Central bankers and policy makers meet in Jackson Hole, Wyoming, from Aug. 22 to Aug. 24 to discuss the global economy and monetary policy, while the FOMC will release minutes of its July 30-31 meeting on Aug. 21.
Equities: The SEP13 E-mini S&P 500 futures (CME:ESU13) are up 4 points today on a quiet trading morning thus far. We have two very significant events this week – the Jackson Hole meeting coupled with the minutes release of last FOMC meeting. This market is recovering from short term oversold levels, and we have a key pivot level at 1651.50. We are still watching our key downside target at 1644 which has not been hit yet on this recent down move, and then our subsequent target at 1634. This may occur if we get a hawkish Fed minutes this week with a stronger messaging about tapering QE in September. We have only seen one wave of selling, and we could be in store for more. Even though we still believe the market still is in an overall bull market and will potentially break the 1700 level once again, at this juncture we believe the market could be prone to more liquidation.
Bonds: The SEP13 U.S. 30-year bond futures (CBOT:ZBU13) are down 9 ticks this morning after hitting Friday’s low in the early morning session. The bonds are very interesting to us at these levels, because even with the upcoming FOMC minutes and Jackson Hole meeting which could potentially indicate an upcoming QE tapering, technically the bonds could be viewed to be oversold at this point, and if so could rally to the at least 131’11, if not higher. The bonds may be very quiet before these two key mid-week events occur.
Commodities: The amazing story in commodities is this monster soybeans rally we are seeing. The spread between the NOV13 (CBOT:SX13) and MAY14 (CBOT:SK14) contracts has increased to +$.445 from +$0.0 in a matter of days. This is due to a fear of crop damage due to excessive frost, which was just recently identified. $13.00 seems to be a key resistance level for the NOV13 contract, and the market tested and bounced off this level this morning. DEC13 gold is down $4 to $1367, after bursting to an overnight high of $1384. We believe that while gold’s rally last week was indeed very strong, the overall trend still could be sideways, as the thoughts of an overall diminishing of stimulus could haunt the gold bulls. Silver has had a huge rally last week, and is taking a breather today. Silver is slightly different than gold in the sense of silver having a serious industrial use in many products.
Currencies: The SEP13 Euro currency is up 16 ticks to 133.53. The Euro just seems very strong to us, and we would not be surprised to see it break higher above the 1.34 level. We are also watching the EUR/CHF spread, thinking this could potentially head higher as investors may sell the Franc as the prospects for the Euro economy look better and better. The SEP13 USD is down 2 ticks to 81.27. This is an interesting index to watch as well, because one would think that it would head higher as investors brace for less stimulus, but it is still hanging out below the key level of 82.50. Perhaps this week’s events will cause some bigger moves in the USD.