In commodities news today, sugar has broken down through its key 19¢ support level. Sugar futures are currently down around 1.8%, trading at 18.54¢. Gold and silver are slightly up today in anticipation of more QE from the Fed, with silver leading the way in the precious metals complex, trading 0.73% higher. Orange Juice is the biggest gainer in softs today, up over 5%. Forecasters recently cut their estimate for Florida’s citrus crop by 5.2%.
After finding a base in April, Natural gas has been in a multi-month rally, all the way to above the $4 level. Since recent forecasts for warmer winter weather, natural gas has sold off quite a bit, with the January contract dropping below $3.40 this morning. The next major support level is $3.20. Fundamentally, there seems to be a lot of talk about moving energy consumption towards natural gas. We think overall this market is still more bullish than bearish, and could be approaching oversold territory.
As President Barack Obama lowered his demand for tax increases in the budget to $1.4 trillion from $1.6 trillion yesterday and the Federal Reserve releases their economic forecasts and monetary policy statement today, the financial markets have a lot to digest today. U.S. equity futures have seen their longest rally since March and the bond market started to head lower, although nothing spectacular in terms of size. The December E-mini S&P had a powerful rally yesterday in anticipation of a Federal Reserve announcement of more QE. If Bernanke does indeed make an announcement to send risk markets flying up, it will be very interesting to see how the SP reacts to being near 2012 highs. We could hear chatter of the 1500 level before long.
U.S. 30-year bond futures have been in a down trend since November, and we believe this market will head lower if the S&P keeps rising. With the possibility of more QE being announced today, the bond players might be more concerned about inflation, and thus continue to sell bonds. For the March 2013 30-year bond contract, we have the next major downside target/support level at 145. If the non-farm payrolls numbers keep beating expectations, we could easily see this level. The counterpoint to this idea is that the bonds are the flight to quality asset of choice, so any unexpected Eurozone difficulties could cause a rally in bonds.