Market Update: Modest Gains Seen at the Open: Bernanke Speaks
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
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.
Banks’ Capital Deficit Means Greek Default Not an Option: Bloomberg
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