speculation that the Euro is on a path that could eventually destroy
the structure of the main European currency.
Look for traders to
keep the pressure on the June Euro over the near-term. Volatility will
remain high as the Euro will be sensitive to various news stories
breaking throughout the day.
After looking like it was going to
emerge as the strongest currency yesterday, the June British Pound is
now trading as the weakest overnight. Once again the combination of
uncertain election news and weaker than expected economic data is
helping to pressure the British Pound just a few days after the economy
appeared to be getting back on track and one day after traders had
swept aside political fears.
Overnight traders are reacting
negatively to weaker than expected U.K. Retail Sales Growth and
mortgage approvals. April retail sales growth was reported at +13 but
economists were looking for a +15. The number of mortgage approvals in
March rose to 34,905 but lending only rose by 2.4 billion pounds. This
was the smallest increase since July 2009 and indicated the housing
market was still a drag on the economy.
In addition to the
economic news, it was reported that another election poll shows that
the election is too close to call and that it appears that there is
still no clear leader. Without a majority leader in the polls investors
are uncertain whether parliament will be able to agree on the austere
measures needed to shore up the countryâ€™s budget.
Euro and British Pound are helping to drive down demand for higher risk
assets. This is helping to put selling pressure on commodity-linked
currencies such as the Canadian Dollar, Australian Dollar and New
Zealand Dollar. Weaker global equity markets are helping to drive up
interest in the lower-yielding Japanese Yen.