DATA RELEASES 04/28/10
10:30 AM EIA PETROLEUM INVENTORIES CRUDE
1:00 PM US 5 YEAR NOTE AUCTION
2:15 PM FOMC MEETING ANNOUNCEMENT
DATA RESULTS 04/27/10
• US CONSUMER CONFIDENCE(57.9/ 53.5)
• US 2 YEAR NOTE AUCTION (BID/COVER 3.03 ON $44 B, YIELD AWARDED 1.024%)
US DEBT REVIEW AND OUTLOOK
US Treasuries jumped to the highest levels of 2010 on a flight to presumably safer securities after S&P downgraded the sovereign debt of Greece to Junk status while Portugal’s debt was relegated to a lower investment grade. Global concern reached a new level regarding these countries being the precursors to a renewed global credit crisis, with sovereign debt being the primary focus this time as countries extend liabilities on their balance sheets beyond a perceived level of recovery through economic growth and tax revenue.
The across the board rise in the Treasury complex failed to offer significant support for Tuesday’s $44 billion US 2 year note auction. Bid to Cover was average at 3.05 with the yield awarded being slightly higher than expected. The lack of demand for even short term debt may offer a forecast into the future where the elements of sovereign debt come into question on a global scale, with actual accounting procedures being the primary focus of valuations. This could lead to a significant uptick in volatility for Treasuries as a war on liquidity may be declared, with corporate debt as well as the debt of those countries that avoided over exposure being the new leaders in investor confidence.
TECHNICALLY SPEAKING- Tuesday’s upside breakout appears fundamentally driven, allowing for a strong push through resistance at 118-12. Continued upside could result in a test of the 119-00 level. A profit taking retracement may result in a pullback to 117-24.
US EQUITIES REVIEW AND OUTLOOK
Stocks across the world staged a massive retreat on Tuesday as global risk tolerance took a step back in the wake of a new chapter unfolding with regards to sovereign debt risk and the fate of market participation for financial institutions as Goldman Sachs comes under scrutiny on Capital Hill as the Senate committee seeks to determine if the financial institution acted in an improper manner regarding its role as a market maker and short seller of mortgage backed securities.
The fall of securities was broad based as commodities fell on a strengthening US dollar and waves of profit taking hit the markets as the uncertainty regarding the outcome of the Goldman Sachs investigation and its potential aftermath on financial reform and the ability of financial institutions to compete and generate revenue. The notion of “Sell in May & go away” may have come a bit earlier in the season.
TECHNICALLY SPEAKING, June S&P futures broke through support at 1182.50. Chart formation suggests that the market may be setting up for a test of support level at 1168.10. A break of this level could result in continued downside momentum to test 1157.50. Resistance sets up at 1194.50.
COMMODITY HIGHLIGHTS
Majority of commodities down heavily as US dollar rallies, risk tolerance fades. Copper drops to lowest levels in a month. Wheat buck trend, posts small gain on short covering rally from oversold condition.
Prepared by Rich Roscelli & Paul Brittain.
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