Markets Found Support From Tech Sector This Week

Global equity markets were mixed overnight with the US markets waffling around unchanged and European markets generally mixed to slightly lower. Aggressive speculative inflows to gold and silver continued overnight with a lower dollar and a slightly lower tick in treasury yields adding to the slightly bullish equity bias. Critical economic news released overnight included a higher-than-expected month over month German import price reading for November, a softer than expected year-over-year German import price index reading, a slight softening of Spanish third quarter GDP, a noticeable slowing in a Swiss ZEW expectation survey for December and an increase in the Italian November trade surplus with non-EU traders. In today’s North American trade action, the markets will see a private ADP employment change (four-week average), Canadian GDP which is expected to contract, US third quarter core PCE (which is expected to be hotter), US durable goods for October which are expected to contract by 1.5%, US third quarter GDP which is expected to fall moderately, US capacity utilization (which is expected to be unchanged), US industrial production (which is expected to be steady), a Richmond Fed manufacturing index reading for December which is expected to remain in negative territory, US consumer confidence for December and a five-year US treasury note auction.

STOCK INDEX FUTURES

While the US equity market remains in a higher high/higher low pattern, ranges have been narrow and trading volume is falling off as is typical into a major US holiday and into contract expiration. However, the markets have found support from the tech sector this week, which is certainly a shift from the first half of December when that sector was largely missing in action. Looking ahead, it is possible that a wave of “Goldilocks” US data today will be positive to stocks as “not too hot/not too cold” data could be a perfect prescription for the bull camp. Apparently, the markets were unmoved by suggestions from the US president that it would be “smart” for Venezuela’s Maduro to leave power as that clearly expands another global geopolitical hotspot for investors. While it appears the equity markets want to grind slowly higher into the end of the year, seeing a large net short speculative positioning in the S&P in the latest COT reports could result in a combination of noted year end window dressing buying combined with short covering buying.

CURRENCY FUTURES

With a sharp range-down-failure pushing the dollar toward three-month low pricing of 97.505 this morning, US data expected to be a little soft and most actively traded non-US currencies all tracking higher, the downtrend in the dollar is expected to extend. However, a casual observation of the macroeconomic differentials between the US, Europe, UK and Japan do not show a significant variation and therefore the magnitude of the decline in the dollar should be measured. On the other hand, after a severe washout at the end of last week, the yen has recovered aggressively and that should cement broad bearish sentiment toward the dollar. Clearly, Bank of Japan goals of three rate hikes in 2026 are being aggressively discounted by the trade and therefore we suggest traders sell the yen on a return to downtrend channel resistance of 64.94 today with that downtrend line short entry point falling to 64.79 on Friday.

INTEREST RATE MARKET FUTURES

With another rejection of sub-115-00 pricing in March bonds that provides hope that fundamental and technical value has been found. While the results of yesterday’s two-year treasury note auction were not notable, the market bottomed just ahead of those auction results were released and marched consistently higher throughout the afternoon evening and then again in the early morning hours today. Therefore, today’s five year note auction might provide similar lift although bond prices are trading one half point higher with yields slightly less attractive today. The treasury trade will kick off the with fresh data from the jobs front with an ADP employment (four-week average) which registered 16,250 jobs last week. On the other hand, expectations for a 1.5% decline in US October durable goods should dominate the trade especially if that reading is followed by a GDP downtick and unchanged capacity utilization and industrial production readings. Unfortunately for the bull camp, bullish sentiment has been fleeting and trading volume is falling off with yesterday’s volume extremely light.

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