U.S. equity markets finished lower for the week for the first time since this current leg of the rally began in early July. Concerns over stock valuations had been pressuring stock index futures all week as investors became concerned about corporate earnings keeping pace with lofty stock prices. Weak U.S. economic reports kept a lid on stock gains all week as traders are now beginning to think the pace of the economic recovery will be slower than previously estimated.
September Treasury Bonds and Notes finished the day with strong gains. Demand has been strong for Treasury instruments all week because of the attractive yields. Today traders bought Treasuries because of the weaker than expected U.S. consumer sentiment report. This report signaled that inflation was not a concern at this time. Weaker equity markets also sent traders to the fixed income asset class in an allocation play.
The U.S. Dollar traded higher against most major currencies. The exception was the September Japanese Yen which posted a gain as Japanese investors repatriated funds. The September British Pound remains under pressure because of the weaker U.K. economy.
December Gold and September Silver finished lower as the Dollar strengthened. The lack of inflationary news is keeping buyers on the sidelines. Although these markets are trading in a range, downside pressure seems to be building which could indicate lower markets next week. Everything depends on how strong the Dollar gets.
September Crude Oil finished sharply lower as longs seemed to throw in the towel after another U.S. economic report indicated that the pace of the U.S. economic recovery would be slower than previously estimated. Bullish traders have been trying to build a case for greater demand because of an economic recovery, but the poor reports this week indicate that this type of thinking may be premature. A stronger Dollar and weaker equity markets will put more pressure on the energy markets next week.
