SUMMARY OF UPCOMING DATA 09/11/09
9:55 AM US CONSUMER SENTIMENT (67.0)
DATA RESULTS 09/10/09
INTERNATIONAL TRADE (-$32 BILLION vs.-28 BILLION), US WEEKLY JOBLESS CLAIMS (550 K VS. 565 K)
EIA INVENTORY REPORT (CL -5.9 M BARRELS, RBOB +2.1 M, DISTIL +2.0 CAPAC UTIL)
EIA INVENTORY REPORT (NATURAL GAS 69 BCF)
US 30 YEAR AUCTION ($12 BILLION BID TO COVER 2.92, YIELD AWARDED 4.238%)
US DEBT REVIEW AND OUTLOOK
US TREASURIES powered through resistance today on a buy American which had both US debt and equities rising for this session. The catalyst for the jump in Treasuries was a greater demand at the $ 12 billion auction for US 30 year securities. Thursday's auction resulted in a strong bid to cover ratio of 2.92 and an awarded yield of 4.238 % on a coupon rate of 4.5%. The bid to cover was the second highest since the 30 year was reintroduced into circulation back in 2006. The strong demand was apparently fueled by retail demand for secure debt as corporate debt defaults increase, making the risk/ reward in the high yield sector less appealing, particularly after the strong gains achieved since March of 2009 when so much quality corporate debt was priced down on the baby out with the bathwater mentality that occurred during the initial run of the global credit crisis.
Treasuries also found some additional support today from Treasury Secretary Geithner. He stated that fiscal policy needs to move from its emergency support strategy to one that can fuel long term economic recovery and stability. This statement could suggest the possibility of a scaling back of the record supply of US sovereign debt which has been flooding the marketplace.
Another support category may be stemming from attempts to lower the interest rate landscape ahead of an expected large wave of adjustable mortgage (remember those) resets that are expected to come up in October. These elements listed combined with heightened security concerns and the ongoing pattern of sell the rumor, buy the fact which has taken place during recent auction weeks.
Again one finds a number of contradictory forces influencing the perceived value and demand for US Treasuries. In the near term, it would appear that at best the market is seeking to avoid a pullback in both US debt and equity markets in the wake of perceived challenges. As equities may be setting up for choppy times, particularly at these lofty levels, Treasuries seem to be finding a foothold on the retail end as well as in the trading tools of fixed income portfolio managers. Supply concerns may be on sideline for now, but if expected equity pullback hits and is absorbed by markets, look for that negative sentiment to return as bondholders resume the quest for yield that truly competes with the cost of living.
Technically, December 30 year futures powered through key resistance level at 119-27. Market has retraced majority of its losses from Sept 4th. Looking for market to find significant resistance at 120-26. A break of this level could allow the contract to test 121-16. Initial support level sets up at 119-03 with next level of support at 118-11. Failure to break this level could result in a series of higher ranges setting up. Believe it difficult for market to sustain momentum with corresponding yields above the 122-00 level.
US EQUITY REVIEW AND OUTLOOK
US EQUITIES continued their winning ways as US weekly jobless claims posted a lower than expected reading and comments from Chinese and US economic leaders offered additional support to the notion of global recovery tempered with strategies designed to alleviate concerns regarding slamming too hard on the brakes with regards to the reversal of fiscal stimulus.
Energy and telecom stocks led the broad based rally higher. Energy companies were support by a 40 percent jump in Natural Gas prices as perception of renewed global growth triggered buying interest on short covering from the commodities recent decade lows.
Strong results from the US 30 year bond auction as well as supporting comments from Treasury Secretary Geithner on the apparently well managed use of resources to pull the economy from its dire emergency to a path of recovery and stability brought buyers of equities back to the table for more.
Technically, September S&P futures closed very near at this review's target resistance level of 1042.60. Market is looking overbought at these levels and looks to pull back. Market should find an excuse for covering of long positions at 1046.00. Look for pullback to initial support at 1036.75, with downward momentum expected to pickup should the contract breech 1028.00. Contract upward target after pullback looks to set up at 1051.50.
December contract in S&P 500 went lead on floor today.
US DEBT FUTURES
US Z9 (US 30 YRS)
SP Z9 (S&P 500)
SP U9 (S&P 500)