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Equities surge on European data

By: optionMONSTER
Posted: 12/16/2013 8:09:00 AM
Referenced Stocks: SPX

Stocks are higher this morning, bouncing from key support amid strong economic news from Europe.

S&P 500 futures are up more than half a percent and near their highs of the session. Most indexes across the Atlantic are surging by more than a full percentage point after purchasing managers indexes showed accelerating growth. Asia was weak overnight as both Tokyo and Shanghai fell 1.6 percent.

Attention now focuses on the Federal Reserve's monetary announcement on Wednesday afternoon. While many economists expect the central bank to reduce monetary stimulus, the matter has been thoroughly discussed for the last six months and now seems to be fully priced in. The overall backdrop has been extremely benign, with improving economic growth, minimal inflation, and ample cash on the sidelines.

The technical situation is also positive: The S&P 500 made an all-time high of 1813 the day after Thanksgiving, pulled back, and ended last week at the same 1772 level where it struggled between Oct. 29 and Nov. 12. That suggests old resistance has become support, consistent with a bullish uptrend.

Strength has been broadly spread across most sectors, but has been recently shifting back in favor of economically sensitive sectors including materials, consumer discretionaries, and industrials. Our researchLAB scanner also shows international stocks gaining momentum in the last week following months of underperformance.

The only items on today's calendar are the New York Fed's Empire manufacturing index at 8:30 a.m. ET and national industrial production 45 minutes later. While the Empire number is unlikely to affect sentiment, it is a useful forward-looking indicator on the overall economy.

Natural gas is the biggest mover in commodity markets, falling almost 3 percent after a strong rally in the last month. Brent crude oil rose about 1.4 percent, while West Texas Intermediate is up about 0.65 percent--price action that would typically support refinery stocks. Copper is also inching higher while precious metals and commodities are down.

The euro is climbing across the board after those strong economic data. Most other currencies are little-changed.

In company-specific news, AerCap Holdings is surging 25 percent after agreeing to purchase International Lease Finance from American International Group $5.4 billion in cash and stock. AIG advanced 3 percent, as well.

Disclosure: I am long AIG.