Stocks Close Higher boosted by Proactive Move by Spain
U.S. Equity markets closed higher on Wednesday boosted by
the positive news that Spain
was implementing new austerity measures designed to cut expenses. This action
helped to ease worries over Euro Zone sovereign debt problems. One of the
biggest fears affecting Wall Street has been the fear of contagion in Europe. This pre-emptive move by Spain sent a signal to investors that it was
going to be more aggressive than Greece in its effort to contain its
budget deficit and debt expansion.
Upside momentum is building in the June E-mini S&P 500 now
that a key retracement area at 1155.25 has been penetrated. Traders need to
build support at this price in order to keep the rally moving forward.
June Treasury Bonds were under due to the early strength in
the equity markets. Traders sold T-Bonds as they trimmed safe investments
following the recovery in the stock market.
Technically the T-Bonds are now on the bear side of an
uptrending Gann angle indicating further downside potential. The charts
indicate the first target is 119 â€™11 followed by 118â€™04.
June Gold soared to another all-time high. Investors
continue to treat gold as a safe-haven investment out of fear that renewed
problems in the Euro Zone will lead to a collapse in the Euro. Traders are
using gold as a hedge against the risk of holding paper currencies during this
period of economic uncertainty in the EZ. Some traders also feel that inflation
will increase now that EU is flooding the economic system with excess
The recovery in the equity markets helped to boost the June
Crude Oil contract early but the market was unable to hold on to its gains
following another reported rise in oil inventories. The International Energy
Agency contributed to the weakness by announcing its forecast calling for lower
Technically, a support base seems to be building which could
drive this contract back to 80.83 over the near-term.
The Euro finished lower on Wednesday. Now that credit
concerns in the Euro Zone have been taken care for the short-run, investors are
becoming worried about the possibility of a slow down in the economy. The size
of the new bailout package is expected to have an impact on the Euro Zone
economy which may result in a double-dip recession.
The June Euro was trading slightly better earlier in the
trading session. It seemed traders were starting to accept the fact that new
money was coming into Greece,
Portugal and Spain
which was helping to shore up short-term liquidity problems. Furthermore, the
news that Spain
was taking a proactive approach to contain its budget was being seen as a
Overnight European Central Bank President Jean-Claude
Trichet helped stabilize the Euro overnight by stating â€śI am more confident
than ever in the future of the Euro.â€ť He did issue a warning however, â€śWe have
to strengthen oversight of budgetary policies adopted by this and that
countryâ€ť. His statements were hardly earth shattering, but nonetheless kept new
short-sellers at bay. When pressed with the question about the ECB losing its
independence, Trichet issued his strongest response, â€śWe havenâ€™t just started
Short-term, the charts indicate the Euro is due for a
technical bounce to the upside, but longer-term the Euro still remains in the
strong hands of the short-sellers.
A dovish Bank of England outlook for U.K. growth and
inflation pressured the June British Pound all day. The BoEâ€™s weak outlook
negated most of the rally which took place on Tuesday following the
establishment of a new government.
In the report released prior to the New
York opening, BoE Governor Mervyn King warned that risks to growth
had increased and that the Euro Zone debt crisis had made it necessary for the
government to speed up the process of developing a balanced budget. Furthermore
he added that interest rates would stay at a record low 0.50 percent for longer
than the markets had expected. He then added that inflation was forecast to be
below its 2 percent target in two years.
King was supportive of the new government and looked forward
to working with it in an effort to turn the economy around while cutting the
budget and reducing the sovereign debt.
The short-term outlook is a little more positive for the
British Pound. Downside momentum may slow now that a new government has been
established. Traders may celebrate the news that the Conservative party and the
Liberal Democrats have formed a coalition to create a majority in the
Parliament by exploring the long-side or lightening up on bearish positions.
The move by both parties helped to put an end to the long-standing rule of
Prime Minister Gordon Brown and the Labour Party.
The formation of a new government is seen as a positive for
the British Pound at this time because it provides clarity to an almost dire
situation. For weeks the Sterling
has succumbed to selling pressure due to the possibility of a hung parliament.
This situation would have created a problem because it would have made it
virtually impossible for the new government to enact the austere fiscal
measures needed to balance the budget and reduce the countryâ€™s debt.
The clarity provided by the â€śnew coalitionâ€ť between the
Conservatives and the Liberal Democrats comes at an important time because of
the events taking place in the Euro Zone. The formation of a new government
will help to provide the psychological boost the British Pound needs to reverse
the current down trend.
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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
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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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