[MM_Member_Data name=’firstName’],
U.S. markets continued their run towards records highs with the S&P 500, Nasdaq and Russell 2000 reaching fresh intraday peaks into the closing bell.
The Dow lagged but also edged higher. Small-caps led Wednesday’s rally with Financial stocks still struggling despite continued solid earnings from the sector. Oil prices were higher after a larger than expected draw in inventory over the past week.
Global Economy –European markets traded higher on strong corporate earnings and ahead of tomorrow’s ECB meeting. The Euro Stoxx 50 rose 0.8%, while the German DAX added 0.2%.
France’s CAC 40 index gained 0.8%, and the U.K.’s FTSE 100 closed 0.6% higher.
The Nikkei Stock Average was slightly higher after rising 0.1% while Korea’s Kospi Index slipped 0.1%, Taiwan’s Taiex gained 0.1% and the Shanghai Composite Index jumped 1.3%.
ECB policy maker Francois Villeroy de Galhau said that loose monetary policy is still needed for the eurozone economy although the central bank has helped push inflation toward its 2% target.
U.S. Economy-MBA Mortgage Applications Composite Index was up 6.3% for the week ending July 14th.
Housing starts rebounded 8.3% to a 1.215 million pace in June, beating the forecast for a 1.16 million rate.
Building permits grew 7.4% to a 1.25 million rate, which was also better than expected.
EIA inventory data showed a 4.7 million barrel fall in crude stocks.
Crude oil inventories came in at 4.73 million draw versus forecasts for 3.46 million. Gasoline inventories were at 4.45 million draw versus consensus estimates of 676,000.
Market Sentiment –The FOMC decision is a week away and there is little likelihood for a rate hike. Fed funds futures suggest less than 40% odds given the slowing in inflation parameters. Other central banks seem similarly inclined in terms of holding off on policy adjustments at the moment.
The ECB announces its policy decision tomorrow, and while members are likely to be discussing a tapering, analysts don’t expect any firm details.
In regards to quantitative tapering (QT), there is speculation the Fed could announce the start of the balance sheet unwind next week. A stronger labor market and signs of improved growth seem to have given policymakers the green light to begin the process.
However, there is some belief the FOMC might see the markets as too fragile and could wait until the September 19th & 20th policy meeting to announce QT action.
The iShares 20+ Year Treasury Bond ETF (TLT) tested a low of $123.74 with support at $124-$123.75 and the 50-day moving average holding. Resistance at $125-$125.25 held on the rebound to $125.01. Continued closes above the latter could lead to a run towards $126-$128.
Market Analysis-The Spiders Dow Jones Industrial Average ETF (DIA) recently broke out of a trading range from early June and is currently trying to hold support at $216-215.50.
A new trading range could be established up to $218-$220 if these levels hold over the next few weeks. If the Dow can hold the 21,600-21,550 level, a run towards 21,800-22,000 could come on a continued summer rally. This would match the higher aforementioned price targets of $218-$220 for DIA.
The Spider S&P International Consumer Discretionary Sector ETF (IPD) has been volatile in recent weeks and is currently holding its 50-day moving average and support at $39.75-$39.50.
A move below $39.25 would be a bearish development that could lead to a further backtest to $39-$38.75 and the 100-day moving average. Continued closes above the $40-$41 level would be a bullish sign for higher highs with all of the major moving averages still in solid uptrends.
All the best,
Roger Scott