U.S. Retail Sales were disappointing but not as bad as last month's number. The report showed that retail sales were down but the decline fell in line with pre-report expectations.
Equity futures markets have retreated from their overnight highs but have maintained a positive outlook for the day. Traders are likely to continue to be optimistic about earnings reports throughout the day although late in the session there may be a reaction following the release of the Fed minutes.
News that Intel posted its best quarter ever helped drive U.S. stock markets higher in after-market trading, but shortly before the opening stocks are beginning to give back most of its overnight gains. Tech indices are higher this morning than the industrials based on the strength of tech giant Intel.
Fundamentally good quarterly results from Dow component Alcoa and railway giant CSX Corp. fueled investor optimism during Tuesday's trading session. Traders leaned heavily on the long side of the market due to expectations of better-than-expected earnings and strong guidance this earnings season. Many traders had feared ahead of earnings season that European sovereign debt issues and a slow down in the U.S. economy would hurt earnings and lower guidance for the third quarter.
After the markets closed on Tuesday Intel reported its quarterly earnings. This report proved that there was great demand for computers despite recent reports indicating a global economic slowdown.
Technically the September E-mini S&P 500 surged following a breakout over a Fibonacci level at 1081.00. The next resistance level is 1102.75. The September E-mini NASDAQ took out its nearest retracement level at 1848.00, holding this level is important in order to maintain the current rally. The September E-mini Dow has reached 50% of the entire 11140 to 9506 break at 10323. Falling back below this level could trigger a profit-taking break.
The U.S. Dollar is trading mixed against the major currencies. After showing strength against the Euro overnight, the Dollar is weakening because of the poor retail sales report. The British Pound is posting the strongest gain because of improving jobs data.
Although the Euro is trying to turn positive, some concerns have been raised because of a report stating that eleven Euro Zone banks may fail their stress tests. In addition, a report is circulating that Spain borrowed a record amount of money from the European Central Bank in June prior to the expiration of its funding program in July.
On Tuesday, U.S. Dollar plunged into the close, driven sharply lower late in the session by the news that semiconductor chip maker Intel blew out quarterly revenue and profit guesses in its second-quarter results.
Investor sentiment turned extremely positive following the release of the Intel data, driving up demand for higher risk currencies. This sharp increase in appetite for risk is likely to set the tone for a further drop in the Dollar overnight and renewed selling pressure when the stock markets open higher in New York tomorrow morning.
Tuesday's rally was initially led by the British Pound and the commodity-linked currencies. A turnaround early in the trading session also underpinned the Euro after a weaker start.
Traders drove up U.S. equity markets throughout the day in anticipation of Tuesday's quarterly earnings report from Intel. Equity markets opened higher this morning bolstered by good earnings news from Alcoa and CSX Corp on Monday.
The Euro mounted a strong turnaround after a Moody's downgrade Portuguese debt drove it lower overnight. The initial reaction to the news was to the downside, but investors decided to ignore this news and focus on U.S. earnings instead. The fast about face in the Euro took it through the recent top at 1.2722 following a two-day set-back, leading to a resumption of the uptrend and putting the market back on pace to challenge the major retracement zone at 1.2784 to 1.2998.
A report showing U.K. inflation had risen prompted the start of a short-covering rally in the British Pound overnight which carried over into the day session. Traders now believe that inflation could become the key issue which derails the U.K. recovery unless the central bank acts upon it. Today's initial rally indicates that investors may be pricing in a possible rate hike by the Bank of England.
After finding support twice this week on an uptrending Gann angle, the Sterling closed in a position to challenge the recent top at 1.5240. A drive through this level will turn the main trend back to up on the daily chart and set up the market for a further rally to the late April top at 1.5523.
Since the beginning of the month, following a string of worse than expected U.S. economic news, Forex investors have been selling the Dollar. Now, expectations of robust earnings during the second quarter have shifted investor sentiment, pressuring the Dollar even further. With 10-Year Treasuries hovering near 3.00%, investors are hungry for better returns and are flocking to the stock market. Although economic reports have been poor, investor sentiment can be a strong market driver.
After bearish fundamental events in Europe throughout the Spring and concerns about China's growth, foreign investors see great opportunity in the U.S. markets without the high level of risk seen in Asia and Europe. This could help trigger a month long rally in U.S. equities while sending the Dollar spiraling lower until at least the first week in August.
Another key sign in the market on Tuesday was the turnaround in the Euro following the downgrade of Portugal's debt. Although this event may have been factored into the market, today's turnaround served as a sign that market participants are no longer easily rattled by bearish news. The next however, will be the release of the European bank stress tests. Downside key event, momentum may slow in the Dollar a few days leading up to the release of this data, but it seems like it is going to take a blockbuster surprise to derail the Euro at this time.