The Standard & Poor’s 500 Index dropped to the lowest level in a month. Senate Democrats are planning a test vote before the end of this week on a measure that would grant Obama authority to raise the $16.7 trillion debt ceiling. The Treasury has said that it will exhaust measures to avoid exceeding the borrowing limit on Oct. 17. The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, rose 1.3% today to 19.67.
Equities: The DEC13 E-mini S&P 500 (CME:ESZ13) is down 12.25 points to 1655.50, well below our key level of 1667, and below our initial target level of 1664. We believe that the theme is: “The longer the shutdown, the lower the market” for the equity markets. We have a key support level at 1650, and would not be surprised to see the market head toward that level. The DEC13 Mini Dow Jones futures are down 84 ticks to 14767, extremely close to our first target and key support level of 14750. If the market does not see a shutdown resolution today, we could be in for more downside action this week.
Bonds: The DEC U.S. 30-year bond market (CBOT:ZBZ13) looks like it’s in a standstill, as the overwhelmingly huge debt ceiling issue is still unresolved and is hanging over the bond market like a black cloud. The bonds are trading right near the key 133’16 level. If the debt ceiling is not raised by the deadline of Oct. 17, we could see the bond market take a big dive as the confidence level of holding U.S. bonds would likely sharply erode.
Currencies: The DEC13 Japanese Yen continues to hold above the 103 level (Yen/USD), and could very well head higher, even above 105 potentially on more safe haven flows. The DEC13 Aussie Dollar broke above 94 to the 94.40 level, but sold off from there and is now down 9 ticks today to 93.87. We believe the Aussie might now be in a range between 93 and 94. The DEC13 USD (NYBOT:DXZ13) is up 5 ticks to 80.08 this morning, but like the bond market, seems to be in a very tight trading range until we hear more about if and how the US political crisis might be resolved.
Commodities: DEC13 corn futures (CBOT:CZ13) rose up to the $4.50 level recently, but today they are down $.07 to $4.42. We believe corn has more downside and would not be surprised to see this market approach $4.25. DEC13 gold (COMEX:GCZ13) is just about unchanged from yesterday’s close, trading at $1,325. We have our next key upside level at $1,336, and would not be surprised to see a gold rally to at least this level as the political uncertainty might continue. DEC13 cocoa (NYBOT:CCZ13) continues its strength, trading up $18 to $2,717.