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Global equity markets began with a shaky start, with follow through weakness in Asian markets but a dose of favorable European data this morning has helped turn the tide back to a positive tilt. China’s Shanghai Composite slipped to a new three day low overnight, with a finish just off the session low, weighed down by the fifth monthly decline in foreign direct investment. The Japanese Nikkei continued its recent decline but support at 9,450.00 kept overnight losses fractional. Equity market sentiment took a significant turn higher after a successful Spanish debt auction and better than expected German sentiment. Spain sold around 3.18 billion euros worth of short term debt, while borrowing costs were higher, it was seen as a boost to confidence that the country was able to tap into capital markets. April German ZEW sentiment readings showed an unexpected gain to the highest level since June 2010, which bolstered the case that their economy is recovering from the recent pullback. These two developments helped restore sentiment in the market and lifted the major European indices, as well as US futures to their best levels of the session. There were also upbeat comments from St. Louis Fed president James Bullard late Monday, where he forecasted US growth in 2012 to run near 3.0%. US markets face an active economic report flow this morning, with March housing starts expected to show improvement compared to the previous month, while March building permits are expected to hold near last month’s pace. March industrial production is expected to show improvement, with forecasts for capacity utilization to climb to the best levels since July 2008.
S&P 500: The June S&P 500 slipped to a fresh four-session low during the overnight session and has since rebounded more than 13-points from those early lows. The short term oversold condition of the market coupled with a successful Spanish debt auction and upbeat German sentiment readings offer the bull camp the early edge. European bank shares appear to be the beneficiary of the positive turn, with early gains of nearly 3.0%. A positive showing in this morning’s earnings from Goldman Sachs, which is expected to show a considerable jump from the year ago quarter to $3.55 per share, would offer further momentum to financial sector gains. 17 S&P 500 companies are expected to report earnings today, and that is liable to turn the focus away Europe and toward US earnings and growth prospects. The early reversal action to the upside in the June S&P 500 favors the bulls and a challenge of 1388.00. While the trend on the daily charts continues to point to the downside, there is a considerable upside room for a corrective bounce, perhaps back to the 1400.00 level.
DOW: The June E-mini Dow has taken a higher track this morning and looks poised to challenge yesterday’s high of 12,925. The index showed relative strength compared to the other major US indices throughout yesterday’s session, initially supported by gains in IBM and Caterpillar, and then by a favorable reaction to March Retail Sales data from Wal-Mart and Procter & Gamble. A number of Dow Jones components report earnings today, with Coca-Cola and Johnson & Johnson prior to the Wall Street open, then Intel and IBM after the close. Intel is expected to report a decline in earnings of around 15.0% compared to the year ago quarter. Meanwhile, expectations are for IBM to show earnings growth of 10.0% and that in turn could raise software demand forecasts. The price action in the June E-mini Dow has taken a positive turn and looks ready to challenge last week’s high of 12,971. Confirmation back above this level in today’s trade would trigger a short term technical pattern targeting a push toward 13,060.
NASDAQ: The June NASDAQ fell to a new four-week low during the initial morning hours but has since climbed back into positive territory. The technology sector came under pressure yesterday from a 4.0% drop in Apple, which was down for its fifth straight trading session. Apple is down nearly $65.00, or 10.0% from its April 10th record high, as concerns mount over iPad demand, talk of some mobile carriers cutting subsidies and slowing Mac sales in the US. The index will get a round of tech-related earnings reports later this afternoon from Yahoo, Intel and IBM. Early morning weakness in the June NASDAQ satisfied corrective retracement targets from the March advance of 2654.00, and the upside reversal action gives the bulls an early advantage. Upside targeting this morning stands at 2699.00.
TODAY’S MARKET IDEAS: The bulls get the early nod this morning, helped by a favorable Spanish debt auction, better than expected German sentiment readings and hopes that today’s corporate earnings flow will beat lowered expectations. A favorable result of today’s earnings would go along way in setting the tone for the season and is likely to steel the market focus. While the daily trends for the June S&P 500 and E-mini Dow favor the downside, the early morning recovery from oversold levels leaves the potential for a corrective bounce targeting 1388.00 and 12,970 respectively.
Commodity Outlook – 2012.04.30
by Dave Hightower on April 30, 2012
At times the markets attempted to rekindle anxiety toward the Euro zone debt situation, but the trade wasn’t predisposed to fully embrace that threat. The US Fed and the PBOC haven’t exactly been falling all over themselves with promises of additional easing. From China’s perspective, they are probably content to see a wide range of physical commodity prices fall back. It’s clear that they are taking advantage of recent weakness in the grain markets to rebuild their buffer stocks. On the other hand, residual uncertainty off the US political condition and the prospect of a shift in leadership in France has added to the “hunker down” mentality that was ushered into the market shortly after the March US unemployment report disappointed economists and investors. While recent US corporate earnings have come in generally positive, the US equity market hasn’t been in a position to benefit as much in recent quarters, perhaps because the outlook for the economy is mired in a blanket of uncertainty. The recent weakness in stocks and the corrective action in a host of physical commodity markets appear to be tightly correlated to the softening macroeconomic vibe. Therefore, better growth or definitive action from key central banks might be needed before a bottom in physical markets can be expected.
The chart of the combined non-commercial and nonreportable position in non-financial markets indicates that the net spec long position has been moderately rebuilt since the late 2011 washout. Therefore it is possible that even more long liquidation will be needed to balance the markets and even suggest that prices are cheap again! While the $10 slide in nearby crude oil prices from the March high probably relieves some pressure on the economy, the 30-cent per gallon decline in gasoline prices is likely an even bigger boost. However, unless energy prices fall further or are prompted to go lower by a politically-motivated SPR release, one probably can’t expect the US economic pace to be markedly improved without additional monetary easing. As can be seen in a monthly Continuous Commodity Index chart, commodity prices in general have fallen back near the December 2011 lows, a period when the world was expecting a breakdown of the Euro zone and thought that the US economy was going to be pulled back into a recession because of it. As of this writing, it did not appear as if the situation was nearly as ominous as it was in December, and while the US economy was showing signs of softening, it could easily be improved by just a couple of dovish words from the Fed. It is also possible that supportive action from the PBOC would be enough to shift global economic sentiment back onto a positive plane. Still, it appears that the equity market’s job over the short term might be to track lower until there is more assistance from the Fed.