Bond & equity report for Dec. 9

SUMMARY OF UPCOMING DATA 12/09/09

  • 10:00 AM US WHOLESALE TRADE
  • 10:30 AM EIA PETROLEUM REPORT
  • 1:00 PM US 10 YEAR NOTE AUCTION ($21 B)

DATA RESULTS 12/08/09

  • U.S. THREE-YEAR NOTE AUCTION: BID TO COVER 2.98-YIELD 1.223

US DEBT REVIEW AND OUTLOOK

U.S. TREASURIES continue to build on Monday’s recovery in prices as market players quelled concerns regarding global financing concerns by executing a “flight to safety” strategy-purchasing Treasuries primarily on the short end of the yield curve. An official (not surprising) downgrade of Greece’s debt by rating agencies Fitch and Moody’s to triple B plus- the final rating of investment grade debt with a negative outlook fueled concerns of renewed crisis of confidence in global fiscal and monetary policies.

Risk appetites were quelled further by weaker than expected readings on German and UK industrial production figures. In the United States, weaker than expected sales figures from McDonalds brought to light the ongoing jobs crisis (fewer people grabbing quick breakfasts on their way to work). All of these elements combined to raise uncertainty in global markets, sending traders and investors searching for relatively stable returns in lower yielding currencies. The global concerns helped to send the U.S. Dollar Index to its highest level in nearly a month, supporting the appeal of U.S. dollar denominated debt in terms of overall return.

Tuesday’s auction of U.S. three-year notes ($40 B) actually dampened buying demand. The auction resulted in a relatively strong bid to cover of 2.98. Higher demand came at the cost of higher yield. The accepted yield was a higher than expected 1.223. Treasury bidders were more enthusiastic at the weeks U.S four-week bill auction, which resulted in a zero percent interest rate (the same as last year) as holders forsook yield for security as the uncertainty of the year end outlook looms. Wednesday will give host to the U.S. 10-year note auction ($21 B) Traders will likely take note of demand further out on the yield curve.

Technically, March 30-year futures closed slightly below resistance at 119-24. Range trading should allow market to drift back to 119-12 as initial support. Downside target 118-21. Resistance sets up at 120-08, with 120-22 breakout target to upside.

US EQUITY REVIEW AND OUTLOOK

US EQUITIES fell on economic concerns stemming from the downgrade of Greece’s Treasury debt to just above junk status by ratings agencies Fitch and Moody’s. Disappointing sales from McDonalds further fueled investor concerns regarding the “economic headwinds” which appear to be reemerging just in time for the New Year. Further developments regarding the debt crisis in Dubai, as investors begin to sense further shoes to drop and sold equities in favor of flight to quality instruments such as U.S. Treasuries and Euro Bunds. Additional recovery disappointments occurred on weaker than expected readings on German and UK industrial production.

Stress relief or drowning sorrows (depending on your positions) allowed Brown and Forman, maker of Jack Daniels, to post better than expected quarterly profit. Financials and energy stocks were among the biggest losers in Tuesday’s session.

Technically, December S&P futures broke their first level of support at 1093.00. Market is setting up to test 1086.00 as significant support level. If that level holds, suggest buying at 1088.00, as market could retrace back on short covering to 1094.00. Resistance sets up at 1102.75.

US DEBT FUTURES

OPEN

HIGH

LOW

CLOSE

CHANGE

US H0 (US 30 YRS)

119-08

120-08

119-04

119-21

+17/32nds

SP Z9 (S&P 500)

1095.50

1097.30

1087.80

1090.00

-13.70

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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