The Standard & Poor’s 500 Index rallied to a record following the Federal Reserve’s decision to cut stimulus yesterday. The Fed said it will cut its monthly bond purchases to $75 billion from $85 billion starting in January as the labor market improves. The central bank also said it will likely keep its benchmark interest rates low “well past the time” that the jobless rate falls below its target of 6.5%. An additional report showed previously owned home sales declined for the third consecutive month. Yields on 10-year Treasury notes rose to a three-month high and are continuing to tick higher this morning.
Equities: The MAR14 E-mini S&P 500 (CME:ESH14) had an amazing post-Fed rally yesterday, but is now down 3.5 points to 1801. We believe this market is having a difficult time staying above 1810, and could very well head back to a key pivot level of 1785 soon. We also believe there might be much higher volatility going forward as there seems to be MORE uncertainty now in the market as to the ideal way to interpret incoming economic data. If the market can stay above 1785, we believe that is a very bullish technical sign.
Bonds: The taper did indeed have a big effect on the bond market, but this effect is just getting started. The 10- and 30-year bond yields could start to trend higher. The MAR14 30-year bonds (CBOT:ZBH14) are down 6 ticks to 129’02, but interestingly the MAR14 10-year note (CBOT:ZNH14) is down 24.5 ticks to 123’17. Our next key support level for the 10-year note is 118, and it will approach this level over the coming months. We also watch the JUN15/JUN16 Eurodollar spread, and believe this spread could trend higher over the next 2 years.
Currencies: The MAR14 U.S. Dollar Index (NYBOT:DXH14) spiked higher yesterday after an initial whipsaw period, and is now up 51 ticks to 80.76. We noted a technical target area recently of 82.50, and still believe this is possible. The MAR14 Swiss Franc (CME:SFH14) is down big today, trading lower by 113 ticks to 111.61. The MAR14 Yen (CME:J6H14) is down 62 ticks to 96.04. We believe the Yen could keep heading lower as well, possibly down to 92.
Commodities: FEB14 gold (COMEX:GCG14) is reacting strongly to the taper this morning, down $36 to $1,198. Gold is susceptible to testing and possibly breaking 2013 lows, and is much closer to doing that today. JAN14 WTI crude oil (COMEX:CLF14) is up $.91 to $98.71, and seems very strong post-taper, and in light of the potential for there to be less stocks at Cushing because of the Keystone pipeline. MAR14 copper (COMEX:HGH14) is down $.0295 to $3.2895. Now that the Fed has tapered, some of the tailwinds behind copper’s recent rally are gone.