The threat of higher interest rates because of the better than expected U.S. Retail Sales Report, helped knock the stock index futures off their highs. Traders, however, did not give up on the long side and bought a late morning dip. The reversal of the carry trade, where investors sell stocks to pay back borrowed Dollars, could trigger a sharp sell-off late in the session.
An intraday rally in the Dollar is helping to pressure U.S. stock index futures. Traders are jumping in the Dollar for safety and out of higher risk assets. Fears that a global debt crisis is building is causing traders to seek shelter in the Dollar.
U.S. equity markets are trading lower at the mid-session following a sell-off which began in Asia and Europe. The stronger Dollar is leading some investors to pare positions as traders become more averse to risk. Traders are trying to protect profits at the end of the year as chart patterns suggest there is more downside than upside potential at current levels.
February Gold is trading lower, but mounting a strong recovery from the low. Last night the market sold off in continuation of the recent break before finding support at an uptrending Gann angle at $1136.00. The chart pattern suggests a retracement to $1181.80 is likely.
U.S. equity markets are under pressure this morning following a better than expected Non-Farm Payrolls Report. This morning the government reported a surprise drop in the unemployment rate to 10 percent. Pre-report estimates were for the unemployment rate to remain unchanged at 10.2 percent. In addition, the total jobs lost came in at 11,000, well above estimates of 125,000.
This morning’s ADP Report showed a greater than expected job loss in November, but the report was revised for the better in October. Pre-market estimates were for a job loss of 150,000. The actual reported loss was 169,000. The number of jobs lost in October actually improved from 203,000 to 195,000. If anything, this report shows that the pace of job losses is slowing.
U.S. Treasury futures are trading higher after today’s $42 billion auction received strong demand. The decline in U.S. 3rd Quarter GDP provided support earlier in the trading session. Finally, weaker equity prices also drove up demand for safe-haven assets like the Treasuries. All of this activity points toward perceptions that the U.S. economy is still in a weak state.
Equity markets are trading a little weaker at the mid-session. Investor demand for higher risk assets is down today which is leading to the weakness. Traders are also beginning to question the valuation of equities at current levels given the state of the economy. Technically, the three main indices may have all hit overbought levels.
