This morning’s advance GDP data showed the economy expanded faster than estimated in the third quarter and the European Central Bank cut a key interest rate. Twitter Inc., which raised $1.82 billion in its initial public offering, begins trading today in New York. Gross domestic product rose at a 2.8% annualized rate after a 2.5% gain the prior three months. Jobless claims decreased by 9,000 to 336,000 in the week ended Nov. 2 from 345,000 the prior period.
Thought-point: We believe that the fact that the ECB cut rates increases the likelihood of a Fed taper over the next several months. Of course, GDP expanded more than expected, which is also a data point that could be taper-positive. With the ECB cutting rates, this could further stoke the global economy, and take some pressure OFF of the U.S. Fed to keep the stimulus going at a full speed $80B per month rate. We believe the jobs number tomorrow (and jobs numbers over the next several months) will be extremely important to determining how soon the Fed tapers. But the main idea is that the ECB cutting rates is another step toward a U.S. fed taper.
Equities: The DEC13 E-mini S&P 500 (CME:ESZ13) rallied to the key 1770 level this morning, but then as the morning continued, sellers emerged. Now, the market is down 5 points to 1760.50. We would be surprised to see this market end the day closer to 1750. Of course, any extended moves may be limited by the fact that the monthly jobs report comes out tomorrow. We believe if we see a big jobs number above the estimate, we could see stocks sell off further. Again, we believe the 1770 level in the futures is a huge barrier to further upside action. If this market can break above 1770 and hold there, we could see further upside movement. For now though, we believe this market is susceptible to downward pressure.
Bonds: The bond market spiked higher on the ECB rate cut, but then cooler heads prevailed, and realized that the U.S. GDP number came out much higher than expected, and bond prices came back down. However, the DEC13 U.S. bond futures (CBOT:ZBZ13) are still higher on the day by 7 ticks, to 133’10. We believe overall that we could see another wave of bearish trade in the bond market over the next several months, especially if we get a kick-start tomorrow with a 200K or higher jobs number.
Currencies: The DEC13 U.S. Dollar Index (NYBOT:DXZ13) spiked higher while the DEC13 Euro spiked lower on the news of the ECB cutting interest rates to .25%. The Euro is down 151 ticks to 133.70, while the USD futures are up 68 ticks to 81.24. The DEC Swiss Franc is also down big, trading down 95 ticks to 108.74. We believe the Franc has much more room on the downside. Our next key level/target higher for the DEC13 USD futures is 82.75, as referenced on the chart below.
Commodities: Oil and gold are both down today on a stronger than expected GDP number. We believe the commodities markets and the U.S. dollar are trading as though they think there is a taper coming. Even with the ECB rate cut, DEC13 gold (COMEX:GCZ13) is down $7 to $1310, and DEC13 WTI (NYMEX:CLZ13) is down almost a dollar to $93.90. We focused on DEC13 coffee (NYBOT:KCZ13) yesterday, and today the market is up $.0325 to $1.0475, making it the biggest gainer in the futures markets today.We believe this big move is a combination of short covering after hitting a very key level of $1.01, but also the ECB rate cut may be helping this global commodity rally.