EmailThe equity market was down on Monday and it was up on Tuesday. Therefore, it must go down today.
It is not as straightforward as that of course, yet the market action of late would lead one to think otherwise. It has been choppy, choppy, and choppy, so it is little wonder that many participants have decided simply to say "ciao!" to the chop for the time being as the fortunes of Greece, Italy, and the eurozone itself seem to alternate with each tick of the sovereign bond markets.
The market term "tick" is apt for some who think the situation in the eurozone is a tick-ing time bomb that is set to go off in the credit markets.
Europe's leadership (a.k.a. "The Bomb Squad") is doing what it can to defuse the situation, yet the gyrations of the sovereign bond markets and the paltry volume in the U.S. equity market suggest confidence is lacking in their efforts thus far.
The same issues have surfaced again this morning, as the yield on the Italian 10-year note has traded on both sides of 7.00% today (currently 7.00% after hitting 7.11% earlier) while other sovereign bonds, principally France and Spain, remain stuck in a credit morass.
Naturally, this has the equity market on its heels at the moment. The S&P futures are down 12 points and are trading 1.2% below fair value. Similar to yesterday, though, we are not seeing an overt risk-off trade in either the dollar or the Treasury market.
The U.S. Dollar Index is up 0.3% while the 10-year note is up just three ticks.
The somewhat calm demeanor of those markets could embolden some traders to buy the opening dip, although their conviction will be tested early as the cash market is on track to trade below technical support at the 1250 level.
There wasn't much response to the CPI report for October, which was close to expectations for both headline and core inflation.Total CPI declined 0.1% (Briefing.com consensus 0.0%) and core CPI, which excludes food and energy, was up 0.1% (Briefing.com consensus +0.1%).
As was the case with the PPI report, a decline in the energy index (-2.0%) was the key item that held down headline inflation. The slight uptick in core inflation was paced by an acceleration in the shelter and medical care indexes, and an upturn in the apparel index, although decreases in the indexes for new vehicles, used cars and trucks, airline fare, and recreation were offsetting components.
The October data left CPI up 3.5% year-over-year (versus 3.9% in September) and core CPI up 2.1% year-over-year (versus 2.0% in September).
The Industrial Production report for October (Briefing.com consensus +0.4%; prior +0.2%) will follow at 9:15 a.m. ET.
Earnings news has once again taken a back seat in driving the broader market. There are some reports drawing added attention, though, namely the ones from Dell (DELL), which beat the Capital IQ consensus estimate by seven cents but lowered its FY12 revenue guidance, Abercrombie & Fitch (ANF), which missed by $0.15, and Target (TGT), which beat by $0.13.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
