(eToro Blog) U.S. equity markets consolidated as off-setting forces created mixed sentiment. Better than expected auction results in peripheral Europe had equity futures higher prior to the opening bell, but worse than expected U.S. economic data put a dent in the rally. The energy markets continued to drag on the major indexes for a second straight trading session.
Spain and Italy both experienced solid bond auctions amid strong demand. These are the first of numerous attempts during the year that peripheral Euro will raise debt, and a strong start is important on so many levels, not the least of which a psychological one. The amount of maturing bonds and coupon payments in January are roughly balanced; this provides a supportive environment for this month’s auctions. Additionally, the 3-year facility by the ECB has benefit of accessing dollar funding, reducing the chances of a meltdown. Even if some foreign bond-holders fail to roll-over their maturing issues, many domestic investors, such as banks and pension funds, likely will continue to purchase peripheral yields.
U.S. economic numbers bucked the current trend, turning in reports that were, at best, disappointing. Falling short of the 0.2% expectations, retail sales increased 0.1% in December to $400.61 billion, according to the Commerce Department and sales were up 6.5% year over year. Auto sales increased by 1.5% on a month-over-month basis, which was the largest single contributor to the overall gains. Excluding automobile purchases, retail sales fell 0.2%, which was worse than the 0.3% rise expected. In general, after the holiday season, analysts had believed that sales were going to be robust.
On the employment front, Initial jobless claims rose by 24,000 to 399,000 in the week ended January 7 according to the Labor Department against forecasts of a rise of 8,000 to 380,000. For the week ended December 31, claims were revised upward to 375,000 from an originally reported 372,000. The 4-week moving average of new jobless claims increased last week by 7,750 to 381,750.
Both the ECB and BOE met on Thursday to determine the direction of interest rates. As expected, both central banks left rates unchanged. Mario Draghi’s statement following the interest rate meeting was widely followed. Stressing that the ECB stood ready to act, Mr. Draghi said economic performance in the Eurozone will develop at a sluggish pace and inflation will develop in line with the ECB’s 2% target goal. The dovish tone helped create a rally in the Euro, which in turn helped buoy U.S. markets.
Transportation stocks continued to move higher, helping the major averages remain positive. Oil prices were on the defensive on rumors of a delayed Iranian embargo created selling pressure in the petroleum markets. Energy stocks lagged on Thursday, as natural gas prices continued to slide on higher than expected supply.
The VIX volatility index remained above 20%, but it is off its highs of the day. The implied volatility gauge hit 22.03% before selling off as equity markets moved higher; a close below the 20% level will likely lead to a test of 17.5%.
The Nasdaq was the best performing of the major indexes. The technology index is poised to test the 2425 resistance level and support is seen near the 50 and 200-day moving averages near 2295. The S&P 500 Index continued to grind higher, bouncing off support levels near 1286. A close above 1300 would likely signal a breakout targeting the 1350 region.
Copyright 2012 eToro Blog
