Lawmakers continued to wrangle over spending and borrowing plans three days before the government loses the ability to borrow money. The government may exhaust its $16.7 trillion borrowing authority Oct. 17. In China, exports unexpectedly fell 0.3% in September from a year earlier.
Equities: The DEC13 E-mini S&P 500 (CME:ESZ13) is down 4.75 points today to 1694, gapping down last night on the open, but finding strength into the morning today. The obvious focus this week is on the U.S. government shutdown, but more importantly the Oct. 17 deadline for the debt ceiling. It is still hard to grasp the possibility that the U.S. government may default on its debt, but at this point it technically still is a possibility. If we listen to what the market is telling us, we surmise that there will be a resolution this week, and if that is the case, we could see another burst higher in equities. 1686 is our key pivot level for this market. If the DEC13 E-mini S&P 500 can stay above 1686, we have our next target higher at 1724. We believe this target will be hit if we see a positive political resolution in the U.S. this week.
Bonds: The DEC13 U.S. 30-year bond futures (CBOT:ZBZ13) are down 4 ticks today to 132’22, and we believe that this market is susceptible to further downward pressure in the short term, as well as long term. We would not be surprised to see an approach of the recent low of 132’02, and if the U.S. government actually does default on the debt, we imagine the U.S. bond market prices will have a significant downward adjustment. But, if there is no default, then this also may be a negative for bond prices because we think the stock market will rally a lot in that situation of no default.
Currencies: The DEC13 Swiss Franc and the DEC13 New Zealand Dollar are the strongest gainers of the major currencies against the U.S. dollar today. The Kiwi is up 42 ticks to 82.28, and we would not be surprised to see this uptrend continue for this currency. Why is this happening? It seems as though, due to official statements coming out of New Zealand, the market may believe that New Zealand might raise interest rates as soon as next year, before other major countries like USA, Europe, Japan, etc. The DEC13 Swiss Franc is up 45 ticks to 110.24, back above the key 110 level. We believe this could be a safe-haven appeal this week as there is still massive uncertainty surrounding the USA government shutdown and debt ceiling issue. The DEC13 Yen/USD is up 25 ticks, but below a key 200 period moving average. 102 is our key level for the Yen.
Commodities: DEC13 gold futures (COMEX:GCZ13) are up $12 to $1,280, still below a key level of $1,300 but now above our first key support at $1,265, which it hit last week. We believe gold is in a bearish technical environment. If gold makes another downside move, we look for $1,220 to be approached. The fact that gold is now $1,300 is significant for us. This could either be an incredible value-buying opportunity or a sign that gold is still clearly dominated by bears. We have read reports that the demand this season out of India has been lackluster. Furthermore, it does look like that the gold market is believing that there might be a resolution this week, and thus less of a “need” for a true safe haven asset like gold has been considered. DEC13 cocoa futures (NYBOT:CCZ13) retraced a bit of their recent rally this morning, trading down $32 to $2,714, after hitting a high of $2,757. NOV13 WTI crude oil has rallied this morning, trading up $.45 to $102.47, after not being able to hold below the $101 level.