Equity markets in the US are treading water after the strong performance seen in the S&P 500 earlier in the week (the largest weekly gain in 9 weeks), fueled in part by analysts suggestions that Germany might be willing to accept an issuance of Euro bonds. Ahead today, US markets will have Consumer Sentiment data to help guide trading activity into the close of the week.
The speculation on Germany’s Euro bond stance resulted from comments that came from the Italian Prime Minister (Monti) who said that the Italian government might be able to help Germany change its position and take on some of the debt that is seen in other areas of the Eurozone. This helped keep equity markets supported after earlier negative news out of China, which showed that private banks in the country are likely to miss their loan targets as consumer spending remains sluggish.
Bond markets in the Euro area saw some significant activity, as 10 year treasuries in France continued to post gains on the week, causing yields to drop to record lows. Similar activity was seen in Germany, as yields on the country’s 10 year treasuries also dropped to their lowest levels on record. These decreases in European borrowing costs are being viewed as a positive for equity markets, and these beneficial moves look set to continue, at least in the short term as we move into a holiday weekend.
The S&P 500 is showing a rise of 2 percent so far this week, and this is being aided in part by expectations for the next University of Michigan survey, which is expected to come in at 77.8. This would be the highest level since the beginning of 2008. A reading of 76.4 was seen during the previous month. This closes out the data set for the week, with North American traders closing out positions before the long weekend holiday. We will have Retail Sales figures out of Japan to start the next week but volumes are expected to be low during the next Asian session, with quiet trading expected.
The GBP/USD is still seeing its relentless bear move, with prices now coming into very critical Fibonacci and historical support in the 1.5630 region. Prices are unlikely to drop through here on the initial test, given the one way drop we have seen in recent sessions and the clarity of the support level on the daily charts. Short term traders can take contrarian buy positions here, but stops need to be kept tight, as a break and daily close here will be a very bearish event.
The S&P 500 is attempting to bounce back into support turned resistance, which is now seen at 1340. This is also where the 100 period moving average rests, so we are likely to see some stalling in this region before another run lower. Support below is now seen at 1280, which is the previously tested Fibonacci level, and a break and close below here will lead to longer term losses.