The House of Representatives passed the first bipartisan federal budget in four years. The S&P 500 yesterday fell to its lowest level since Nov. 12 as a better-than-forecast retail-sales report fueled speculation that the Federal Reserve will decide to taper asset purchases at this upcoming meeting. Wholesale prices in the U.S. declined for a third month in November, reflecting lower costs for energy and cars.
Equities: The MAR14 E-mini S&P 500 (CME:ESH14) approached a very key initial support level yesterday at 1765, but today is still very close to breaching that level. The market is up .5 points to 1769, below a key 1776.50 resistance level. We would not be surprised to see another drop to 1761 before Tuesday’s FOMC meeting. We continue to perceive that the major financial markets seem to be pointing towards a potential taper on Tuesday. We believe if this market gets below 1750, we could see some excited buying take place.
Bonds: The MAR14 U.S. 30-year bonds (CBOT:ZBH14) are up 3 ticks in quiet trade. We believe the bonds could fall rapidly on Tuesday if the Fed decides to actually do what they have been saying all year, which is taper their stimulus in light of recent supportive economic data. We believe the Fed will follow what the market is telling us and not tapering would almost be the bigger surprise in our opinion. Our longer term target for the 30-year bond futures is to break 120 and head to 118 or even 115.
Currencies: As we noted yesterday, the MAR14 USD index (NYBOT:DXH14) seems strong going into Tuesday’s Fed meeting and today is up another 8 ticks to 80.44. Our next level is 80.64, and if we break that level, we could see 80.85, and possibly higher from there. It really seems to depend on the Tuesday FOMC statement. The MAR14 Aussie dollar continues to be very weak, up 1 tick today to 88.82. Our next downside target is 87.40. The MAR14 Pound is down 68 ticks today, as it has been outpacing the Euro recently. We believe Tuesday’s statement will have a very big impact on these currency markets.
Commodities: JAN14 crude oil (NYMEX:CLF14) is down $.84 to $96.66, after not being able to break higher above the $99 level. We would not be surprised to see this market trade right back down to its recent low area of $92. A first key support level which would have to be broken is around $95.60. Grain markets are lower across the board today, with MAR14 wheat (CBOT:WH14) trading very weak down to $6.29, MAR14 corn (CBOT:CH14) down over 1%, and JAN14 soybeans (CBOT:SF14) down $.07 to $13.16. We believe soybeans will break below $13. FEB14 gold (COMEX:GCG14) is up $7 to $1,232 on quiet trading. MAR14 copper (COMEX:HGH14) continues to be a market we closely monitor, as we believe it is headed higher to at least $3.35, if not much higher.