The Fed will today release minutes from its Sept. 17-18 meeting, at which officials unexpectedly maintained the pace of its monthly purchases. The VIX gauge has jumped 26% this week and is at the highest level since Dec. 28. Oil tumbled the most in a month and metals slid as the U.S. dollar rose. Obama told reporters in Washington yesterday that the U.S. economy risks a “very deep recession” should Congress not raise the $16.7 trillion debt limit.
Equities: The DEC13 E-mini S&P 500 (CME:ESZ13) is down again this morning, today trading down 3.5 points to 1647, breaking below 1650 and actually trading all the way down to the 1640 level. Our next key support line is 1635, but we think the markets may have found some key support at the 1640 level this morning. The next resistance level is 1657, and with that said the markets still have potential to slide further if this shutdown continues through the debt ceiling deadline of 10-17. This debt ceiling debate is of the utmost importance and could potentially cause a shock in the markets if not resolved swiftly.
Bonds: The DEC13 U.S. 30-year bonds (CBOT:ZBZ13) are down 10 ticks to 133’03, and now below our key level of 133’16. It is interesting that both the stock market and bond market prices are down today. The bonds would have potentially rallied on the Yellen news, but likely did not rally because the debt ceiling issue is just the paramount issue right now. Bond investors want to have confidence that their principal and interest will be paid, and on a timely manner, and thus may be less excited to invest in bonds with the uncertainty regarding the debt ceiling.
Currencies: The DEC13 U.S. Dollar Index (NYBOT:DXZ13) is up 38 ticks to 80.51, as it looks like the market is trying to price in potentially higher interest rates if indeed the US does default on its debt. We are not seeing huge moves in the futures yet, so this is obviously still early to have a final answer on the debt ceiling, but the clock is ticking. The DEC13 Pound is down 141 ticks to 159.32, after recently hitting a high of 162.50. We believe the Pound may be oversold if it gets to our support level of 158.36, which is about 100 ticks lower than the current market. The DEC13 Swiss Franc is back below 1.10, down 73 ticks or .66%. It will be extremely interesting to see if this strong US dollar trend of today continues.
Commodities: The strong U.S. dollar is affecting commodity prices today, with DEC13 gold (COMEX:GCZ13) down $25 and NOV13 WTI crude oil (NYMEX:CLX13) down $2.11. We believe if this strong US dollar trend continues, we might continue to see lower gold and oil prices. Our next key gold level is $1,266, and for oil it is the key $100 level. NOV13 heating oil is down $.0370, and we believe this could continue to head lower as well on fears of an economic slowdown due to the US political divisiveness.