Global equity markets are rising overnight as the People’s Bank of China promised to maintain its loose monetary policy designed to support its economic recovery. The day before the Shanghai Composite Index sold off 5% on the fear that China’s central bank would apply quotas to control credit growth. The news is making equity investors less risk averse. Adding to the bullish sentiment in the equity markets is the news that European telecom earnings have been coming out better than expected.
The bullish news has triggered a strong rally overnight in the U.S. equity markets. The September E-mini S&P 500 is challenging the high for the week at 984.00. The September E-mini Dow equaled its weekly high at 9114. Finally, the tech-weighted September E-mini NASDAQ made a new high for the month. Expectations are for a gap higher opening when the U.S. markets resume trading later this morning.
The rise in the equity markets is contributing to the weakness overnight in the Treasury complex. Investors are selling September Treasury Bonds and Notes as the need for a safe-haven investment is diminishing.
Yields are also rising ahead of today’s $28 billion Treasury auction. This week’s auctions have been disappointing. Investors are expressing concerns about the huge amount of debt the U.S. has to issue this year. Demand has not been as strong as expected.
The U.S. Dollar is also under pressure as the equity market recovery is making investors less risk averse. The September Euro is showing gains overnight. European confidence in the economic outlook increased more than economists expected in July. This is another sign that the recession may be bottoming out. Gains could be limited to the upside as unemployment rose in July. This news may keep consumer sentiment down because of employment uncertainty.
Chart watchers should note that the overnight rally is also a technical bounce off the .618 retracement level at 1.4013. Regaining 1.4069 could help the market accelerate to the upside.
The weaker Dollar is also triggering a rally in December Gold. Yesterday this market completed a .618 retracement of its recent 907.60 to 962.70 range at 928.70. Regaining 935.20 could be a sign of higher markets to follow.
Demand for riskier assets is helping September Crude Oil recover some of its losses from Wednesday. Yesterday’s break, which was the largest since April, was triggered by a bigger than expected increase in inventory. Technically this market is finding support in side of a retracement zone. Look for support at 63.00 with a possible acceleration to the upside if 64.15 can be regained.
