The U.S. government began its first partial shutdown in 17 years, idling as many as 800,000 federal employees, closing national parks and halting some services. Congressional leaders have scheduled no further negotiations on spending legislation. A partial federal government shutdown would cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc. “It is a risk to the world economy if the U.S. can’t properly sort out its spending plans,” UK Prime Minister David Cameron told the BBC in Manchester today. The U.S. manufacturing sector last month expanded at its fastest pace in almost 2-1/2 years, an industry report showed on Tuesday, while firms added the most workers in 15 months.
Equities: The DEC13 E-mini S&P 500 (CME:ESZ13) is up 13.75 points today to 1688, seemingly ignoring the potential negative economic complications of a partial government shutdown which went into effect at midnight this morning. We have indeed been focused on the 1667 level as a first key level of support and this level did hold up as solid support. The market seems to be rallying mainly due to upbeat economic data, which is a key fundamental input for the market. The USA manufacturing has expanded at its fastest pace in almost 2.5 years, and the employment situation seems to be improving also. Our key line in the sand for this market is 1695. We believe this is a key short term resistance level, and it is interesting because not only are we having good economic data, but we are also seeing the Fed exhibit some dovishness, which seems to be a bullish combination. With that said, the taper-effect which may occur this year could still serve as headwinds for a big rally. Furthermore, the potential “debt ceiling debacle” also is obviously not scaring markets at this point, but may be more of a focus towards mid-month.
Bonds: The DEC13 U.S. 30-year bond futures (CBOT:ZBZ13) are down 14 ticks today, likely as investors put money to work in the equity markets today and shift out of bonds, likely directly due to the positive ISM data this morning. We have been focusing on the 133’16 level as a key target/resistance, and it has held up. Our key support level below here is around 132’05, and the level of 132’23 above that has held up so far this morning. We don’t necessarily believe the bonds will crash from here, because we believe the safe haven appeal is still in effect, but if we continue to get upbeat surprises on the USA economic data, the bonds could start to fall again.
Commodities: We focus on DEC13 gold (COMEX:GCZ13) today. Gold is down a whopping $40 to $1287, now handily below our key support level of $1300. Our next key level is $1275. We do notice an interesting pattern on the daily chart: a classic head and shoulders pattern, which could indicate a downmove in gold to new yearly lows below $1200, which would potentially make sense the US economic engine really shows revving up with upcoming data. DEC13 corn futures (CBOT:CZ13) are below the key level of $4.50, and are now down $.045 to $4.37. We believe the market still is very “heavy” and could continue to slide lower to approach the $4 level. NOV WTI crude oil is still trading with a bearish slant, today down $1.03 to $101.30.
Currencies: The DEC USD (NYBOT:DXZ13) jumped up a bit on the ISM data, BUT is still down on the day! Its been tough to get a sustained upmove in this currency index. The DEC13 Swissie, which we have been watching closely, jumped a lot higher this morning above our key 1.11 level, but quickly reversed on overbought conditions, and is now down 34 ticks on the day to 110.35. The DEC13 Pound experienced the same action, trading higher overnight to a key 162.50 level, but sold off substantially from that level, and is now up only 8 ticks on the day to 161.86. We think the 162.50 level is a great resistance level going forward.