Equity markets reached their highest levels in nearly two months and commodities were also driven higher and improved risk sentiment relative to the European debt crisis. The positive sentiment helped copper prices in particular rise to new weekly highs on speculation that an improved economic outlook will spur demand for manufacturing materials. 10-year bonds in Italy were also seeing favorable buying after the country’s latest treasury auction reached the Italian government’s maximum target for the month.
The MSCI World Stock Index however was only modestly higher by 0.4 percent in during the London session. Financial stocks (BNP Paribas, in particular) were seen as the biggest gainers on the day as the successful bond auctions gave way to speculation that private banks would have less difficulty maintaining sufficient levels of liquidity. Bond yields in Italy dropped to 6.6 percent (a decline of 3 basis points) and the positives created by the cheaper funding levels were enough to bring equity markets higher on the day. The 3 billion Euros worth of 2-year bonds that were sold were associated with yields of 4.8 percent (which is down from the 5.6 percent that was seen previously).
Part of the reason for these yield improvements came from yesterday’s ECB meeting, which was followed by comments from Mario Draghi who gave a more upbeat assessment of the situation in the Eurozone and argued that most of the recent turmoil is starting to stabilize. Today, the attention will turn back to US macro data, which will come in the form of consumer confidence surveys, which are expected to show at the highest levels in more than two quarters.
For the most part, equities have been performing well for the past month (the S&P 500 is currently showing positive for the last four trading sessions for a rise of 1.4 percent) and next week’s corporate earnings reports will determine whether or not that streak can continue. JP Morgan (which is usually the bank with the highest profits in the US) will release its earnings today, along with Goldman Sachs, Citigroup and Wells Fargo. With all these mega-banks on tap to report, the attention will clearly be in the financial sector in what could wind up being a very volatile week in terms of price activity.
But first, the University of Michigan consumer confidence survey will be released today, with the January number expected to have risen to 71.5 after a 69.9 print during the previous month. Traders should also keep in mind that metals prices could be a hotbed of activity as many will start to look at recent declines as an opportunity to re-establish long positions as long as there are no major news headlines detracting from this latest wave on improvements in risk sentiment.
The EUR/USD has broken some significant support levels in recent weeks, so we will look at the monthly charts to get an idea of what to look for next. Below current levels, we can see that historical support below 1.22 matches up nicely with the 50% Fibonacci retracement of the longer term rally. First level to watch, however, is the 200 month EMA and a break here will maintain the longer term bearish bias.
The S&P 500 continues to pressure the topside and all of the immediate Fibonacci and historical resistance levels have been removed at this stage. The MACD indicator is still maintaining its position in positive territory, so any downside moves here are expected to be limited. Longer term, the target is previous resistance above 1340.