The U.S. economy expanded in the third quarter at a faster pace than initially reported, led by the biggest increase in inventories since early 1998. Gross domestic product climbed at a 3.6% annualized rate, up from an initial estimate of 2.8%. Separate data showed applications for U.S. employment benefits unexpectedly fell last week to the lowest level in more than two months. “If and when the FOMC arrives at a decision to wind down asset purchases, it’s my view that it will be helpful to the transition process to provide as much certainty as possible about how this will be done,” Lockhart said in a speech in Florida.
Equities: The DEC13 E-mini S&P 500 (CME:ESZ13) is down 5.25 points to 1786.50. This market tried to rally above 1800 earlier in the week, but could not sustain bullish momentum. Needless to say, the jobs report on Friday could have a substantial impact on the S&P 500. It seems like many markets are prepping for an upside surprise in the number. Thus, if we get the opposite in a low number, closer to 100K than 200K, we could see many markets reverse recent moves. We look for 1760 to be approached if we get a big upside surprise in the jobs number.
Bonds: The MAR14 U.S. 30-year bonds (CBOT:ZBH14) broke the 129 level this morning on a much better than expected GDP. They are currently down 6 ticks to 128’31. The talk we are hearing is that the bond market is trying to “get ahead” of the Fed with this recent sell-off. If we do get a large jobs report tomorrow, such as 250K or higher, we believe the bonds will dramatically slide, possibly approaching 127. At the same time, if the number disappoints and comes in closer to 100K, the bonds could have a significant rally and possibly break through 130. We believe the likelihood is towards an upside surprise in the number based off recent ADP and jobless claims numbers.
Currencies: The DEC13 USD (NYBOT:DXZ13) is down 21 ticks to 80.42, which is quite interesting as one might assume that the Dollar would rally on anticipation of a Fed taper. The DEC13 Euro continues to be extremely resilient, trading up 64 ticks to 136.52. The DEC13 Swiss Franc is also amazingly strong, trading up 50 ticks to 111.29. The DEC13 YEN/USD is quiet today, down 5 ticks to 97.86. It seems to us that the Euro has some serious underlying support to it, and we would not be surprised to see the rally to continue. This might not happen however if we see a very big jobs report tomorrow. It is just so interesting that the Euro is rallying in the face of dovish ECB statements and dovish inflation data out of Europe.
Commodities: FEB14 gold’s (COMEX:GCG14) rally yesterday was extremely short-lived, as it is right back down to $1,219 this morning, down $28! We would not be surprised, as we have been saying, to see gold break below $1,200. JAN14 natural gas (NYMEX:NGF14) is very strong, up $.11 to $4.075. $4.10 is our next resistance level, but it looks like this could be breached to the upside. Energy markets are also strong, with JAN14 crude oil (NYMEX:CLF14) up $.51 to $97.71. MAR14 sugar is in another major downslide, trading lower again today to $.1656. We could see metals and grains fall further tomorrow if the jobs report is above 200K, as commodity markets may not like the prospect of tapering.