Global Equity Markets Mixed/Lower
STOCK INDEX FUTURES
Global equity markets were mixed to lower with the Asian and Pacific Rim markets generally the weakest. While the latest relaxation of Covid rules in China provides hope China will avoid serious slowing traders, investors, and consumers are still on edge as economic data continues to offer mixed signals on the future. Furthermore, with recent implied treasury futures yields jumping sharply, interest sensitive sectors of the economy are seeing an exodus of capital and interest in defensive stocks remains solid.
S&P 500: The S&P sits just above the middle of the prior 2 weeks trading range with extremely low trading volume and slight declines in open interest. While additional Covid rule relaxation in China provides optimism, investors are still hesitant to embrace positives. Significant flight cancellations in the US and Canada hinders airlines and travel related stocks especially with the Department of Transportation looking into the situation at Southwest airlines.
Other US Indexes: The charts in the Dow futures suggest it is the strongest sector of the markets with prices near 2-week highs despite higher treasury futures implied yields. We see critical pivot point support in the March Dow at 33,352 with a trade above 33,613, a possible signal of an upside extension. With the Dow futures maintaining the strongest charts and the S&P showing neutral charts, the NASDAQ is easily presenting the most bearish chart set up in the stock index futures markets. Ongoing weakness in Tesla shares and another crypto exchange halting operations in Japan leaves the fundamental outlook for the tech sector is negative.
DOLLAR: In retrospect, the dollar index has not benefited from increased yields in treasury futures and a better-than-expected US GDP reading which should discourage the bull camp. Apparently, the currency markets see the lessening of Covid restrictions in China as a positive global growth prospect which in turn directs money away from the greenback.
EURO: The trade is not sure how to react to ECB comments that the central bank might be halfway through its interest rate hike cycle. Unfortunately, for traders the most likely track in the euro today is to respect recent restricted holiday trading range levels of 1.0732 on the upside and 1.0634 on the downside.
YEN: Despite building optimism toward the lessening of Covid restrictions in China, the Yen continues to slump in a sign that the massive December 20th rally was overdone. Certainly, the Bank of Japan has gained respect of the world trade with recent policy decisions, but the Yen is a long way from garnering speculative buying because of its domestic economy.
SWISS: For the most part, the Swiss has chopped within a range defined as 1.094 and 1.0790 with the market lacking its normal trading volume. While a Swiss ZEW survey of expectations for December was not as weak as feared, with a -42.8-reading, sentiment toward the Swiss economy remains very poor.
POUND: On one hand, the March Pound has built a shelf of consolidation support above 1.201 but chart support levels are given added assistance from a very strong jump in Boxing Day shopping activity. Some analysts suggest that boxing day shopping jumped 40% Monday leaving some to predict the best sales in 3 years.
CANADIAN DOLLAR: In our opinion, the Canadian is winning by default but may also be garnering support from the $10 rally in crude oil from this month’s low. Like the US, Canada saw its holiday travel severely disrupted by weather and the currency is short-term overbought from the December rally.
Technically the March bond contract held at yesterday’s spike low which offers minimal assistance to the bull camp. Apparently, the treasury trade is drifting back to a more normal historical fundamental trade pattern with the fear of a recession moderating along with a moderation of inflation. Keep in mind, since mid-October treasury prices have rallied aggressively on the theme that over tightening would result in a recession.
Certainly, the chance of recession remains relatively high, but as indicated by an ECB official they are halfway through their rate hike cycle and that should be seen as light at the end of the tunnel. Therefore, we categorize the slide from the early December high as a sign that the treasury trade is beginning to embrace the idea that the Fed is winning the battle.
However, for treasuries to continue lower will likely require equal measures of good and bad data. On the other hand, seeing March bonds fall below 124-00 could require mostly upbeat scheduled data. It should be noted that the net spec and fund short positioning in bonds expanded into the early December highs after reaching the largest net spec and fund short in 13 months and that could mean the market will become oversold quicker than expected.
The North American session will start out with weekly private surveys of same-store sales and mortgage applications. November pending home sales are expected to have a moderate uptick from October’s -4.6% reading. The Richmond Fed’s December manufacturing index is forecast to have a moderate uptick from November’s -9 reading.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.