Bond & equity report for Sept. 15

SUMMARY OF UPCOMING DATA 09/15/09

  • 8:30 AM RETAIL SALES (2.0) US PPI (PRODUCERS PRICE INDEX) (0.8 %-0.9%, EX FOOD/ENERGY-0.1% vs. 0.1%) EMPIRE STATE MANUFACTURING SURVEY (14.0)
  • 10:00 AM US BUSINESS INVENTORIES (-0.9%)

DATA RESULTS 09/14/09 NO MAJOR ECONOMIC RELEASES

US DEBT REVIEW AND OUTLOOK

U.S. Treasuries fell in Monday’s session as traders surmised that recent gains in U.S. government securities will not be sustainable in a market whose value foundation continues to face challenges from high supply and an eroding value of its underlying currency (U.S. dollar). While foreign buyers of U.S. debt have gained an advantage with regards to purchasing power, that incentive may be dwindling in the wake of eroding returns. In addition, the recent tension between the United States and China with regards to trade may also pressure gains in U.S. Treasuries if the market begins to speculate that China may consider using its massive reserves of U.S. Treasuries as a source of leverage

JP Morgan Chase issued a report today stating that they expect corporate bond yields to narrow with respect to Treasuries as the economic recovery expands perceived value in the balance sheets of business entities over the government. Announcements regarding the amount of US two-, five-, and 7-year debt coming to auction next week also pressured Treasury prices.

Technically, December 30-year bond futures should contend with further downward pressure and volatility. The contract appears poised to test 119-05, with the downside target setting up at the 118-19 level. Initial resistance for the December 30-year sets up at 120-20, with significant test at 121-20.

US EQUITY REVIEW AND OUTLOOK

U.S. equities managed to overcome early pressure from drops in foreign markets and tension regarding a potential escalation of trade sanctions and tariffs between the United States and China. Equity markets perceived comments from President Obama regarding the government seeking to distance itself from the current levels of control over the financial system as positive in the end. Still, volume was relatively light as few traders were inclined to place large positions ahead of Tuesday’s readings on retail sales and inflation at the producers level (PPI).

President Obama offered a stern reminder to Wall Street that the lessons of the past year with regards to rampant excesses and corporate misguidance cannot be forgotten. He urged support from the industry of new regulations designed to protect consumers and avoid the lack of supervision which led to the worst financial crisis since the Great Depression.

Equities managed to push through technical resistance by the end of the session, led by turnarounds in industrial and financial stocks. Overall volume remained low ahead of data releases and expectations of increased volatility due to quadruple witching (expirations of stock option contracts, stock futures contracts, stock index futures and options on stock index futures.

Technically, December S&P futures continue to travel along the high end of overbought conditions as measured by a daily RSI indicator. Based on this and the likelihood of increasing volatility this week, expect S&P futures to have upward target potential of 1049.00 while downside support sets up at 1028.00

US DEBT FUTURES

OPEN

HIGH

LOW

CLOSE

CHANGE

US Z9 (US 30 YRS)

120-15

120-16

119-19

119-27

-21/32nds

SP Z9 (S&P 500)

1029.30

1045.30

1029.30

1043.50

+6.30

SP U9 (S&P 500)

1034.00

1049.30

1034.00

1047.90

+6.30

Prepared by Rich Roscelli & Paul Brittain.

PLEASE EMAIL QUESTIONS OR COMMENTS TO RICH@BINVSTGRP.COM

Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Commodity Trading School, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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