U.S. equity markets plunged in pre-market trading following a weaker than expected U.S. Housing Starts report. It was reported that in June housing starts fell to a 549,000 pace, a 5% drop and an 8-month low. The Dollar and Treasury instruments rose on the news as traders became risk adverse, shifting their interest to lower yielding assets.
The September E-mini S&P 500 tested a 50% level at 1051.00 and held 1050.75. This move may be enough to attract bargain hunters who may trigger the start of a short-covering rally.
The inability of the September Treasury Bonds to reach a new contract high following the bad housing report may also be a sign that stocks have reached an oversold level and Treasuries an overbought area.
August Gold is trading weaker because of falling stocks and a rising Dollar. The slow-down in housing is another indication of a weakening economy. This is likely to pressure consumer confidence and spending, leading to more weakness in consumer prices and inflation.
Shortly after the New York close on Monday, Texas Instruments (TI) and International Business Machines (IBM) fell sharply lower taking the major indices with them. Shares in the two tech giants were under pressure as both companies reported revenues below expectations.
U.S. stock index futures failed to hold earlier gains and spent much of the day see-sawing between positive and negative, but still managed to close higher following a late session short-covering rally.
Short-term oversold conditions, a steady Euro and optimism about this week's earnings reports helped underpin the market after a mid-morning break. The markets topped after the National Association of Home Builders' confidence index fell to its lowest level since April 2009.
The bearish reaction to the homebuilder's index is most likely a precursor to what may happen later in the week when the U.S. reports building permits, housing starts and existing home sales. The housing market is triggering problems with consumer confidence. This is leading consumers to curtail spending. Homeowners are worried about their jobs and their ability to make mortgage payments.
September Treasury Bonds and Treasury Notes finished lower. Profit-taking and uncertainty about the direction of the equity markets pressured the financials throughout the day. September T-Notes tested the high for the year at 123'13 before breaking. September T-Bonds are still finding resistance slightly below the contract high at 128'19. Overnight weakness in the equity markets is likely to trigger a flight-to-safety rally in both of these markets by the opening on Tuesday.
August Gold resumed its downtrend on Monday after a few days of consolidation when it took out the last swing bottom at $1185.00. The next major downside target is $1158.30. Low inflation and an expected slow-down in the U.S. economy is helping to put pressure on gold.