04 January 2011 at 13:29 GMT
The U.S. equity markets will open flat to slightly higher following a good European session across the board with EURO STOXX 50 Index up 0.8 percent. The support is coming from yesterday’s better-than-expected manufacturing data for both the U.S. and the Eurozone.
We expect U.S. stocks to end the session higher supported by increasing confidence in the economic recovery and bets on a better-than-expected U.S. economy in 2011. Investor sentiment is still very strong on yesterday’s manufacturing numbers from the U.S. and Eurozone that practically gave investors green light ahead, for now. It seems that investors do not care too much about prevailing high bond yields in peripheral Europe and the concerns over China’s tightening of monetary policy. However, as stocks move higher, the risk increases of a pull-back in stocks.
The big question during the current bullish trend in commodities has been when it would end up in consumer prices. Today’s numbers on Eurozone consumer prices showed that European inflation is accelerating more than forecast. We are not near critical levels but if inflation continues to accelerate throughout the first half of 2011 it could damage investor sentiment in stocks.
Today’s U.S. session will focus on the energy and financial sectors. Investors are betting that the U.S. economy will perform better than expected just a few months ago. The improved outlook among investors are sending energy and financial stocks higher as they are more sensitive to the economic development, so look out for Exxon Mobil, Chevron Corp., Apache Corp., J.P. Morgan Chase, Bank of America and Goldman Sachs.