EQUITY INDICIES:
It is difficult to place a finger on the fundamental pulse of the equity markets today as the bull camp is likely benefiting from classic short covering and from a downward shift in treasury yields over the last 24 hours. Not surprisingly, the market focus has shifted to the new year and the new political landscape and has not definitively returned to wild eyed optimism toward AI. Overnight corporate headline flow was mixed and not particularly directional with Nvidia wrapping up an acquisition and news that Tesla would fix a software glitch in 77,600 Chinese made vehicles. However, the general optimism toward the shift from Biden-ism to trump-ism favors the bull camp. From a technical perspective, a second straight session of large range down action with closes below the midpoint of the ranges leaves the bear camp in control. Uptrend channel support drawn from the August and December highs is 5906.10 today with resistance in a thin trade likely seen between 6009 and 6000. The latest COT positioning report in the S&P shows a somewhat liquidated net spec and fund long especially given the markets high to low slide of 182 points after the report was compiled. The NASDAQ continues to be the most volatile sector of the market with ranges in the prior two sessions large and volume picking up despite a thin overall holiday trading environment.
CURRENCIES:
While the dollar has generally eroded since the major December 20th high the trade remains mostly bullish from a long term trend perspective. However, it is our opinion that the trade has constantly doubted the strength of the dollar, which in turn has produced periodic and notable corrective setbacks. While tensions in Scandinavia stemming from what is thought to be a purposeful destruction of undersea powerline/telecom cables remains below a boil because of lack of clear proof of the perpetrator that situation probably provides the dollar with some support. A minimal and likely temporary pressure of the dollar is continued Swiss National Bank purchases of Swiss francs with the bank indicating its third quarter purchases were roughly $806 million. Despite a near-term corrective tilt the dollar looks to remain in vogue in 2025 with the trade seeing the US Federal Reserve as less dovish than other central banks and the Trump wildcard coming into play starting in the last half of January. While Thursday could bring ongoing thin activity due to the holiday environment, currencies should see a measure of volatility from Chinese and European manufacturing PMI readings which are generally expected to improve slightly.
INTEREST RATES:
In what we would describe as a year-end short covering bounce, treasury prices have added to yesterday’s key reversal with a six-day high early today. In retrospect, yesterday’s US scheduled data showed a mix of countervailing data points with Chicago purchasing managers much weaker than expected and a pending home sales much stronger than expected. In fact, US Pending home sales in November reached a 21 month high in a development that should have resulted in a new low for the move in Bonds. However, as indicated we think current strength is technically based and heavily influenced by short position squaring. Afterall, the US economic outlook remains mixed, but the bull camp might temporarily benefit from a combination of short covering and minor signs of softening house price inflation. While the near-term impact on treasury prices of the reported Chinese hack of the US treasury department might be difficult to predict, we suspect any evidence pointing to involvement by official Chinese assets could ramp up US/Chinese trade tensions in the new year. With March bonds into the low yesterday trading one full point below the level where the COT positioning report was calculated, the net spec and fund long was unlikely to have balanced long positioning leaving the market vulnerable to upcoming speculative selling.
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