Market update: morning coffee brief

Market update: After U.S. markets closed yesterday Federal Reserve Vice Chairman Janet Yellen, typically considered a dovish member of the FOMC committee, said there are significant downside risks to the economic outlook. 

Image courtesy Willie Cloete: http://www.sxc.hu/profile/PulpdtpYellen’s comments set up trader expectations for a new round of global easing, and traders were not disappointed as the expectations continued into Asian markets last night with China answering the call in this morning’s market update. 

President Hu Jintao implied China will be stepping up with $10 billion worth of loans for the Shanghai Cooperation Organization member states. Stimulus is also showing up in the form of additional spending for China’s rail infrastructure, according to China’s Transport Institute.

The stimulus wave didn’t end with China last night. India’s Prime Minister Manmohan Singh gave a hefty market update when he unveiled a 1 trillion rupee (yes trillion with a t, which equals $18 billion) infrastructure stimulus across five years for projects ranging from airports, rail, roads, and sea ports. India’s markets climbed more than 2%, printing the biggest daily percentage gain since January 3 on the back of the infrastructure projects and hopes the central bank will cut interest rates. The rally was led by autos and banks.

The wave then continued even into frontier markets with Malaysia jumping on the stimulus bandwagon, helping its citizens by offering five million Malaysian ringits to low income households.

Global markets and governments seem to be taking the euro zone crisis very seriously. FOMC members spoke yesterday on the effects of the European crisis on the world’s largest economy, and whether or not the above stimulus plans were already planned to be released, it’s clear emerging markets and even frontier markets are taking steps to fight off the euro zone crisis.

The stimulus wave ended with former Japanese Minister of Finance Eisuke Sakakibara commenting that he sees no need for any intervention in the yen at this time. 

The above market update data is compiled from TradeTheNews and Keynote Capitals and in some cases is adjusted.

Finally a positive market update out of the euro zone after a successful Spanish debt auction with surprisingly strong demand. The auction allowed Spain to sell €2.1 billion worth of bonds ($2.64 billion) for a lower yield than the last auction.  

Spain, China, India and Malaysia have all helped to set trader sentiment for the euro zone and Western markets today ahead the of Fed Chairman Ben Bernanke’s testimony to congress at 10 a.m. EDT. Traders will be watching and listening closely for any sign or hint of QE3.

Mr. Bernanke will have the advantage of knowing the new labor market data, with the weekly report on initial jobless claims prior to his testimony at 8:30 a.m. EDT.

Key economic data

10:30 a.m. EDT the Energy Department weekly natural gas inventories.

3:00 p.m. EDT the April consumer credit report.

10:30 p.m. EDT South Korea Central Bank will release its interest rate decision.


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In commodities news crude oil jumped on the news that Iran backed out of an agreement for expanded nuclear inspections.

Commodity Marker – Electronic Trading

Crude oil

$85.37

+0.35

+0.41%

Nat Gas

$2.404

-0.017

-0.07%

RBOB-Gasoline

$2.6866

-0.0037

-0.14%

Brent Crude

100.55

0.09

-0.09%

Gold

$1,619.80

-14.40

-0.88%

Silver

$29.28

-0.208

-071%

Copper

$3.367

-0.012

-0.36%

U.S. dollar index

82.235

-0.145

-0.18%

as of 7:25 a.m. EDT

Precious metals corner

Market update: both gold and silver spiked in yesterday’s pre-market, only to lose their gains as the U.S. Beige Book was released and the U.S. market climbed, erasing Friday’s losses on the Dow. Gold and silver are basically trading flat to the downside ahead of Bernanke’s testimony.

ETF holdings

Market update: holdings in the world’s largest gold-backed ETF, the SPDR Gold Trust (GLDquote) ticked higher to 1,274.79 tons as of June 6 from the previous trading day.

The iShares Silver Trust (SLV, quote) holdings jumped higher to 9,699.25 tons on June 6 from the previous trading day. SLV is the world’s largest silver backed ETF.

Fundamental outlook

Gold and silver are both trading flat to the downside ahead of Bernanke’s testimony as traders look for signs of QE3. If the chairman gives the slightest hope for QE3, look for gold to jump out of the flag pattern it has settled into this week and test near term resistance at the $1,674 level. If there are no hints but no outright denial of QE3, look for gold to continue to basically trade sideways until the next round of key economic data.  

Looking at the pre-market we find:

Pre-markets are quiet ahead of the opening bell while traders wait for Bernanke’s testimony, with activity in the following ADRs:

GSK    GLAXO SMITHKLINE PLC ADR

Bottom line: Markets received global support from several countries stepping up with creative easing to stem off the European mess affecting global markets. This is setting the sentiment into Fed Chairman Bernanke’s testimony, at which time traders will be hanging onto and analyzing every single word.  If the FOMC continues the easing sentiment in any way the market should rally, the U.S. dollar should lose ground, and gold and silver should climb. Well at least in a rational world.