Yellen to markets: Merry QE-mas & happy bond-days

China’s leaders vowed to allow more private investment in state-controlled industries and expand farmers’ land rights as part of the ruling Communist Party’s biggest package of economic reforms since the 1990s. Boeing gained 3.1% to $140.25 in early New York trading. This is another important week for U.S. monetary policy with several central bankers due to speak, including outgoing Fed Chairman Ben Bernanke on Tuesday.

Equities: The DEC13 E-mini S&P 500 (CME:ESZ13) is up 4.5 points to 1798, trading fairly strong in the opening hour. We have our next technical target at 1805. 1800 might serve as key psychological resistance. We have some very important data coming out on Wednesday, such as retail sales, CPI, and also the latest minutes from the FOMC. The China economic reforms news seems to be also lifting equity markets around the world this morning. We believe the equity market may stall out at approximately 1800-1805, as we wait for more data to help markets determine not only the strength of the US economy, but the potential for Fed tapering over the next several months.

Bonds: The DEC13 U.S. 30-year bond (CBOT:ZBZ13) is up 10 ticks this morning to 132’27, still moving higher in the wake of Yellen’s somewhat extremely dovish testimony last week, whereby she seemed to indicate that the Fed is nowhere close to curtailing the current stimulus. The bonds may continue their strength in the short-term, but we focus on Wednesday’s data with key inflation readings to help bond investors make their next move. The bottom line is that we still believe that in light of positive developments in China, and potentially continued strength in the U.S. economy, we could indeed still see a U.S. taper over the next two meetings.

Currencies: The DEC13 USD (NYBOT:DXZ13) is down 27 ticks to 80.62 today, just approaching a key support level. The DEC13 Kiwi and DEC13 Swiss Franc are up over .5% today, with the DEC13 Euro up .36%, all on USD weakness in the Yellen testimony aftermath. The Swiss Franc is almost back at the 1.10 level, which to us could be a key resistance level. We believe the Euro could be approaching overbought levels. The DEC13 Yen/USD has rebounded from some recent losses, and is now up 29 ticks to 100.08.

Commodities: DEC13 gold (COMEX:GCZ13) is down $5 to $1282, showing us that even with the dovishness of Yellen, gold is still in a bearish to neutral environment. DEC13 cocoa (NYBOT:CCZ13) is strong today, up $7 to $2743.  DEC13 wheat (CBOT:WZ13) is up  $.025 to $6.47 after a steady multi-day slide recently. DEC13 corn (CBOT:CZ13) is back down to the key $4.16 level, after popping up to $4.35 after the recent USDA report. Corn could approach the $4.00 level soon. DEC13 WTI crude oil (NYMEX:CLZ13) is down $.06 to $93.78, and we believe crude could fall further and break the $92 level. We don’t think crude has significant downside potential however. We think the $86-88 area may serve as very strong support.

About the Author
Anthony Lazzara

Anthony Lazzara, CEO of Newport Beach, Calif., commodities investment firm Lido Isle Advisors, spent 10 years as a trader and floor broker at the Chicago Board of Trade and Chicago Mercantile Exchange. Anthony has significant experience in the energy, fixed income, and equity futures markets. After being a long-time independent futures trader, Anthony saw a tremendous opportunity to educate investors on how to invest in professional traders. Anthony is now focused on his duty as CEO of Lido Isle Advisors.

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