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Healthcare Reform Pressuring Stocks

Mon, Mar 22 2010, 12:28 GMT
by James Hyerczyk

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U.S. stock markets are expected to open lower this morning after overnight pressure. Stocks opened weaker in reaction to an interest rate hike in India. This is fueling speculation that a rate hike by China will be next. Fear over Greek financial issues flaring up again are pressuring the Euro which is raising risk in the equity markets.

The passing of the healthcare reform bill overnight is not sitting well with equity traders. Many traders feel the new law will increase the government deficit. The June E-mini S&P 500 looks vulnerable to the downside with 1122.75 a potential target.

June Treasury Bonds are trading lower ahead of the opening. Trading has been tight and volume low overnight despite weaker equity markets and a stronger Dollar. A substantial drop in equity markets could trigger a flight to quality rally into the T-Bonds. A break under 117’23 could indicate weakness.

April Gold is under pressure due to weaker demand for higher risk assets and the stronger Dollar. Downside momentum indicates further weakness is likely with a change in trend to down under the last swing bottom at $1097.30.

June Crude Oil continues to weaken as traders dump higher yielding assets. A break under 79.77 will turn the main trend down. The next major downside target is 77.28. The weakening Euro is having a negative influence on the energy markets and other higher risk commodities.

The U.S. Dollar is trading firm overnight against all major currencies. Without any major economic reports today, the focus will be on demand for higher yielding assets and the Greek financial situation.

The Reserve Bank of India unexpectedly raised borrowing costs on March 19th. This helped support the Dollar as investors boosted demand for safe investments. Traders fear that the hike in India means that China will soon do the same. This news should pressure demand for higher yielding assets, fueling a rise in the Dollar. The early action suggests the markets are a little risk negative this morning which should benefit the Dollar.

Traders are expected to continue to pressure the Euro on expectations the European Union will fail to agree on an aid package for Greece. Pressure is on the British Pound after a report said the U.K. recovery will be “slow and sluggish”.

The passing of the biggest health system overhaul in 40 years could pressure U.S. stock markets today. Overnight the stock indices are trading lower, but so far there has been little reaction by the Forex markets to the news. This could change once U.S. equity markets open. There still appears to be some debate as to how much if anything this new bill will increase the U.S. deficit. Lower equity markets will send money into the lower yielding U.S. Dollar and Japanese Yen.

Euro traders are bracing for a down day ahead of the start of this week’s EU summit. Traders are being told by German Chancellor Angela Merkel that they shouldn’t expect any agreement to be reached on a financial aid package for Greece. If Greece doesn’t get any aid, then look for it to turn to the International Monetary Fund for help. This isn’t sitting well with market because it makes Europe appear weak and makes it look as if Europe cannot afford to help its own members.

The March British Pound is expected to face another round of selling pressure on the heels of the news that the Confederation of British Industry sees a “bumpy” road ahead for the U.K. economy. The report sees a weaker economy because it expects to see consumers save more and spend less. Traders also feel that there are too many negatives to support the British Pound at this time. These negative issues include political uncertainty and a possible credit rating cut.

The weaker Euro is helping to drive down the March Swiss Franc. Traders fear that the Swiss National Bank will continue to intervene to protect its currency and economy from the falling Euro. Losses may be limited because of the threat of higher interest rates. Watch for a break under .9399 with .9355 the next downside target.

The March Japanese Yen is trading lower in limited action. Traders appear to be taking a tentative approach to the market while waiting to see how U.S. stock markets will fare in the face of the passage of the healthcare reform bill. The charts indicate that a trade under 1.0984 will turn the main trend down. Bearish traders are being less aggressive before the opening of the U.S. markets. Aggressive selling in the stock indices could lead to increased demand for the lower yielding Japanese Yen.

The March Canadian Dollar is down after confirming last Friday’s closing price reversal top at .9938. The market topped late last week after the release of better than expected Canadian Inflation Data. The report suggests that the Canadian economy is growing at a faster pace than previously thought, thereby increasing the chance of a rate hike by the Bank of Canada before the Fed. The steep rise in the Canadian Dollar has led to overbought conditions, which is helping to fuel the developing profit-taking break.

Published on  Mon, Mar 22 2010, 12:30 GMT

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