Emerging-market stocks fell for a sixth day as investors speculated the Federal Reserve will continue to cut monthly bond purchases. Today, Fed officials led by Janet Yellen will release a new set of quarterly predictions for unemployment, inflation, economic growth and the benchmark federal funds rate. Brent (NYMEX:SCN14) traded above $113 a barrel for a fifth day. Argentine bonds tumbled for a third day as investors doubted the nation can skirt a U.S. court order and avoid default. [Energies]
Equities: The E-Mini S&P 500 (CME:ESU14) has had trouble staying above the 1935 level over the past several sessions. With today’s Fed announcement likely indicating the continuation of the tapering and possibly even preparing the market for higher interest rates early next year, we would not be surprised to see a downmove in the S&P 500, possibly breaking below 1925. A potentially hawkish FOMC plus continued major tensions in Iraq might cause investors to be less excited to buy stock when the S&P 500 is at these levels.
Bonds: U.S. bonds (CBOT:USU14) are up 9 ticks to 135’11. We are starting to think that bonds could head lower going forward, especially if the Fed indicates higher rates sooner today. Our next key level of support for the bonds is 133. We would not be surprised to see the bonds approach that level soon. The forces that seem to be supporting bond prices are namely the global tensions in Iraq, and Russia/Ukraine.
Currencies: The U.S. Dollar Index is down slightly today to 80.63, while the Euro (CME:E6U14) is up 30 ticks to 135.77. This could just be “position-squaring” before today’s Fed announcement, because it seems like overall the market is not necessarily expecting a dovish Fed. We still believe the Euro could break below the 1.35 level shortly. We are also thinking the Swiss Franc could head lower this year, as the U.S. economy potentially improves further.
Commodities: The cattle markets finally are having a big long liquidation trade, which started yesterday. Feeder (CME:GFQ13) cattle is limit down, while the 2015 months of live cattle (CME:FC.C) are also having big down days today. Interestingly, even with the Iraq violence and political instability, WTI (CME:CLN14) is still down today, trading down $0.40 to $105.96, hitting a key trendline above $107. $104.50 is our next key support level. Gold (COMEX:GCN14) is unchanged at around $1,271. Gold is right in the middle of the recent range between $1,240 and $1,310. Grain markets are seeing a bit of what may be a dead-cat bounce this morning.