Data showed manufacturing in the world’s largest economy expanded in August: The Institute for Supply Management’s manufacturing index increased to 55.7 in August from 55.4 a month earlier. An additional report showed construction spending in the U.S. increased in July to the highest level in four years, while data yesterday showed China’s manufacturing index increased to a 16-month high in August.
Equities: The SEP13 E-mini S&P 500 (CME:ESU13) is up 15.25 points today to 1646.50, breaching a key resistance level of 1644, but still below one of our resistance levels of 1650. We believe that even with the upbeat economic data from the U.S. released this morning, as well as from China yesterday, this market’s upside potential may not be too extended, as the markets prepare for a potential tapering announcement this month from the Fed. Longer term, we believe that the global growth story will propel the equity markets to new highs. We have key resistance levels above 1650 at 1666 and 1684.
Bonds: “Septaper” is the theme this week for the bond market, as investors may be preparing for a tapering announcement at this month’s Fed meeting. Additional positive economic data such as ISM and yesterday’s Chinese manufacturing data also probably are causing the bonds to slide heavily today. This market is down 1.8% to 129’17 (CBOT:ZBZ13). We believe new lows below the 128 level might be in store soon, especially if this Friday’s jobs report is above forecasted estimates.
Commodities: NOV13 Soybeans (CBOT:SX13) start off the week up big again, today trading up $.30 to $13.88, still below the contract high of $14.10. This is a “weather market” and thus changes in weather forecasts may be responsible for large price swings. This market is up today due to hot and dry Midwest weather over the long weekend. DEC13 silver futures are up $.90 or around +3.7% on the market trying to price-in potentially higher industrial demand for this metal, as we saw impressive manufacturing data come out today from both the US and China. DEC13 gold (COMEX:GCZ13) is up $5 to $1,401. But, we believe this product may be capped in the short term at the previous high of $1,430, as the US dollar may continue to strengthen on good US economic data.
Currencies: Speaking of the U.S. dollar, the SEP13 U.S. Dollar Index (NYBOT:DXU13) is up 35 ticks to 82.50, which is a very key level to us. Our next target above here is 82.90, but we believe this index could head much higher this month, especially if the economic data keeps coming out higher than the analysts expect. We have 82.40 as our key line in the sand, and 83.50 as the next major target higher on the daily chart. The big story in the currencies today is the Aussie Dollar, with the SEP13 Aussie rallying a whopping 160 ticks to 90.51. We are looking at 90 as a key decision level, and at this point we believe the Aussie might continue its rally to at least the 92 level, mainly due to recent Chinese manufacturing data coming out very strong.