More than 80% of the 27 S&P 500 companies that have reported quarterly results beat analysts’ estimates compiled by Bloomberg, as the U.S. equity indexes continue to hover close to 2012 high levels. With that said, reports of accelerating inflation levels in China seem to be tempering another immediate leg up in the equity markets. We believe this is not a major cause to become bearish, but more a temporary breather on the way up to 1500 in the S&P 500. This is our opinion.
Corporate earnings have been positive overall, and thus this is another bullish data point to add to the rally case going forward. It seems like the markets are moving “back to normal” in the sense that they are looking more dependent on actual economic data vs. moving sharply up or down on geo-political headlines.
Another market that seems to be directly affected by the China inflation data is crude oil. Crude oil is down $0.64 today, likely because of concerns that rising inflation in China will temper more stimulus and this potentially reduces crude oil and other demand of commodities. We don’t think this is a huge story that will be a big market impact going forward. RBOB gasoline and Heating Oil futures are also retracing some of their recent rally, with RBOB down around $0.055 and heating oil down $0.046.
Precious metals have gotten sold today, with gold futures down almost $18 and silver futures down around $0.60. Again, we believe this is an effect of the China inflation data, as investors may now believe there is less likelihood of monetary stimulus. Overall the precious metals moves are in line with our belief that gold will experience a short term range between $1,630 and $1,690.
We focus on the grains markets today, specifically the soybeans futures market. There is a monthly USDA report scheduled to be released at 11 am CST today, which might have a significant impact on the grains markets. MAR13 soybeans are down $0.16 this morning before the report release, while MAR13 corn futures are down $0.09 at $6.89. Soybeans have now broken their very key support level at $13.60, but this could be short-lived with a bullish report release. Our next major support level for the soybeans is $12.40. If soybeans got down to this level, we would think it would be very oversold.
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