STOCKS: Equities Have the Feel of Optimism Ahead of US CPI

Equities have the feel of optimism ahead of US CPI Global equity markets overnight were higher except for the markets in China and Russia. While risk on sentiment is not fully dominating this morning, the markets have shaped potentially concerning contractions in Chinese inflation readings into a positive with chatter of the potential for Chinese stimulus. However, as indicated repeatedly over the prior day's coverage, US inflation readings tomorrow will likely set financial market trends for the remainder of the 2nd quarter. Earnings announcements will include Albertson's and CarMax before the Wall Street opening.

S&P 500

With the aggressive rejection of the 4100 level yesterday that level becomes a credible support zone but will not support the market if the markets perceive the US inflation threat continuing after US CPI tomorrow morning. However, the markets should be cheered by suggestions from BlackRock that the Fed may not have to hike rates next month. The markets might also see a modest wave of speculative buying following news that Warren Buffett has increased his holdings in Japanese trading houses. With earnings from Albertson's and Carmax before the opening this morning the trade will get some visibility on the status of US consumers. While we give the edge to the bull camp, without indications inflation is moderating from Fed speeches today, we see resistance at 4157.75 restricting the market on the upside.

Other US Indexes

With another large buyout offer overnight in the mining sector following yesterday's buyout news from the energy sector, bullish sentiment is returning in the marketplace. In fact, signs that Berkshire Hathaway is scooping up holdings of major Japanese trading houses could be seen as a positive cyclical signal, or it could be mostly a weak currency related investment. As in the S&P, Dow futures solidified consolidation support yesterday at 33,500 with resistance this morning at 33,877. Not surprisingly, Nasdaq Futures also aggressively rejected a failure at a key consolidation support level just under 13,000 and appear capable of grinding toward resistance at 13,278 today.

Today’s Market Ideas

The bias is up but we suspect investors will be hesitant to chase prices ahead of a possible volatility event tomorrow. However, the trade has obviously regained the capacity to "shape" headlines in favor of the bull camp!