Forecasts from companies including Yahoo! Inc. and AT&T Inc. disappointed investors. The South Africa Reserve Bank unexpectedly increased its benchmark interest rate. The yen advanced against all but one of its 16 major peers. The FOMC announces its interest rate decision today.
Equities: The MAR14 E-mini S&P 500 (CME:ESH14) is down 11 points this morning, after rallying all the way to 1800 last night. It seems as though not only the disappointing announcements from AT&T and Yahoo, but the emerging market currency situation (with two countries raising interest rates) is stoking this selling today. With South Africa and Turkey raising rates to support their currencies, as well as a possible second taper announcement occurring today from the U.S. FOMC, stock markets could be retreating because of these interest rate moves. As of now, the mid 1760s seems to be solid support, but at this point we would not be surprised to see the market try to break this low.
Bonds: The MAR14 U.S. 30-year bonds (CBOT:ZBH14) are still in their recent uptrend, up 8 ticks today to 132’28. It will be very interesting to see how the bonds respond to the FOMC announcement today. If the Fed chooses not to taper, or to taper at less than $10 billion, we believe the bonds could move much higher. It’s quite interesting, because the argument could be made that the bonds will move lower on a “no-taper” because that could be viewed as inflationary.
Currencies: Currencies are the hot topic this week. The MAR14 Yen (CME:J6H14) is higher by 58 ticks today to 97.82. We believe the Yen has more upside from here. The MAR14 Swiss Franc (CME:SFH14) is also up 24 ticks to 111.68, still constrained by the recent barrier of 112. The MAR14 Euro (CME:E6H14) dipped to almost 1.36, but is now unchanged at 136.65. The Euro seems to have some short term underlying strength as a possible safe haven currency relative to its emerging market peers. It is interesting to see the MAR14 U.S. Dollar Index (NYBOT:DXH14) head lower today even in the face of a potential taper this afternoon.
Commodities: FEB14 gold (COMEX:GCG14) is up $14 today to $1,264, rallying off of its key $1,250 support level. We believe gold could head higher from here, and possibly even approach $1,300 in Q1. MAR14 heating oil (NYMEX:HOH14) is at just about the $3 level, as we are also watching the MAR14/APR14 heating oil spread increase to positive 5 cents. This spread has had a significant rally over the past 60 days. MAR14 soybeans (CBOT:SH14) are weak again, down $.07 to $12.78, below very key levels of resistance. We believe this market is headed lower. MAR14 sugar (NYBOT:SBH14) is down yet again, making a new 2014 low today at $.1475. This has been a powerful bear market. The emerging market interest rate/currency situation could be bearish for many food commodities.