Tuesday, September 03, 2013

US Stocks Play Catch Up

Global markets rallied strongly yesterday while the US enjoyed a holiday.  Positive economic data abroad and also a sigh of relief that no strike against Syria was imminent helped foreign markets post strong gains Monday.

Today our markets are playing catch up and rallying.  The August ISM Index rose to 55.7 from 55.4.

Asian markets rose overnight, led by a 3.0% surge in Japan.  Japan's gains were aided by yen weakness and also reports that indicate that the Bank of Japan will consider upgrading its economic assessment at this week's policy meeting.  China's HSBC manuf. PMI held steady at 50.1.  Hong Kong's retail sales rose 9.5% yr/yr.  And the Bank of Australia held its key interest rate unchanged at 2.50%.

In Europe, markets are flat today after gains yesterday.  Eurozone manuf. PMI ticked up to 51.4 from 51.3.  Great Britain's PMI spiked to 57.2 from 54.8.  And Italy and Spain even showed improvement.  Overall, it looks like Europe is beginning to show renewed growth and that should help it get out of its current debt crisis mode.

The dollar is higher today but so are most commodities. Oil prices are flat near $107.80, but gold prices are higher right at the $1400 level.  Silver and copper are also nicely higher.

The 10-year yield is bouncing strongly in reflection of the positive growth data.  The 10-year is 16 basis points higher currently to 2.90%.  It's August high was 2.92%.

The volatility index close at the 17 level Friday but is down 3% today to 16.55.  Given the sigh of relief on military action against Syria and the fact that a vote in Congress isn't likely until Sept. 9th at the earliest I would have expected the VIX to be down more.  But we will see how the day goes.

Trading comment: The markets are breathing a sigh of relief, but given that the S&P 500, S&P 400 and Dow are all still below their respective 50-day moving averages we feel that caution is still the operative word.  This could turn out to be the start of a new uptrend, but we don't need to guess about that on the first day.  Better to wait for the indexes to convert that overhead 50-day resistance into support and show a couple of closes above their key moving averages.  In the meantime the markets could be due for more consolidation as the uncertainty over Syria lingers.


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