Risk off trade started in Asia with banks and brokers leading the downside.
In Europe trading is mixed with some indexes are positive and others negative. However most of them are higher than during the beginning of the Euro session as yields of the bonds from Italy and Spain drop.
There is still no agreement, but there is serious talk about implementing a Quantitative Easing program by European Central Bank. This program would monetize the debt of the PIIGS countries and lower their yields and allow them to finance their spending by weakening the Euro.
This liquidity injection would be bullish for equities, precious metals and commodities.
Read more: European QE
The market uptrend remains valid but under technical resistance of the 150-200 day moving averages in the major US indexes. Yesterday's close was encouraging because the markets were able to reverse the losses and close on higher volume compared to Monday's sell off. However, volume remains extremely low.
The S&P 500 is building a "symmetrical triangle" chart pattern which most traders are observing. A breakout or breakdown of this pattern will probably create an important move for the equity markets.
Keep track of the NASDAQ via the ETF (QQQ). Once again we are very near 11 year highs. A breakout of these levels with volume and conviction will probably get people very bullish with hedge funds chasing performance. This could trigger an important market rally despite the bad economic-macro situation.
Macro data releases for the US economy were once again fairly positive and better than expected. Industrial Production and Capacity utilization came in better than expected but last months numbers were revised lower. Industrial production increased 0.7% from the previous month and capacity utilization increased to 77.8%
Although we have been seeing some improvement, both economic series are still substantially off their pre-recession highs.
The CPI numbers also were better than expected as inflation was lower than expected.
CPI dropped by -0.1% and Core CPI increased by 0.1% which was on line with expectations. Lower than expected inflation means the FED can stimulate the economy for a longer period of time with agressive monetary policy. This is normally viewed as bullish for the markets.
The last macro release was the NAHB Housing Market Index. This was better than expected with a reading of 20 vs 17 that was expected. A reading under 50 means that housing conditions are viewed as negative. The index showing very weak readings but today's data is the highest since May 2010.
The uptick in economic data from the US that we are seeing puts a "fundamental support" in the market. That is why we are tending to see weak equities in the open, dragged down by Europe, and then rallies as the american session goes on due to the positive economic data. Fourth quarter GDP will probably surprise to the upside if the current trend of economic data is sustained.