U.S. equity markets finished higher on Thursday in a follow-through rally following yesterday’s bullish crude oil report. It was difficult to tell today what the driving force was behind the rally since crude oil finished lower and the currency markets were lifeless.
The best explanation for the strength is tomorrow’s option expiration. For several weeks, traders have been talking about the need for a correction. The VIX was rising along with the open interest in puts. Today’s rally may have been an attempt by option writers to keep the lower strike puts out of the money.
The strong close in the September E-mini S&P 500 kept this contract within striking distance of the August top at 1016.00. Without bullish news to drive it higher, breaking this price could be difficult. Since it is option expiration day, watch for trading on both sides of 1000.
September Treasury Bonds and Notes finished higher on Thursday in a move that surprised traders. The stronger equity markets and the announcement of another Treasury auction next week should have led to selling pressure. Today’s rally could’ve have been traders trying to lock in the attractive yields or investors looking to hedge the possibility of a break in equity markets overnight.
The U.S. Dollar finished lower versus most major currencies except the British Pound. The Euro was up because of increased demand for higher yielding assets. The September Canadian Dollar gained on speculation of higher crude oil prices. Concerns over the growing deficit in the U.K. helped weaken the September British Pound.
December Gold finished slightly lower. Traders had a difficult time finding a direction because of the lackluster trade in the Forex markets. December Copper posted a gain in tentative trading. Traders are concerned that China may curtail its demand for industrial metals because of liquidity issues in the country.
December Crude Oil failed to follow-through to the upside following the bullish move on Wednesday. This could be a sign that yesterday’s move may have been overdone or speculation that more information may be needed about a global economic recovery before fresh buyers step in at current levels.
