The fear of higher interest rates is triggering adjustments in the markets overnight. This week the Treasury will auction a record $104 billion in notes. This huge amount of supply hitting the market is expected to help push yields higher.
Treasury Bonds and Treasury Notes are surprisingly trading higher overnight. The main trend is down so this may only be a corrective move against the main down trend. Unless these two markets take out a previous main top to turn the main trend to up, look for sellers to eventually step up in an attempt to drive these markets lower. All bets will be off on the short-side if the trend changes to up.
Foreign currency traders are buying the Dollar because of expectations of higher interest rates. This is basically a case of traders seeking a higher yield and not based on any economic news or expectation. Some traders are dumping more risky assets and buying the Dollar for safety. Others are position-evening ahead of the FOMC meeting on June 24th.
Equity traders have become concerned about stock valuations. Investors have decided that stock prices have risen too much relative to the pace of the expected recovery in the economy. The fear of higher yields is also weighing on the markets. Some investors will be buying Treasury Notes this week to capture the relatively higher yield and for safety.
August Gold futures are expected to open sharply higher. Technically, this market failed to hold a key retracement price at 929.20. The lack of short-term inflation and the stronger Dollar is putting pressure on this market as the bulls have moved to the sidelines.
Political unrest in Iran may become a bullish factor if the situation escalates but this will only occur if crude oil strengthens and the Dollar weakens.
Technical factors are driving crude oil lower this morning. Last week the main trends turned down in crude oil, heating oil and unleaded gasoline. Most of this break has been attributed to oversupply and low demand. This complex has been rallying despite an overabundance of crude oil supply. Traders are now beginning to question whether the pace of the global economic recovery will be enough to use up some of this supply. Based on the developing weakness, it looks as if traders do not expect to see demand increase over the short-run.
Favorable weather and a stronger Dollar are expected to keep pressure on December Corn and November Soybeans. The recent rains in the Midwest have been enough to help corn grow which is going to help increase the supply. For a while last week, traders thought the rain would hurt soybean plantings, but based on the sell-off late in the week, it looks as if traders now believe that the rain has helped the already planted crop improve.
Softs markets are expected to feel downside pressure because the stronger Dollar is expected to hurt demand. October Sugar remains the most vulnerable to the downside. September Cocoa and September Coffee have already broken substantially so they may be feeling for support. Sugar on the other hand is expected to feel more downside pressure because of the lack of demand. Traders are expected to keep selling until prices drop low enough to trigger demand from India. The Indian government has taken measures to prevent excessive speculation. Until they lift the ban on forward trading, look for this market to sell-off.