Staples Inc. dropped 13% after declines in its retail and international business caused in a reduction in its earnings forecast, while Target Corp. slid 3.1% as profit fell 13%. The S&P 500 has retreated 3.5% from its all-time high on Aug. 2. The FOMC publishes minutes from last month’s policy meeting at 2 p.m. EST in Washington.
Equities: The SEP13 E-mini S&P 500 (CME:ESU13) is down 6.5 points this morning to the key 1644 level. We believe the market is still susceptible to further losses to 1634, and potentially lower. However, the rest of the week’s key Fed information will likely have a big impact on whether this market heads lower or reverses back up to 1651. We would not be surprised to see some panic selling if indeed the Fed minutes disclose a very high likelihood of tapering in September.
Bonds: The SEP13 U.S. 30-year bond (CBOT:ZBU13) market is down 11 ticks to 131’00. The bond market is probably down because of concern of an imminent clue this afternoon of a potential tapering of stimulus in September. However, if the stock market does decline further, we would not be surprised to see some sort of bond market rally as yields have risen to almost 4% in the 30-year bond. At the same time, this stimulus reduction phase is a new frontier for the bond market, so typical correlations may not apply.
Currencies: The SEP13 Aussie dollar has switched from very strong earlier this month on upbeat Chinese economic data to very weak on global growth concerns coupled with Reserve Bank of New Zealand Gov. Graeme Wheeler described the currency as “overvalued,” which is likely also affecting the Aussie Dollar. However, we are believing that the 90 level might still be solid support for the Aussie. If not, this currency could potentially make new lows and head into the mid-80′s if the emerging market asset sell-off continues, which would potentially occur if the minutes are “hawkish” today.
Commodities: OCT13 crude oil (NYMEX:CLV13) is down $1.27 to $103.84. Crude oil is in a tug of war between the premium recently injected into the market with the Egypt crisis and the bearish forces at play with a potential stimulus tapering in September, which could have a ripple effect on various economies and demand ideas around the world. We have $102.24 as a next downside target and $104.60 as initial resistance. DEC13 gold (COMEX:GCZ13) has lost some of its upward momentum recently, today trading down $3.60 to $1,369. We have been saying that rallies may be capped at the $1,380-$1,420 area, and still believe this to be the case. The grain markets are truly one of the few sectors trading higher today on the futures spectrum, with DEC13 corn trading up $.0575 to $4.8125.