Market Update: Modest Gains Seen at the Open: Bernanke Speaks

Posted On: Tuesday, June 7, 2011

Overseas markets managed to break their downtrend to move mostly higher overnight.  U.S. equity futures are following suit, with the main stock averages all pointing to a solid advance in pre-market trade.  Growth fears have plagued financial markets over the last month, and without some clear sign that recent economic weakness is temporary, any move to the upside will likely be short-lived. 

Yesterday, markets broke below some key technical support levels, with the S&P 500 falling below the 1,300 level, and below its 150 day moving average of 1,283.  Meanwhile, the Dow is poised to break below the psychologically important 12,000 level.  There is little to motivate markets higher, with the end of QE2 approaching, and a non-stop stream of economic indicators pointing to a slowing economy. 

Commodities are flat this morning.  Precious metals are mixed.  Gold futures are trading just south of unchanged at $1,545.80, down $1.40.  Silver futures are showing decent gains, up 1.22% to trade at $37.23.  Oil futures are mixed, with WTI futures down $0.51 to $98.50 while Brent futures are up $0.20 to trade at $114.68.  Copper futures are down $0.0045 to trade at $4.1375.

The highlight of the day will be a speech by Federal Reserve Chairman Ben Bernanke scheduled at 3:45.  Markets will be keen on any indication on how he and the Fed are viewing the current rash of poor economic points.  Wednesday sees the release of the Fed’s Beige Book ahead of the upcoming June 22nd FOMC meeting.  The Fed’s regional survey of economic conditions is likely to mirror the weak economic data seen over the last four weeks. 

The credit rating agencies are coming out with a number of statements regarding Greece’s plans on having bondholders “voluntarily” rollover maturing obligations.  As is fairly obvious, it is unclear why bondholders would agree to this, and since much of Greek debt requires 100% bondholder approval for a restructuring, this key aspect of the Greek plan is being deemed by the rating agencies as a likely “default” event.  This is of course the big worry for Eurozone policymakers.  If an event of default were to occur, not only would the equity on the balance sheet of scores of European financial institutions be instantly wiped out, but it would trigger an unknown number of credit default swap claims that would ripple through the global financial system.  In the final analysis, Greece remains an issue.  

In other news, Peru financial markets will be a focus following yesterday’s sharp fall.  Newly elected president Humala will have to move fast and reassure nervous investors that he will follow the Brazilian model, and not the Venezuelan model.  To this end, he is expected to visit Brazil ahead of his inauguration and appoint a market-friendly finance minister, perhaps as soon as today. 

OPEC begins its meeting on Wednesday.

General Motors (GM) reported a 2.7% drop in sales in China, the second consecutive monthly drop.  This is just another indication of slowing global demand.      

Noteworthy News:

EU Banks’ Capital Deficit Means Greek Default Not an Option:  Bloomberg 

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