The two-day pause in the break in the equity markets made me search for some missing factor which may be lurking in the charts. At this time, the break taking place from the 1127.75 level in the September E-mini S&P 500 appears to be a normal 50 – 62% correction of the 1002.75 to 1127.75 range.
Weak economic reports from China ignited a sell-off in the equity markets on Wednesday but the embers were burning well ahead of the release of reports showing a decline in Chinese industrial output and weak retail sales.
U.S. stock indices plunged sharply lower before the opening propelled by a quick drop in the Euro and a weaker-than-expected U.S. employment report. The drop in the Euro triggered a flight to safety rally into the U.S. Dollar while the employment report raised concerns about a slowdown in the U.S. economy and the possibility that corporate profits may take a hit if the global economy slows down.
Flight-to-safety buying is driving June Treasury Bonds sharply higher. Thursday trading action took out the recent high at 124’16. Upside momentum seemed to be indicating that another surge was likely. The move in the T-Bonds looks more reactionary than speculative with investors taking their cues from the falling equity markets.
U.S. equity markets rallied after earlier weakness as Greece financial worries subsided. Shortly before the opening, European Central Bank President Trichet reduced trader worries by stating that a default by Greece “is not an issue.” This helped trigger a short-covering rally in the Euro while weakening the U.S. Dollar.
U.S. equity markets are called lower this morning after being drilled by a hard sell-off on Wednesday. Some say that comments from Kansas City Fed President Hoenig triggered the break when he talked about a potential asset bubble forming and the need for higher interest rate. This gave worried traders an excuse to take profits after stocks reached lofty levels earlier in the week.
U.S. stock indices took a loss on Friday, driven lower by risk fears and profit-taking. Fear that the Greek financial problems may escalate over the week-end encouraged traders to lighten up positions in equities after a strong run-up. The stronger Dollar also pressured equities as traders took a little money off the top to reinvest into lower risk assets.
China’s consumer-price index spiked higher in February, leading to speculation that its central bank will raise interest rates to curb economic growth. The inflation report showed an acceleration from the year-earlier month, to a greater-than-expected pace of 2.7%. The higher growth was tied to greater-than-expected gains in fixed-asset investment, bank lending, and industrial production.
