Global Equity Markets Overnight Were Lower

STOCK INDEX FUTURES

Global equity markets overnight were lower with the markets in Australia and Japan bucking the trend with minimal gains. While the equity markets are generally devoid of anxiety this morning, investors are likely to continue to move this up to the sidelines for fear of recession and that deterioration earnings ahead investors are likely to continue to move to the sidelines for fear of recession and deterioration of earnings ahead. With a 50-basis point rate hike from the Bank of Australia overnight, the US Fed thought to be locked and loaded for a 75-basis point hike at the end of this month, the war exhibiting intense fighting, the Chinese stimulus program released overnight offered no cushion to stock prices. Unfortunately for the bull camp, the fear of the Fed and recession are unlikely to dissipate until several classic scheduled inflation readings foster talk of a top in inflation.

S&P 500: The path of least resistance remains down with the bounce off last week’s low an opportunity for longs to move to the sidelines. As indicated already, despite talk of a reduction of US tariffs on China and a Chinese stimulus package announced overnight the bull camp is not easily enticed back into the market. As in many physical commodities markets the most positive issue for the S&P is the escalating net spec and fund short positioning! E-Mini S&P positioning in the Commitments of Traders for the week ending June 28th showed Non-Commercial & Non-Reportable traders were net short 154,325 contracts after increasing their already short position by 18,108 contracts. Selling resistance is seen at 3857.75 and near-term targeting is seen at 3744.50.

CURRENCY FUTURES

DOLLAR: This morning’s headlines tout the euro at a 20 year low to the US dollar, with the dollar index also strong against all actively traded futures currency contracts. Obviously, expectations of a worldwide recession continue to dominate markets, with the currency markets assuming the US economy will weather the slowdown better than most. Those assumptions are likely to be correct given the excellent stewardship of the Federal Reserve chairman and looming mid-term US elections which will likely result in Washington giving away the candy store with various pork barrel spending plans. Near term upside targeting in the dollar must utilize monthly charts with the next key level seen up at 107.30. The June 28^th Commitments of Traders report showed Dollar Non-Commercial & Non-Reportable traders net sold 189 contracts and are now net long 46,547 contracts.

EURO: With an avalanche of mixed to slightly soft PMI data from the euro zone fomenting increased recession fear and Europe remaining more vulnerable to high energy prices and the war in Ukraine, the exodus from the euro should extend. With the recent downside breakout on the charts the next lower target in the euro is seen at 1.0300 and perhaps 1.00. Euro positioning in the Commitments of Traders for the week ending June 28th showed Non-Commercial & Non-Reportable traders added 1,201 contracts to their already long position and are now net long 16,025.

YEN: As in many physical commodity markets, the Yen is caught in technical and fundamental downtrend status. Adding into the idea that the Japanese economy has the worst conundrum of the “need to hike rates on a staggering economy”, disappointing Japanese labor cash earnings and a bank services PMI contraction adds to the downward track. Near term downside targeting in the end comes from the 1998 bottom zone which is located 200 points below this morning’s trade.

SWISS: While the Swiss continues to hold up better than other non-dollar currencies to the dollar onslaught, the path of least resistance remains down. In fact, global inflation expectations have lost their ability to support the Swiss and a return to parity of 1.00 is likely ahead.

POUND: With the Pound last week rejecting the sub 1.20 level and that level credible support on four major occasions since late 2016, a pause in the downside is possible. In fact, favorable composite, and services PMI readings from GBP overnight adds a fleeting measure of fundamental support for Pound prices.

CANADIAN DOLLAR: The need to hike interest rates on a slowing economy conundrum is front and center in the Canadian this morning, with the trade expecting the Bank of Canada to act aggressively. The Canadian is also under pressure following a loss of momentum in Canadian manufacturing activity and expectations that the Canadian economy slipped into contraction as early as May. Near term downside targeting in the Canadian is derived from a double low on the monthly charts 90 ticks below this morning’s early trade.

INTEREST RATES

Even with some positive global economic readings released overnight and a Chinese stimulus package the global economic outlook remains negative. Therefore, the path of least resistance remains up in US treasuries especially with expectations of a strengthening dollar increasing the attractiveness of US bonds and notes. However, the market might be limited on the upside today because of a thin US scheduled report slate. On the other hand, economic data will flood the markets over the Wednesday through Friday trade with indications from all manner of reports likely to confirm slowing.