The S&P futures are consolidating after taking a swipe at the psychological 1100 level in the wake up better than expected earnings from several U.S. bellweathers. As we've mentioned in our other commentaries today, the market at a whole is at a critical juncture with the EUR/USD trading around 1.50, the GBP/USD at 1.65, the USD/JPY at 90 and crude at $80/bbl. Not to mention gold is hovering between $1050/oz and all-time highs. Hence, the significance of the S&P's test of 1100 is being reflected throughout the marketplace. Fortunately for bulls, the technicals in the S&P futures along with its correlations are working more in favor of the topside than the downside trend-wise. Therefore, it appears the S&P's battle with 1100 will turn out favorably when all is said and done. Q3 earnings have been flowing in better than expected and America's employment market finally seems to be leveling out. However, we continue to receive mixed signals in regards to overall economic fundamentals.
Today's PPI and Building Permits data printed worse than expected, adding onto Friday's discouraging TIC and UoM numbers. Hence, consumer sentiment is still dragging and the influx of liquidity continues to fight deflationary forces. Therefore, the Fed has little leeway in tightening liquidity soon, particularly since unemployment is recovering at a snail's pace. The Fed's inability to act is a problem when foreign investors are losing interest in U.S. Treasures, as reflected by historically weak TIC data. Meanwhile, the ECB continues to pressure the Fed to act in favor of a stronger Dollar. Hence, the U.S. monetary system finds itself caught between a rock and a hard place. However, until either the Fed and BoE turn hawkish or the ECB dovish, it appears the Dollar will continue its downward trend. The Dollar's weakness supports stronger U.S. equities and pricier crude, raising the longer term worries of inflation and the impact this would have should unemployment not register a considerable decline in the meantime.
For the time being, investors will be focusing on BoE Governor King's speech, MPC Meeting Minutes, and of course the wave of Chinese economic data late Wednesday EST. If China's data meets or beats as we suspect, this could drive the S&P futures beyond 1100. However, any sign of a slowdown in China would undoubtedly deal a blow to global equity markets. We are also interested to see how EU PMI data prints on Friday. The S&P's recent strength has been driven by a weak Dollar and investors shouldn't forget that both the EU and Britain have shown signs of cooling. Any further cool down in econ data over the next week or two could shake confidence in the recovery and strengthen the Dollar.
Technically speaking, the topside hurdles are clearly intraday highs and the psychological 1100 level. As for the downside, there are several uptrends we can form while the 1075 and 1050 levels serve as psychological cushions along with 10/19 and 10/9 lows. The S&P futures continue to set higher lows and this creates layers of support for the future. Meanwhile, investors should keep an eye on the interaction of the S&P's correlations with their respective psychological levels. Any breakout in the EUR/USD, GBP/USD, crude and/or gold would likely signal a corresponding movement in U.S. equities.
Price: 1094.5, 1098.25, 1100
Resistances: 1085, 1089, 1094, 1100
Supports: 1087.5, 1081.5, 1075.5, 1066.25, 1056.5
Psychological: 1100, 1075, 1050