Equity Markets on a Wild Ride
Today’s Spotlight Market
While inaction by the Bank of Japan last week on additional stimulus measures disappointed market participants, the Reserve Bank of Australia (RBA) lowered rates for the first time in nearly a year, taking the benchmark rate to 1.75% from 2.00% on Tuesday.? RBA Governor Glenn Stevens cited low inflationary pressures as a key component for the rate cut and now some analysts are expecting the RBA to potentially lower rates again unless we see an unexpected rise in commodity prices in the coming months
Fundamentals
The roller coaster ride for equity prices continues as the market climbs and dips depending on the economic news de jour. On Tuesday, it was all gloom and doom as a private estimate on the state of Chinese manufacturing in April came in below forecasts, while the European Commission expects Eurozone growth to be weaker than earlier forecasts. On top of the pour economic data, corporate earnings have been a moderate disappointment, especially as analysts were already toning down their expectations for corporate earnings this quarter. In the U.S. equity prices fell about 1 percent as of this writing, with the S&P 500 now trading at 3 week lows. European and Asian stocks posted generally steeper losses than the U.S., with the German DAX down 1.61%, the Euro Stoxx 50 down 1.53% and the MSCI Ac Asia Pacific Index down 1.30%. The weakness in Chinese manufacturing spilled over to the commodity sector especially the industrial metals such as Copper and Iron Ore, where prices fell due to ample supplies and lackluster demand. One bright spot on Tuesday was the U.S. Treasury market, where 10-year Note yields fell by 8 basis points to yield 1.79%. The U.S. Treasury yield curve continues to flatten with the 2yr/10yr curve falling 47 basis points the past year with 10-yr Notes yielding only 1.05% above the 2-yr Notes. While the long-end of the yield curve is still above the short-end, the flattening of the curve has brought about talk of a recession here in the U.S. While current economic data shows the U.S. economy continues to grow, traders may want to keep a close eye on the Treasury Yield Curve as it could be the proverbial ?canary in the coal mine? in regards to whether the U.S. economy is heading into a recession if the curve turns inverted where the short-end of the curve starts to yield higher than the long-end.??? ?
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Technical Notes? -? View Today’s Chart
Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice the market making a series of higher highs and higher lows for the past several weeks as any downside corrections have failed to generate enough selling momentum do negate the current near-term upward trend. However we do note that prices have now fallen below the 20-day moving average but more importantly are now trading below the uptrend line drawn from the February 11 lows. The 14-day RSI has moved from near overbought levels to a more neutral reading of 48.17. Support is seen at the 200-day moving average currently near the 2005.75 price level, with resistance found at the April 20 high of 2105.25.
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