Look for today's U.S. ISM Non-Manufacturing Index to move the markets today. Traders are looking for a rise from 48.4 in August to 50 in September. A number greater than 50 should trigger increased demand for higher yielding assets.
Equity markets are trading a little better overnight. The combination of oversold conditions along with expectations of a better ISM number is helping to trigger an early short-covering rally.
Traders are also bracing for the start of earnings seasons on Wednesday. This is going to be the key to driving the stock markets to the next level. During the first quarter the rally was triggered by cheap stocks and bargain hunting. The second quarter rally was fueled by better than expected earnings because companies cut expenses. Investors want to see evidence of more earnings growth during the third quarter, but they must be driven by increased revenues.
Treasury markets are trading higher overnight, but could turn south quickly if the ISM number comes out better than expected. Last Friday's closing price reversal top in the December Treasury Bonds indicates that the rally may be finished at least temporarily.
The U.S. Dollar weakened overnight following the release of the G-7 statement. Many traders had been looking for a comment supporting the Dollar, but instead the G-7 members said "excess volatility and disorderly movements in exchange rates have advance implications for economic and financial stability."
A slight boost in demand for higher yielding assets is helping to boost the December Euro. The December Canadian is trading higher as investors anticipate a recovery in equity markets following last Friday's sell-off. Firmer gold is also helping to support the Canadian Dollar. Weak oil prices are helping to limit gains.
The December British Pound and December Japanese Yen are trading flat to better. Oversold technical conditions continue to provide light support for the British Pound. The Japanese Yen is trading a little weaker, but technical factors could drive the Dollar higher versus the Yen. A trade through 1.1065 will confirm last week's closing price reversal top and could trigger a break to 1.0783 over the short-run.
December Gold did not follow the Dollar last week. At times it rallied along with the Dollar. Today, however, the weaker Dollar is supporting gold. $985.00 is now solid support with 1010.00 the new resistance. A better ISM number could weaken the Dollar and rally gold as traders will increase demand for higher risk commodities.
Energy markets are trading lower in the pre-market. Look for a short-covering rally if the ISM Report comes out better than expected.
