Consumer confidence unexpectedly increased in July to the highest level in six years, while Consumer prices in Japan excluding food rose 0.4 percent in June, more than economists estimated and the biggest jump since 2008. The FOMC next meets to review policy on July 30-31.
Equities: The SEP13 E-mini S&P 500 futures are down 11 pts today to 1673. This market is weak today likely due to a few reasons: 1) possible long liquidation in front of next week’s FOMC meeting. 2) A hawkish policy statement from Central Bank of New Zealand yesterday, coupled with a higher than forecast inflation reading from Japan. Our key pivot of late has been 1681, and of course today this market is well below this level. Our next downside target for the very short term is 1667, and then a possible sharp sell-off to 1644 could occur, especially if next week’s FOMC meeting produces a hawkish tone.
Bonds: Once again, the level of 133’18 has served as solid support for the SEP13 US30 yr bond futures. The bonds might be seeing some inflows as the equity market indices are down this morning. We do not believe the next FOMC meeting will be particularly hawkish, there is actually no reason for Bernanke to shock the markets at this point with hawkish verbiage, so perhaps the bonds are rallying in front of a potentially dovish statement next week, which would possibly mirror Bernanke’s statements in earlier July that the Fed sees no reason to act now and that they could add or subtract stimulus as they saw fit.
Currencies: The big story in the FX markets today is the inflation data coming out of Japan last night. Consumer prices in Japan excluding food rose 0.4 percent in June, beating economists’ forecasts, and also propelling the SEP13 Yen/USD futures to a significant short-covering rally all the way to a high of 102.11, up from a low of below 100 just two days ago. We believe this move higher in the Yen could continue to at least 1.03, if not significantly higher, especially if next week’s US FOMC statement is dovish, which would likely be USD negative.
Commodities: AUG13 gold seems to be in a range trade between $1310 and $1350. This market seems to be in a tug of war between buyers and sellers, with both side exerting almost equal force in this range as prices have oscillated back and forth recently. We believe gold could be supported in the short term by a potential dovish FOMC statement next week. SEP13 WTI crude oil has continued its drop from almost $110 earlier in the month. Today, this market is down $.76 to $104.73. A next downside target from the market profile looks like the $103.30 area. Grain markets, which have gone down in price overall recently, are experiencing a bit of short-covering today, but overall we believe we could see a longer term trend towards lower prices occur, with NOV13 soybeans potentially breaking and staying below the $12 mark, and DEC13 corn potentially heading to $4.50.