The S&P 500 fell 0.6% in 2014 through yesterday, after climbing 30% last year, the most since 1997. Yesterday, minutes from the Fed’s latest meeting fueled concern that stimulus cuts may be accelerated. “A few” officials mentioned the need for a “more deterministic path.” Alcoa Inc., the largest U.S. aluminum maker, reports its quarterly results after the close of trading today. Applications for U.S. unemployment benefits fell last week to the lowest in a month. The ECB’s decision to keep borrowing costs unchanged today was predicted by all 51 economists in a Bloomberg survey.
Equities: The MAR14 E-mini S&P 500 (CME:ESH14) is below a key high volume level of 1837 this morning, trading at unchanged levels at 1832.50. The market is susceptible to some profit-taking at these levels. We also believe we may see an initial rally on the jobs number tomorrow if it comes out above expectations, but then may come back down as the market looks at the prospect of higher rates. Our key topside barrier is 1837 and 1822 is a key support level below current prices.
Bonds: The MAR14 U.S. 30-year bond (CBOT:ZBH14) is up 9 ticks to 129’02 in some position squaring before tomorrow’s key jobs number. Forecasters seem to be looking for a 200K increase. If we see a 250K increase or higher, we could see the bonds make new lows for the year and continue their downtrend. If we see a sub-200K number, we could see some light short-covering in the bond market. It will be interesting to see how the bond market handles the prospect for steady tapering this year. On one hand, we can say that the bonds should continue to decline (and rates go higher) if we see steady tapering. On the other hand, at what point will tapering slow down the economy and potentially cause bonds to rally again in the face of stocks correcting? Only time will tell. Our tendency is to still think that the trend of stocks is higher and lower for bonds.
Currencies: The MAR14 Euro (CME:E6H14) went lower on the ECB decision to not raise rates, but has climbed back to positive on the day. The MAR14 U.S. Dollar Index (NYBOT:DXH14) is just about unchanged from yesterday at 81.16. A key barrier remains at 81.50, but could potentially be breached tomorrow on a higher than 200K jobs number. Our next target is 81.60. The MAR14 Canadian dollar (CME:D6H14) is down 37 ticks today to 92.01. It has been very weak to start 2014, and our next downside target is 91.70; 92.40 could serve as a magnet level. Today looks like a pretty quiet day as we have a big jobs number tomorrow.
Commodities: MAR14 sugar (NYBOT:SBH14) is down again today to $.1551. We believe it could break the 15 cent level. It seems that the combination of a tapering environment plus the fundamentals of a potential big sugar surplus has driven prices lower. MAR14 copper (COMEX:HGH14) is also down today (after showing serious strength recently) to $3.307. It is below a key support level of $3.33. We believe $3.25 will be solid support. MAR14 wheat (CBOT:WH14) continues its massive slide, today down $.05 to $5.83. Where will it stop? $5.62 and then $5.20 are our next major support levels. It is near 2012 lows currently. FEB14 gold (COMEX:GCG14) is quiet today before the jobs report tomorrow. We would not be surprised to see a gold rally tomorrow, especially if the jobs number is at or below 200K. If we get a big blowout number to the upside (250 or higher), we could see more gold selling.