Morning coffee brief

Another late session turn-around sent U.S. stocks higher on rumors that Germany would be inclined to support a bank deposit guarantee scheme to be announced after the EU summit. However, what actually happened was various leaders coming out of the meeting with no real action and continued conflict over euro zone bonds in this morning’s market update.Image courtesy Willie Cloete: http://www.sxc.hu/profile/PulpdtpWhat glimpses traders got from the summit contain no ground-breaking news. French president Francois Hollande made a statement that he felt there is insufficient investment incentives in the EU and the EU euro bond, while the European Union’s Jean-Claude Juncker is not expecting euro zone bonds any time in the near future.

President Hollande did admit that not all countries in the euro zone agree with his view about growth instruments – but several do share similar viewpoints. President Hollande also went on to support a transaction tax.

The other highlight from the summit was when leaders reaffirmed support for Greece to remain in the European Union, and asked that Greece stick with the mandates even though the market is beginning to price an exit for Greece at the end of the year.

All in all the EU leaders made no decisions about where new capital would come from for the European Investment Bank.

All this had a direct effect on the EUR/USD which dropped like a rock below $1.2515 on the lip service from the summit, although the euro recovered slightly in the overnight and is currently trading around with only a slight recovery heading into the start of the European session.

The other market update that will affect global markets, especially those emerging countries that export raw industrial materials to China, was the China’s HSBC flash PMI. The report shows what traders feared: that China’s PMI has contracted for the 7th straight time with the latest print coming in at 48.7.

China’s exports also declined below the 50 mark with a 47.8 print. This will cause the government to put in additional monetary easing to sustain its target 7.5% GDP growth rate. Equities in China closed lower while the rest of Asia remained mixed on the day.

Over in New Zealand the conservative government released its budget affirming a return to surplus in 2015, however, leaders warned that a Greek exit from the EU could very much hamper its ability to reach the targeted surplus goal in 2015.

As traders finish up the week ahead of the three day holiday weekend, it doesn’t seem all that bullish heading into the open. It’s been a mixed, bitter trading week around the world and even the largest economy has taken its lumps with the S&P 500 on track for the best week in 10 weeks, but the Dow and NASDAQ both on track for their third weekly loss in a row.

Important to note – historically there’s often a late day selloff ahead of a three day weekend.

Little economic data is scheduled for today with the University of Michigan reporting data for the May consumer sentiment index at 9:55 a.m. EDT. Analysts are expecting the index to remain at the preliminary May level of 77.8

This morning’s earnings calendar is virtually blank.

A look at key economic data to watch today:

9:55 a.m.         USD    Revised UoM Consumer Sentiment

9:55 a.m.         USD    Revised UoM Inflation Expectations


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Chesapeake Energy (CHK, quote) could be worth watching today, with reports that BlackRock (BLK, quote) has increased its stake substantially in the energy producer across the last ten days. Reports are suggesting the increase could be as much 4 or 5 million shares.

 Commodity Marker – Electronic Trading

Crude oil

$91.05

+0.39

+0.43%

Nat Gas

$2.611

-0.036

-1.36%

RBOB-Gasoline

$2.884

+0.0075

+0.26%

Gold

$1,561.70

+4.20

+0.27%

Silver

$28215

+0.058

+0.21%

Copper

$3.454

+0.0255

+0.74%

U.S. dollar index

82.20

-0.285

-0.17%

as of 7:39 a.m. EDT

Precious metals corner

Gold and silver trading saw a mix of buying and selling ahead of and during the summit yesterday. Gold was even at one point trading above the T3 Tilson but once traders realized no monetary easing was coming from the summit, both sold off and closed lower on the day. Today ahead of the long weekend traders are stepping back into gold on uncertainty across the three day U.S. holiday weekend.  

ETF holdings

Holdings in the world’s largest gold-backed ETF, the SPDR Gold Trust (GLDquote) moved higher once again to 1,270.26 tons as of May 24 from the previous trading day.

The iShares Silver Trust (SLV, quote) holdings also moved slightly higher to 9,664.30 tons on May 24 from the previous trading day. SLV is the world’s largest silver backed ETF.

Fundamental outlook

Gold and silver are trading higher today in early trading as traders are fearful of what could happen across the holiday weekend. Look for gold and silver to continue drift higher by late afternoon.

Looking at the pre-market we find:

Pre-markets are quiet ahead of the end of the trading week with the following ADRs with activity:

SMS    SIMS METAL MANAGEMENT LTD SPON ADR

SYT     SYNGENTA AG SPONSORED ADR

TM      TOYOTA MOTOR CORP ADR

SNE    SONY CORP ADR  

BCS    BARCLAYS PLC ADR

Bottom line: U.S. futures are suggesting a negative opening today with a real possibility of a late day sell-off ahead of the three day weekend. The possible holiday selloff is not necessarily limited to U.S. equities, but since U.S. traders are the bulk of the volume for ADRs, these will most likely be caught in the sell-off as traders reduce risk into the weekend to guard against euro zone issues. Gold and silver however, could benefit from the fear as traders park assets into precious metals. And remember – historically there’s usually a late day selloff ahead of a three day weekend.