Manufacturing in the U.S. expanded at the fastest pace in more than two years. The Federal Reserve stated yesterday that “economic growth will pick up from its recent pace and the unemployment rate will gradually decline.” U.K. manufacturing growth also accelerated more than economists forecast in July. ECB President Mario Draghi indicated that the worst is over for the Euro region and that the plan is to keep interest rates low for the foreseeable future.
Equities: The SEP13 E-mini S&P 500 has broken the 1700 level this morning, trading up 19 points at this moment to 1699.50. The market has not only found the FOMC statement dovish enough to continue to rally, but also perhaps more importantly, the actual economic data coming out of the U.S. has been extremely positive, including this week’s GDP data, ADP jobs data, and now today’s ISM data. The last key release for this week happens tomorrow morning: the monthly jobs report. We have a next upside target of 1710 for this market, and it could potentially be reached on a strong jobs number. This would be interesting because it would indicate the market is less concerned with when the Fed may start tapering stimulus and more focused on economic data.
Bonds: The SEP13 30-year bond market is down 1’07 points this morning on a much higher than forecasted ISM #. We believe the bond market could have a significant downside move tomorrow morning if the non-farm payrolls report comes out well above expectations, such as 250K or higher. At this point, the “great rotation” could just be beginning, as U.S. economic data starts to objectively show significant strength, with this week showing the world that the U.S. is really picking up its performance.
Currencies: The SEP13 USD index is up 73 ticks to 82.27, on an array of positive economic data this week from the US. The positive US dollar trend of today could indeed continue tomorrow if we see a big upside surprise in the monthly jobs report. The major foreign currencies have experienced significant declines against the USD today, with the SEP13 Euro down 105 ticks to 132.34, the SEP13 YEN down 150 ticks to 100.83, and the SEP13 Aussie down 79 ticks to 88.99.
Commodities: The story of today is WTI crude oil. This market has experienced a rapid run back up to recent high areas of around $108. Today this contract is up $2.48 to $107.51. We believe this market’s rally may not be over, and have a next market profile target of the $109.25 area, with $107.16 as potential support. At this point, we would not be surprised to see WTI break the $110 level. DEC13 gold has again been pretty strong above the $1300 level, with $1310 seeming to hold as support. Gold may be paying less attention to the positive economic data, which one could construe as potentially negative for gold, but paying more attention to low interest policies announced by the 3 central banks which had announcements this week. Grains continue their slide, with NOV13 soybean futures down $.14 to $11.92 and DEC13 corn down $.12 to $4.67.