This morning’s 1.1% advance in retail sales was more than forecast and followed a revised 0.2% gain in January, Commerce Department figures showed today in Washington. With that, the U.S. equity markets seem to be in “breather” mode after having a blistering start to 2013. Today, the JUN13 E-mini S&P 500 is trading at unchanged levels from yesterday at 1547. As other countries of the world commence or continue their interest rate lowering cycles (U.K., Mexico), those policies could serve to potentially continue to boost the U.S. stock market even higher.
If the S&P 500 reverses course from these levels, at this point we do not believe it will be a deep correction, as the S&P 500 is valued at 15.3 times reported earnings, a 22-month high, according to data compiled by Bloomberg. They key is that the current valuation is still 7.3% below an average of 16.6 over the last decade. However, there is always a counterpoint, and the counterpoint to the rally continuing is that the Euro region economies are still very questionable and not producing as good of numbers as the U.S.
Speaking of the Eurozone, the euro currency took a tumble today, trading down 88 ticks to 129.51 (JUN13). We believe this currency has more room to fall and could see 127.50 soon. The Aussie dollar has rallied around 200 ticks just this month and has hit a key level of 1.03 recently. We believe this is an overbought level, and we would not be surprised to see this currency come back down to the middle of its March range. The USD index has hit the highest levels today since last August, touching the 83 level. We are still of the view that the US dollar will continue to see strength and potentially move to a very key 84 level, which is the approximate high of last summer. Typically the U.S. stock market moves opposite to the U.S. dollar so it will be interesting to see what happens to both of these going forward.
Grain futures, specifically corn and soybeans, are down today as investors and traders prepare for potential bumper crops aided by favorable weather conditions, which is of course a marked difference from the last spring and summer drought rally. Wheat futures are bumping against potential resistance at $7.00.
We focus more on the Mexican Peso/USD today. Even with the Banxico rate cut several days ago, the currency has actually rallied a lot since then. We believe the currency is now at overbought levels on the short term and we expect a pullback. The currency could even pullback to the .079 level before potentially heading higher.
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