U.S. stock markets surged earlier in the day buoyed by greater demand for higher risk assets. The current stock market rally has recovered a little more than 50% of the recent correction. The late session weakness was most likely profit-taking ahead of the start of earnings season.
The third quarter earnings season kicks off tomorrow when Alcoa reports. Investors will be a little tougher on companies during this round. In July, investors were happy to see earnings, this time they want higher earnings with increased revenues.
Treasury futures fell on Tuesday because of the strength in the equities and increased demand for higher risk assets. Technically, this move was expected because of last Friday’s closing price reversal top. Look for this move to take the December Treasury Bonds down to about 120-16.
The Dollar fell sharply against a basket of currencies. Talk of dropping the Dollar from a barrel of oil and instead pricing it in other currencies helped push the Greenback lower. The story has been denied but nonetheless is a negative for the Dollar in the short-run. On Tuesday, the Reserve Bank of Australia raised its benchmark interest rate by 0.25% to 3.25%. This move ignited demand for higher risk currencies. Traders will be focusing on the December Euro and December British Pound the next two days as they await the results of the European Central Bank and the Bank of England meetings.
December Gold surged sharply higher as the Dollar fell. Demand for gold has been picking up because of the weaker Dollar, but today’s move by the RBA helped take it even further. Traders are now becoming concerned that inflation may be right around the corner especially if commodity prices begin to firm. Expect volatility to be high as gold moves up. Gold usually moves 1% per day so there is the possibility of volatile swings. December Silver may see a pick-up in demand if gold gets too high, too fast.
December Crude Oil moved up with the pick-up in demand for higher risk assets and the weaker Dollar. Traders still have to be concerned about the lack of demand and the oversupply. Speculators are currently running this market.
The threat of a damaging frost helped December Corn gain ground on Tuesday. So far this is only short-covering. Real buying will come in following the first break if the buyers really believe the news.
