Global Equity Markets Mostly Lower

STOCK INDEX FUTURES

Global equity markets overnight were mostly lower with gains in markets primarily located in China, Russia, and Australia. Chinese equity markets were likely lifted because of chatter that the People’s Bank of China would provide some stimulus assistance to the Chinese economy. Typically, a sweep of positive PMI readings from Europe, UK and Australia would have provided lift to Western markets, but instead investors are either skeptical or temporarily worn out. Earnings announcements include Analog Devices, Medtronic, Best Buy, and J.M. Smucker before the Wall Street opening while Autodesk, Vmware, Dell Technologies and HP report after the close.

S&P 500: While it is possible that news of the release of strategic oil supply from several countries will pressure retail and futures prices of gasoline, the equity markets are probably more concerned about what the Federal Reserve chairman may be formulating to make sure inflation is only transitory. In retrospect, a big range up/new all-time high reversal yesterday and subsequent follow-through down today leaves the bear camp confident. However, bullish resiliency continues to cushion the markets and key support today is seen down at 4654.50. In the event of significant declines in treasury prices (higher yields) downside targeting in the December S&P could  be 4643.75.

CURRENCY FUTURES

DOLLAR: The Dollar forged another higher high for the move and looks to continue to rise with the market anticipating a subtle hawkish shift from the US Federal Reserve. In fact, European interest rate markets and shorter-term US instruments are already signaling the hawkish shift and that in turn should send the dollar Index toward the 2020 summer consolidation up at 97.00. Unfortunately for the bull camp, today’s US PMI data looks to offer up only two of three positive readings which could take some of the bullish sentiment from the market.

EURO: While the euro saw a complete sweep of better-than-expected PMI readings from Australia, France, Germany, the UK, and the overall Euro zone this morning that news is unlikely to provide enough recovery currency buying interest to offset the wet blanket of European lockdown fears. In fact, the market has completely discounted a significant jump in the overall Euro zone services PMI preliminary reading for November. The euro is also failing to benefit from expectations of an earlier expected euro zone rate hike. To arrive at a downside target in the euro requires weekly charts and the bottom of a gap located down at 1.1138.

YEN: Apparently, the sideways consolidation action in the Yen has given way to a downside breakout and the apparent drift down to a lower consolidation zone. Certainly, the Yen could be under flight to quality pressure because of talk of fresh Chinese stimulus, but the Japanese economy should benefit in the event China follows-through with additional help for its economy. However, the 87.00 level might only hold temporarily.

SWISS: Even though the Swiss forged a minimal lower low several ticks below the Monday low this morning the path of least resistance is down and a quick return to the late September spike low down at 1.0693 is likely. We suspect that a sweep of favorable European PMI data points has served to temporarily distract Swiss bears from the looming infection threat in Eastern Europe.

CANADIAN DOLLAR: Like other nondollar currencies, the Canadian dollar has forged a lower low for the move, but the declines have been measured. Obviously, the renomination of the current US Federal Reserve chairman has weighed on the Canadian, but the currency is also under pressure because of unfolding weakness in many physical commodities. The next lower downside chart support point is 78.27.

INTEREST RATES

Treasury prices remain under pressure today despite potentially supportive outside market forces of ongoing European infection concerns and weakness in many global equity markets. In retrospect, the treasury trade saw alternative Federal Reserve chairman nominees to be more dovish than the current chairman, and given the renomination of Powell, a measure of hawkish mentality is now being priced in with this week’s Treasury market reversal. Obviously, the European infection story is important to the Treasury markets as is the US daily infection count, particularly with a major holiday looming. In other words, this week’s declines might offer a fresh long opportunity in anticipation of a spike in daily US infections in coming 2 weeks. In the interim the charts are negative, a flurry of European PMI readings overnight came in better than expected (bearish treasuries), and the trade expects two of the three US PMI readings today to be better than the prior month. Therefore, it is not surprising to see euro zone rate hike timing pulled forward from December There are also several articles swirling in the financial press suggesting that the Chairman of the Federal Reserve will now become more aggressive in battling inflation. The North American session will start out with a weekly private survey of same-store sales, followed by the November Markit “flash” US manufacturing PMI which is forecast to have a modest uptick from the previous 58.3 reading. The Richmond Fed’s November manufacturing index is expected to have a moderate downtick from October’s 12 reading.