Global Equity Markets Steady Ahead of U.S. Opening
Global equity markets are trading in a tight range overnight. On Wednesday, U.S. stock markets broke sharply lower after a
steady opening as unrest in Greece
led traders to shed risky equity positions. As we approached the mid-session,
buyers stepped in to gobble up low priced stocks, triggering a massive
short-covering rally that took the indices back to unchanged for a little
while. Short-term oversold conditions could trigger a rally along with position
evening ahead of this Fridayâ€™s U.S. Jobs Report.
The European Central Bank is expected to hold its benchmark interest rate
steady at 1.00% this morning. In addition, look for it to issue a statement
saying that rates will remain low for quite sometime because of the fiscal
problems in several Euro Zone nations and the risk of contagion.
Because so much money is being set aside to bailout Greece and additional funds may be needed to
support the economies of Spain
the ECB cannot afford at this point to begin raising interest rates without
risking a possible double-dip recession.
With a few major nations raising rates or set to raise their benchmark rates
in the near future and the ECB set to hold rates steady, traders will continue
to sell the Euro because of the interest rate differential.
Following the release of the ECB policy statement, President Jean Claude
Trichet is expected to try to instill confidence in the Euro during his
post-meeting press conference. In his talk, he may address the possibility that
the ECB is considering buying government bonds or diverting financial stimulus
from other parts of the economy to address the fiscal needs of the struggling
Whether Trichet will be successful at persuading investors to continue to
back the Euro cannot be determined at this time. What is known, however, is
that hedge funds and large speculators are committed to the short-side of the
market at this time and not expected to lighten up because the fundamentals
clearly support a weaker currency.
Analysts continue to feel that the worst is yet to come as the capital
markets in the Euro Zone continue to run out of control. Many feel that the ECB
has been behind the curve and that the ECB hasnâ€™t acted fast enough to stem the
Last night the Euro reached its lowest level since March 2009 while piercing
the 1.28 price level. Today, more unrest is expected in Greece as the
government and protesters clash about the implementation of austere financial
measures. With the situation worsening, the ECB may have to consider what many
see to be a drastic measure, and that is buying the sovereign debt of the
ailing Euro Zone nations in the secondary market.
June Treasury Bonds are called lower this morning after closing sharply
higher on Wednesday as equity markets collapsed and demand for safer assets
increased. The rally early in the trading session sent yields plunging while
triggering a breakout over the last main top at 121â€™05. T-Bonds began to break
from the 121â€™14 high near the mid-session after triggering stops above the last
main top at 121â€™05. Higher volatility and strong upside momentum should
underpin the markets, but gains could be limited if traders decide to lighten
up their positions ahead of Fridayâ€™s U.S. Non-Farm Payrolls Report.
June Gold is trading higher overnight. On Wednesday gold finished higher
after a successful test of a key 50% level at $1158.60 encouraged fresh buying.
Gold initially broke after a strong rally in the U.S. Dollar. A break in equity
markets also helped drive down demand for the metal. After testing the 50%
level at $1158.60 and putting in a bottom at $1156.20, gold began to rally as
the Euro plunged over 1%.
Speculators began buying gold as a hedge against a possible collapse in the
Euro. The strong momentum late in the trading session could lead to a
follow-through rally on Thursday. The only negative to the gold market at this
time appears to be margin call selling. Should equity markets break sharply
again, traders may have to sell gold to meet their margin calls in the equity
The weakening Euro is putting pressure on energy prices overnight. On
Wednesday, a drop in demand for higher risk assets and the possibility that a
slowdown in the Euro Zone economy will lead to lower demand for energy helped
drive June Crude Oil lower early in the trading session. Shorts began to take
profits after testing a key 50% level at 79.17, but bottom pickers were unable
to turn this market positive. If the break continues through 79.17 then look
for a possible test of the Fib retracement level at 77.18.
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
00:00 Christmas Holidays
Potential Trading Opportunities
POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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