Equity Markets Rebound Before Fed Meeting

U.S. equity markets rebounded on Monday. The Dow Jones and S&P 500 recovered from their two consecutive week declines as investors are gauging what will happen during the two day long Federal Open Market Committee (FOMC) policy meeting.

The feeling is that last week’s selloff was not proportional and overplayed. The markets were negative to good data. The S&P 500’s loss of 1.7 percent was a bit much and a correction. This was the biggest weekly loss for that index since August 30.

The economy is improving and tapering should not be a huge concern. The Fed could take action this month and pull that trigger or even in January. Investors know this and it should not be a big deal. We are expecting the FOMC decision on Wednesday and if they taper, it will be by such a little amount that the markets should shrug it off.

STOCKS

The DJIA was up nearly 130 points to close at 15,884.57. All but four of its 30 components were higher on the day. The S&P 500 was up 11.22 points to close at 1,786.54. Industrials led winners that saw 9 out of 10 of its sectors rise for the day. The Nasdaq Composite was up 28.54 points to close the day at 4,029.52 and well above 4,000.

On the New York Stock Exchange (DJIA) stocks rose at a 2:1 ratio. We saw 681 million shares traded and the Composite volume was 3.2 billion.

Asian markets are mostly higher today. The Nikkei is up 0.7 percent and was up over one percent at one point. The markets cheered a weakening yen as the USD/JPY moved back above 103. Pioneer electronics is leading winners there as it has jumped more than 4 percent on the day.

The Shanghai Composite is down almost 13 points today, so far. We have lost all gains, seen earlier, to hit a new one month low for the second day in a row. Financial firms were hardest hit as PBOC Governor Zhou Xiaochan said higher interest rates will be the new trait when controls end. This is due to a strong demand.

In Australia, the ASX 200 lost some gains but remains marginally higher today. The minutes from last month’s RBA meeting showed they believe past cuts are working well to stimulate the economy and will keep to the program going forward. The RBA remains very concerned about the strong Aussie Dollar which has now hit a three month low in the AUD/USD near 0.89.

CURRENCIES

EUR/USD (1.3768) is trading above support at 1.3710 leaving us bullish. Should we dip below that level, we can target 1.3685. GBP/USD (1.6317) after reversing higher after testing 1.6220, we are bullish to test 1.6340 if we break above 1.6320. We fail at the last level, we can dip back to the supports.

USD/JPY (103.013) we are facing stiff resistance at 103.73 which keeps holding sending us lower. We then usually bounce back up from near 101.53. We are range bound for now. We break up higher if we breach 103.10 back to 103.73. If that breaks we can have a nice rally.

COMMODITIES

Gold (1240.90) is trading at the minor resistance near 1240. We need a close above this to move back to 1250 or we are vulnerable for another dip to 1220. Silver (19.91) remains below the key level at 20. While below this level we could dip further. As for Copper (3.366) remains above 3.30 and is bullish. We could continue to move higher.

Brent WTI Crude (97.36) is still testing resistance at its current level. We need a break below 96 to signal a top in place.

TODAY’S OUTLOOK

Like we mentioned above, we could see some gains today as the markets might be oversold going into the FOMC. Tapering should not be a big factor at this point.

The US will release the numbers for the Consumer Price Index today as well as the Q3 Current account.