(eToro Blog) U.S. markets consolidated after testing the upside on Tuesday, as weaker than expected growth in Germany put a damper of European and U.S. bourses. The Nasdaq continued to buck the trend, however, moving higher for a 5th straight trading session. The transportation sector continued to push higher, too, and has been a recent driving force in the market along with financials. Unexpectedly weak oil inventory numbers put pressure on energy stocks, which were a drag on the major averages.
German gross domestic product fell at an annualized rate of around 1% in the last quarter of 2011, according to the German government statistics office. Solid domestic demand helped the German economy to grow by 3% overall in 2011, down from 3.6% in 2010, the government statistics office said Wednesday.
The U.S. experienced a similar yield contraction just days after Germany set 6-month rates below zero. On Wednesday the U.S. Treasury sold $21 billion worth of 10-year notes at a yield at 1.9%, the first time ever that the yield has fallen below 2%. The previous low was, in fact, a 2% yield from the 10-year sale in which occurred in September, 2011. The 1.9% auction yield was even lower than 1.909% traded right before the sale, signaling a stronger bid than dealers expected. The amount of bids submitted was 3.29 times the amount on offer, higher than the average of 3.09 times from the previous eight sales. The result was the latest evidence that, for investors, U.S. Treasury bonds remain a go-to safe harbor amid uncertainty about the Eurozone’s fiscal and debt problems.
Energy stocks were hit by the decline in Natural Gas futures, along with a retracement of oil prices. The decline in oil came on the back of worse than expected inventory numbers released by the Department of Energy. U.S. commercial crude oil inventories increased by 5.0 million barrels from the previous week; this compares to expectations of a climb of less than 1 million barrels which has put stocks at the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 3.6 million barrels and distillate fuel inventories increased by 4.0 million barrels. This is the time of the year that gasoline inventories tend to rise, which is usually offset by a decline in distillate stocks. The recent warm weather in the Eastern region of the U.S. has lightened demand for heating fuels.
Total demand for petroleum product over the last 4-week period has averaged 18.4 million barrels per day, down by 6.5% compared to the same period a year ago. Gasoline demand has averaged 8.6 million barrels per day, down by 4.8% from last year. Distillate fuel demand has averaged about 3.8 million barrels per, down by 2.2% from the same period last year.
The decline in transportation fuels gave a boost to the transportation sector which has broken out to the upside. The major indexes will need to follow to confirm this upside move. The S&P 500 Index is correlated to the transportation index, and continues to remain above closing support levels near 1286. Target support level is the 200-day moving average near 1260. A close above 1300 will likely bring about a rally to target resistance near 1350. The Nasdaq was the best performing index and is poised to test resistance near 2440.
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