US equity markets are opening with some light selling pressure despite some positive stories out of Europe. During the latest bond auctions, treasury fell in France and Spain and corporate earnings from some key financial companies (Bank of America and Morgan Stanley) surpassed analyst estimates, and both stocks rose more than 4 percent after the releases. The latest earnings report from eBay was also particularly strong and sent the stock price 11 percent higher before topping.
A total of 37 companies in the S&P 500 will report earnings today, so there will be a good deal of data to sort through for the remainder of the week. On average, profits are expected to have risen by 1.7 percent for the first quarter of this year while second quarter estimates are slightly higher at 2 percent. Thus far, 2012 has been a strong year in corporate earnings and this has pushed the S&P 500 roughly 10 percent higher year-to-date.
The auction in Spain resulted in the selling of 2.5 billion Euros worth of 2-year and 10-year bonds, which met the country’s maximum target. Yields on the 10-year benchmark treasury dropped to 5.74 (from 5.78 previously). These higher demand levels were matched in France, where 8 billion Euros in bonds were sold, also meeting the country’s maximum target. The Euro rose after the auctions but momentum began to slow after the EUR/USD reached 1.3150.
Looking ahead, market players are turning their attention to the monetary policy meetings in the US and Japan (to be held next week), and this will have particular importance for currency markets (specifically in the USD/JPY) as the Bank of Japan continues to suggest an easing in monetary policy, while the reverse is being seen in the US Federal Reserve. As long as these trends continue, expect further upside in the USD/JPY as the US economy continues to produce evidence of recovery and markets look to sell Yen in carry positions.
The USD/JPY is on the rise again after finding support in the 80.25 region. The bounce is not surprising given the confluence of historical, Fibonacci and moving average levels that are seen in the area on the daily charts. This is the key level now to the downside and only a break here will reverse the bullish bias. The only sign of potential failure here is the MACD reading, which is now pressuring the zero line and could turn negative, which would signal stalling in the near term. Longer term bias is for gains above the 85 level.
The Nikkei 225 is nicely obeying long term technical levels as we can see that prices have once again turned down after hitting long term trend line resistance. The RSI indicator shows that there is a good deal of room to the downside, with prices now focused on a test of 9395 before any short term bounce can be expected. 9140, however, is a more significant level, as historical and Fibonacci areas are seen coinciding. Selling rallies is clearly the preferred strategy but with momentum stalling, better levels might not be seen before the next downturn.