Written Commentary
FINANCIAL MARKETS OUTLOOK
Global equity markets were higher overnight with gains roughly 1.5% and higher in many markets. The markets were cheered by an S&P prediction that the Evergrande situation will be one-off failure and not a contagion.
The Dow futures this morning have extended the recovery bounce from yesterday afternoon and are within 260 points of recovering all of yesterday’s massive range down washout. However, unfortunately for the bull camp the markets will be presented with a FOMC meeting result later this week and we suspect the Fed will not begin tapering but will possibly undermine equity market sentiment by suggestions they are discussing the methods of tapering.
From a technical perspective, the S&P did not forge a classic big range down spike washout and recovery back above the midpoint within the trading session bottoming signal yesterday and therefore a major bottom is not in place yet.
In addition to a significant compacted rally yesterday (creating an Overbought condition), the treasury bulls this morning are facing pressure from inflationary concern from ECB officials. Apparently, the ECB has indicated the marginal benefits of continued bond buying are declining which is a similar stance offered by various US Fed officials. Certainly, the treasury bond and notes will continue to garner flight to quality support from the Chinese real estate company failure watch, but today’s general feeling is the company will not cause a chain reaction contagion.
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