Stock Indices are trading lower and Treasury Bonds are moving higher under thin trading conditions ahead of this morning's U.S. GDP report.
Economists estimate that the GDP report will show a gain of 1.6%. A higher number should be outright bullish for stocks. Things could get tricky if the report comes out lower than expected. In this case, look for whip-saw like action. Traders are likely to sell the market initially on a lower number then buy it back cheaper. A lower number will mean the Fed will definitely move toward additional quantitative easing. Stock traders seem to love it when the Fed gives them more money with which to play.
A better-than-expected 2Q GDP number should pressure Treasury bonds as traders will be encouraged to reduce their speculative long positions placed in anticipation of additional QE by the Fed. A number less than 1.6% is likely to trigger a rally to a new contract high through 135'19.
Overnight, the U.S. Dollar rose slightly against the Euro after Moody's downgraded Spain's sovereign rating, but quickly lost ground when traders realized the cut wasn't as big as some had feared. Moody's cited a weak outlook for growth, deteriorating public finances and a worsening debt situation as the main reasons for the ratings reduction.
On Wednesday, U.S. stock markets closed lower under thin trading conditions as most major market participants took the day off ahead of today's 2Q GDP report. This left the market wide open for day-traders and scalpers who created a little volatility early before eventually settling down after the mid-session.
After falling from its Tuesday night high, equity markets traded in a choppy pattern. Investors continued to buy the breaks Wednesday morning like they have been over the past five days, creating a rangebound trading environment. Without any major U.S. economic reports to guide them, investors were forced to focus on the falling Dollar and rising Gold prices.
The Dollar continued to weaken against most major currencies on speculation the Fed will ease once again in the form of additional quantitative easing. The Euro saw another surge to the upside although sovereign debt issues continue to brew in Ireland and Spain. The Japanese Yen found resistance after an overnight surge on speculation the Bank of Japan may intervene.
November Crude Oil made a surprise turnaround to the upside and is now challenging a major 50% price level at 77.70 after inventories surprisingly fell. December Gold pushed higher in limited action. The lack of a major seller is helping to boost prices. Talk of additional quantitative easing and sovereign debt issues in the Euro Zone continue to create fear and concern which is helping to underpin the precious metals.