[B]How Will The Markets React?[/B]
Durable goods orders in the US are anticipated to stage a strong recovery in June after plunging the month prior. The headline reading is predicted to rebound 1.9 percent, led by the transportation sector after Boeing reported a jump in civilian aircraft orders. Meanwhile, orders for durable goods excluding transportation, a less volatile report, are also anticipated to improve as underlying growth remains. While both of these readings are important to trading, one of the key components that markets will look at is non-defense capital goods orders excluding aircraft, which serves as a proxy for future business investment. The figure dropped a full 3.0 percent last month, which only exacerbated the dour sentiment of the headline readings. However, there have been some indications that capital spending improved in June. Though the leading index for the month of June fell 0.3 percent, orders for non-defense capital goods - as estimated by the Conference Board - rose for the first time in two months. Furthermore, a breakdown of the Richmond Fed index recently showed that capital expenditure plans for six months from now showed a strong gain to the highest levels since January. While bond and equity markets may show an initial reaction the durable goods report, risk aversion trends will likely continue to prevail. Forex markets, on the other hand, may see substantial volatility on the announcement.
[B]Bonds - US 10-Year Treasury Note Futures[/B]
US Treasuries were little changed on Wednesday, holding below Fibonacci resistance at 106-20, as concerns about credit-market risk held yields near 4.90 percent - the lowest in almost eight weeks. Will risk aversion trends in fixed income markets prevail or will the release of strong durable goods orders help lead Treasuries lower? The broad market opinion remains that the Fed will stay on hold this year, and while an improvement in durable goods orders and, more importantly capital spending, bodes well for expansion, it is unlikely to stir major concerns that the central bank will tighten monetary policy. As a result, any reaction by Treasuries to Thursday?s US data may only be short-lived, as attitudes towards risk will remain the dominant theme.
[B]US 10-Year Treasury Note Futures (Daily Chart)[/B]
[B]FX - EUR/USD[/B]
Despite dour economic data, the US dollar made a comeback on Wednesday, pushing EUR/USD to break out of its tight range down over 100 points to test support at the 1.3700 level. While EUR/USD could certainly stage a recovery to work its way higher, a break below 1.3700 could signal broader declines for the pair. The release of durable goods orders would only help the case for a continued resurgence in the US dollar, as the figure is predicted to rebound in the month of June. Furthermore, with daily RSI showing that the pair has just come down from overbought levels, traders may be anxious to call 1.3800 the top for EUR/USD and ride the bearish wave lower ahead of Friday?s Q2 GDP report. On the other hand, a disappointing durable goods report could lead EUR/USD to bounce up towards 1.3756 as traders shift focus on the potential target of 1.4000.
[B]EUR/USD (Daily Chart)
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[B]Equities - S&P 500 Index[/B]
Energy shares rallied on a surge in oil prices, helping US stocks rebound from their biggest drop in four months to close up 0.5 percent at 1,518.09. Exxon Mobil Corp. led the Standard & Poor’s 500 Index and Dow Jones Industrial Average higher after falling inventories sent crude prices to their steepest rise in nine weeks. Better-than-expected earnings from Amazon.com Inc., the world’s biggest online retailer, and Boeing Co., the second-largest commercial-jet maker, also spurred the advance.
While the dominant theme for equity traders will likely remain earnings, the status of credit markets, and the potential for tighter liquidity, the release of US durable goods orders adds additional event risk. Orders are anticipated to rebound in June, and if a breakdown of the data shows a similar improvement in capital spending, the S&P may work towards the 1,550 level once again. However, if US economic data proves to be disappointing or if broader themes play out in the S&P, the index could drop down towards 1,500.
[B]S&P 500 Index (Daily Chart)
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