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As President Barack Obama lowered his demand for tax increases in the budget to $1.4 trillion from $1.6 trillion yesterday and the Federal Reserve releases their economic forecasts and monetary policy statement today, the financial markets have a lot to digest today. We have seen US equity futures have seen their longest rally since March, and the bond market start to head lower, although nothing spectacular in terms of movement size. The DEC12 emini SP had a powerful rally yesterday in anticipation of more QE announced by Bernanke today. Today, the SP futures are trading near unchanged levels from yesterday’s close. If Bernanke does indeed make an announcement to send risk markets flying up, it will be very interesting to see how the SP reacts to being near 2012 highs. We could hear chatter of the 1500 level before long.
The US 30 yr bond futures have been in a down trend since November, and we believe this market will head lower if the SP keeps rising. With more QE being potentially announced today, the bond players might be more concerned than ever about inflation, thus possibly taking bearish positions in bonds. For the MAR13 contract for 30yr T Bonds, we have the next major downside target/support level at 145. If the non farm payrolls numbers keep beating expectations, we could easily see this level. The counterpoint to this idea is that the bonds are the flight to quality asset of choice, so any unexpected Europe difficulties could cause a bid in bonds.
In commodities news today, sugar has broken down through its key 19 cent support level. Sugar futures are currently down around 1.8%, trading at 18.54. Gold and silver are slightly up today in anticipation of more QE from the Fed, with silver leading the way in the precious metals complex, trading up .73%. Orange Juice is the biggest gainer in commodities today, trading up over 5%. fFderal forecasters recently cut their estimate for Florida’s citrus crop by 5.2%.
We focus on Natural gas futures today. After finding a base in April, Nat. gas has been in a multi-month rally, all the way to above the $4 level. Since recent forecasts for warmer winter weather, nat. gas has sold off quite a bit, with the JAN13 contract getting below $3.40 this morning. The next major support level in our view is $3.20. Fundamentally, there seems to be a lot of talk about moving energy consumption towards natural gas. We think overall this market is still more bullish than bearish, and could be approaching oversold territory.
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