A late surge in U.S.
equity markets helped put the three major indices in a strong position
to challenge their highs for the year. Traders looking for increased
risk drove equity markets higher from the start on Tuesday although
there was a little pause in the upside momentum at the mid-session. The
June E-mini S&P 500 has exceeded a normal retracement after the
recent break indicating a test of the recent top is likely. At the
current level itâ€™s pretty much up to investors if they want to chase
this market higher or play from another dip.
Tension from the
SECâ€™s lawsuit against Goldman Sachs has eased but Greece continues to
remain a concern. Traders are being cautious in case the SEC announces
more litigation. Risk sentiment could turn bearish quickly at current
levels so traders should watch the trading action carefully for any
hint of another correction.
June Treasury Bonds and Treasury
Notes traded flat most of the day but managed to eke out a small gain
by the close. Traders are watching developments in the stock market for
direction. A sharp sell-off in the equities will most likely trigger a
strong rally in the Treasuries but gains will be limited because of the
June Gold finished up on Tuesday because of
greater demand for risk and the mixed U.S. Dollar. June Crude Oil
settled into a range. The stronger Dollar and weaker Euro weighed on
the market. News that air traffic has resumed in parts of Europe helped
to underpin crude oil because of increased demand for jet fuel.
Bank of Canada voted this morning to leave interest rates at 0.25% but
strongly hinted that interest rates would increase sooner than expected
because of the strong economic growth and the fear of inflation. For
over a year, the BoC has indicated that rates would remain low until at
least July 1. Todayâ€™s policy statement indicates that June 1 is likely
the date rates will begin to rise.
The policy statement issued by
the BoC included the following, â€śWith recent improvements in the
economic outlook, the need for such extraordinary policy is now
passing, and it is appropriate to begin to lessen the degree of
monetary stimulus.â€ť With this statement, the BoC removed a commitment
made several months ago to keep interest rates at current levels
through the middle of the year.
Although this policy shift was
widely anticipated by financial traders, the June Canadian Dollar
rallied sharply and closed in a position to take out the recent main
bottom at .9952. Traders feel that the improving economy and likelihood
of additional rate hikes during the next few months should keep upside
pressure on the Canadian Dollar.
The U.S. Dollar finished
mixed, posting gains versus the Euro, Swiss, and Japanese Yen while
struggling against the British Pound, Canadian Dollar and Australian
The June Euro remained under pressure on concerns the
recently approved European Union rescue package will not be enough to
stem the financial slide in Greece. Borrowing costs continue to plague
Greece with the cost of debt eating up much of its cash flow. The
spread between Greek Bonds and German Bunds remains wide indicating
that investors believe an investment in Greece is a high risk
proposition. Some European Union members are already anticipating the
possibility of another bailout proposal.
The June British Pound
surged to the upside this morning following the release of better than
expected Consumer Price data and managed to hold on to a portion of its
gains despite numerous attempts to push it lower.
figure sent a signal that the Bank of England is likely going to pass
on an increase in its quantitative easing program at its next meeting
in May. The increase in inflation came as a surprise to the central
bank as well as market participants because the BoE has been warning
about the possibility of deflation.
Gains were most likely
being limited on Tuesday by election concerns. Many traders feel this
market is not likely to trend until after the May 6th election.
Furthermore, traders are still worried the election will result in a
hung parliament which will make it difficult to pass legislation to
curb the wide U.K. budget deficit.
Stronger demand for higher
risk assets helped to drive the June Japanese Yen lower. Signs that the
global economic recovery is back on track encouraged investors to take
on more risky assets like gold, crude oil and equities. Tension over
the Goldman Sachs fraud charges eased enough to draw investors back
into higher yielding assets.
The weaker Euro helped break the
June Swiss Franc. Traders are anticipating more intervention by the
Swiss National Bank in an effort to protect the currency and the Swiss