U.S. Equity markets are expected to open sharply higher after an agreement by global regulators on the size of bank capital reserves and strong Chinese economic data encouraged traders to demand higher yielding assets.
Over the week-end, global banking regulators agreed to close to triple the size of capital reserves that banks must hold against losses.
On Saturday, China posted a report which showed industrial production was stronger-stronger than expected. Chinese retail sales also rose while August inflation of 3.5% was reported at the pre-report estimate. This helped squelch rumors of another round of monetary policy tightening by the Chinese central bank.
The money which left the Treasury and Gold markets last week is being put to work this morning in the global equity markets.
The September E-mini S&P is trading sharply higher having come close to gapping last week's high. Upside momentum is building which could mean a test of the August top at 1127.75. The question this morning which must be answered is whether U.S. investors will chase this market higher from the get-go or wait for an early session pull-back.
The liquidation break continued in the December Treasury Bonds this morning with this market trading down to the Fibonacci retracement level at 129'11. The daily swing chart indicates that 128'05 is a potential downside target by September 17. Short-term oscillators are indicating slightly oversold conditions which may trigger a short-covering rally especially since the Fib level objective was reached. The 50% level at 130'17 is a potential upside target.
November Crude Oil popped to the upside overnight as demand for higher yielding assets soared on the Chinese news. This market regained a 50% level at 77.70 but has since backed off. Support is being provided by an uptrending Gann angle at 77.49, but the market may weaken if this level is violated. The short-term chart indicates that 79.17 is a potential upside target by September 16 or 17.
Overall the theme today is bullish, but U.S. investors will be the key to sustaining the overall bullishness. There is plenty of cash available to invest but the tendency of U.S. equity traders is to buy pullbacks. This may indicate that an early break may be necessary to attract fresh buying.
Before the opening the bulls are clearly in control, it's just a matter of when and where U.S. investors will show an interest on the long side.