The S&P futures have recovered from earlier losses and are floating around nil as more strong Q3 earnings counterbalance discouraging unemployment data. Weekly Unemployment Claims rose by 15k and the economic indicator continues to descend at a snail's pace. The slow improvement in unemployment keeps the Fed stuck in neutral since it would be premature to raise rates. Hence, the Dollar continues to experience selling pressure as investors use the Greenback as a funding currency. The Fed's Beige Book confirmed the central bank's inability to fight a weakening Dollar. However, bankers are rumbling in the EU and China concerning the need to loosen and tighten their respective monetary policies. Therefore, central banks are becoming active again after a relatively neutral past few months. Such activity implies volatility and uncertainty in the FX markets. Overall, the Dollar's downward trajectory is intact until a large monetary shock hits the markets.
Speaking of China, investors are a bit disappointed that today's econ data didn't zoom past estimates like usual. However, investors shouldn't be clouded by raised expectations since Chinese economic data continues to make considerable improvements in light of the global economic condition. On the other hand, China's loose monetary policy is a cause for concern over the medium-term and the question becomes not if, but when the government will intervene and begin draining liquidity. Fortunately for bulls, the economic recovery is still viewed as being in a fragile state, and its doubtful China's domestic demand can make up for the massive decline in export demand. Therefore, China may have to wait with the Fed until U.S. unemployment and consumption improve so that China's economy can handle the loss of liquidity. Therefore, despite the monetary policy chatter present market trends are intact until further notice.
Meanwhile, the impressive flow of Q3 earnings should help silence critics since investors will speculate the improvement in corporate performance will ultimately lead to lower unemployment. Therefore, unemployment is being treated more as a lagging indicator in light of positive earnings. However, sore spots obviously remain in the U.S. economy, most notably the exposure of banks to souring consumer debt and the floundering commercial real estate market. Flying under the radar is the possibility that Morgan Stanley will hand over Crescent to Barclays, indicating commercial real estate is turning into more of a burden than an asset.
Regardless of disconcerting economic developments, the Dollar's downward trajectory bodes well for the S&P's uptrend due to their negative correlation. A breakout in the EUR/USD beyond its highly psychological 1.50 level could yield a similar movement in the S&P futures past 1100. Additionally, crude has popped above $80/bbl while the Cable separates itself from 1.65. Therefore, the S&P's correlations continue to create an environment favorable for further gains in U.S. equities. All eyes will be on the wave of EU PMI data tomorrow along with Britain's Prelim GDP. Investors will be looking for an improvement in Germany's PMI numbers along with a turn to the positive in Britain's GDP. Additionally, the U.S. will release Existing Home Sales data and Bernanke will address the general public. Therefore, it seems the week may finish with volatility.
Technically speaking, the S&P futures face topside barriers in the form of our 2nd tier uptrend line, 10/21 highs, and the highly psychological 1100 level. As for the downside, the futures have technical cushions in the form of our 1st tier uptrend line along with the psychological 1075 and 1050 levels. Our 1st tier uptrend line plays an important role since it runs through previous October lows.
Resistances: 1085, 1089.5, 1094.5, 1100
Supports: 1075.5, 1070.5, 1066, 1058.75, 1051
Psychological: 1100, 1075, 1050