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The Dow Futures Report

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Equities send up a chert as G20 summit outlines trillion dollar global stimulus

Fri, Apr 3 2009, 06:19 GMT
by Paul Brittain

Alaron

EQUITIES SEND UP A CHEER AS G20 MEMBERS ANNOUNCE FINANCIAL COMMITMENTS TO COMBAT GLOBAL FINANCIAL CRISIS, FASB VOTES TO RELAX MARK TO MARKET ACCOUNTING.

The world’s equity markets sent up a resounding cheer on Thursday as members of the G20 nations announced renewed commitments of financial support and institutional regulation management through a summit which is being hailed by the members as a success. The appearance of better than expected accord and cooperation took hold of the major equity indices, allowing them to push through to their highest levels since early February of this year. The G20 Nations announced a $1.1 trillion commitment to the IMF for the purpose of jumpstarting the world’s economy out of its worst slump in decades. In addition, the world leaders agreed on the development of new regulations designed to offer more transparency for hedge funds and control over the levels of risk that traditional financial institutions are allowed to take on. Equities received an additional boost from the approval of the FASB to relax elements of the mark to market accounting rule. This ruling has been singled out as major contributors to the stress on financial institutions and the creation of the so called “toxic assets” on their balance sheets.

A renewed sense of optimism that the worst of the financial crisis may be behind allowed the major indices to post a broad based rally. The rally was barely deterred by a second day of reports showing a worsening global employment picture. Friday’s release of the US nonfarm payroll and unemployment picture for March is expected to show a loss of jobs near 700,000 and unemployment ticking up to 8.5 %. It would appear that for the time being the markets are “expecting the employment new to be worse than expected”. How long this optimism and gains in equities last is likely to be dependent upon the severity of the next shoe that drops (commercial real estate, acceleration of declining home prices0 and how personally investors take the hit. It would seem though that anything beyond the loss of individual’s home would not have the same shock value and therefore the notion that “the truth is out there” may offer an opportunity for equity markets to at least stabilize for a period of time.

Nearly every sector of equities rallied on the renewed optimism for the global economy. Energy and material stocks rallied on perceived increases in demand as well as a drop in the US dollar, which most commodities are priced in. Banking stocks rallied on the news regarding the relaxing of the mark to market accounting. Gaming stocks surged on rumors of a major buyout firm seeking to invest in the MGM Mirage/Dubai World City Center project in Las Vegas.

Technically, June Dow Futures closed right near its resistance level of 7950.
Should this level hold, the market should hit significant resistance at 8110.This level could pose a significantly overbought condition. A pullback from that resistance range should result in a gap fill to 7905. Significant support for the market should set up at 7595.

Published on  Fri, Apr 3 2009, 06:24 GMT