US DEBT REVIEW AND OUTLOOK
A quiet session was had by all within the bond & equity futures markets on Wednesday. Treasuries returned some of their gains from the previous session after testimony from Federal Reserve Chairman Bernanke settled market concerns about the FOMC implementing interest rate hikes beyond last week’s hike in the discount rate. The Fed Chairman stated that inflation pressures were likely to be “subdued”-(I wonder if any of these government officials would state this fact if they had to pay for their own health care?) and that the foundation of the economic recovery will need the support of the near zero interest rate policy for a significant period of time.
Market participants apparently breathed a collective sigh of relief, allowing risk tolerance to increase for the session. Even a report on new home sales hitting a record low failed to boost demand for Treasuries. The increase in risk tolerance also had a negative effect on today’s record auction of US 5 year notes ($42 B). Bid to cover was average, but the yield awarded was nearly 1.5 basis points higher than the market had been expecting. The expectation of low yields on the Treasury curve continuing left participants for the auctions mostly indifferent. Both US debt and equity markets will likely be turning focus to the employment picture next. The second phase of the Chairman’s testimony will likely have some material devoted to that question. In addition, the markets will likely be gearing up to place bets on market price action ahead of next week’s US payroll data. The picture painted by the Fed Chairman leaves an economic path that is uncertain. The fact that some in power are not trying to paint too rosy a picture may be the reason that the markets are able to find some bright spots and ability to support risk.
Technically, March 30 year futures should maintain a pattern of forming lower highs, though the market may have some potential for upside breakouts through the middle of next week. The contract seems to have a growing potential to break up to the 118-15 to 118-18 level. Still see this as good level to initiate short positions, as upside above this level appears limited. Support for the contract sets up at 117-04.
US EQUITY REVIEW AND OUTLOOK
S&P Futures rebounded as the saga of near zero rates in the US is destined to continue; according to US Federal Reserve Chairman Bernanke. The Fed Chairman eased worries about monetary tightening which were fueled by last week’s discount rate hike. Financials felt the weight of uncertainty lifted from them and led the major market indices higher. Citigroup was one of the biggest gainers, grabbing additional momentum from plans to sell off its funds of funds business. Tech and biotech M&A activity helped to support the NASDAQ, while a rebound in energy prices offered some support to the sector.
Technically, March S&P futures continued to meet resistance between the 1103.50 to 1108.00 levels. A breakout of this range could result in a test of the 1118.00 level. Significant support remains at the 1088.50. Continued narrowing of the range appears likely to precede a test to the downside.
Prepared by Rich Roscelli & Paul Brittain. Please voice your market opinions, thoughts and questions. Email to rich@binvstgrp.com
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