This morning, investors await the Federal Reserve’s decision on stimulus and assessment of the economy. LinkedIn (LNKD) Corp. fell 6% after its quarterly sales outlook missed analysts’ predictions. The S&P 500 yesterday rose 0.6% to set a record for a third straight day. The Federal Open Market Committee concludes a two-day monetary-policy meeting today. The S&P 500 has jumped 24% this year and is headed for its best annual gain since 2003.
Equities: The DEC13 E-mini S&P 500 (CME:ESZ13) is down .50 points to 1767, on a quiet trading day before this afternoon’s Fed announcement. We believe the markets are overextended and would not be surprised to see the market see some profit-taking this afternoon, but of course the primary focus is indeed the Fed statement. We believe the market has gone “too far too fast” and is ripe for a pullback. The DEC13 mini DOW futures are actually positive on the day, trading up 8 ticks to 15,624. We would not be surprised to see the DEC13 E-mini S&P 500 head lower and approach 1750.
Bonds: The DEC13 U.S. 30-year bonds (NYBOT:DXZ13) are up 5 ticks to 135’12. It will be very interesting to see how the bonds react to today’s Fed statement, which could emphasize that the risks of high inflation are small and thereby continued stimulus is warranted. If this is the message, we could see bonds rally further. If the Fed surprises the markets, and announces clear intentions to taper sooner rather than later, we could see the bonds regain some downward momentum.
Currencies: The FX markets are quiet this morning. The DEC13 U.S. Dollar Index (NYBOT:DXZ13) is down 8.5 ticks to 79.585, while the DEC13 Euro is up 137.71. The DEC13 British Pound has found some support this morning, trading up 29 ticks to 160.68. The DEC Yen/USD is down 11 ticks to 101.83. The recent trend of USD weakness could continue if today’s Fed announcement implies a long delay in tapering.
Commodities: DEC13 Gold (COMEX:GCZ13) is up again today, trading higher by $10 to $1,355. We believe gold is headed higher to at least $1375. DEC13 coffee (NYBOT:KCZ13) is up slightly today, but still showing some weakness late into the morning. Coffee has been down 9 of the past 10 days, so we believe it could be oversold at these levels, but could head lower overall. Coffee futures are in the worst rout in more than four decades as wet weather signaled bigger crops than forecast in Brazil, the world’s largest grower. DEC13 WTI crude oil (NYMEX:CLZ13) continues to fall, trading lower by $1.15 to $97.09.