The E-Mini S&P 500 has been the little market that could, chugging along up the trend line. The last couple of days it just seems to be losing steam. The energy that may have been generated by hopes of another potential quantitative easing has faded. Federal Chairman Ben Bernanke gave testimony on Wednesday simply without mentioning any QE3. This is where next Friday's Unemployment report is vital. The E-Mini S&P 500 is vulnerable to information and will focus from abroad to domestic concerns.
In the midst of the US recovery, next week's employment numbers are expected at 200,000 while the last report came in at 243,000 for January. The unemployment rate has kept a steady 8.3%. Should the report come in under expectations, the market should regain hopes for QE3. If the numbers come in at the anticipated level or higher, then the QE3 hopes totally fade.
The Federal Reserve is now involved with an issue of risk with banks regarding commodity holdings. The holdings may be warehouses, storage tanks and many other hard assets that banking firms have delved into over the years. Within the next 18 months, the Fed will have to make a decision to allow free reign to the banks in the assets held or to prohibit them from holdings that may be considered risk assets by the Fed.
This may seem like a small change in the world of commodities, but if the banks must liquidate their holdings, it will wreak havoc in the commodities markets. An interesting observation is that the E-Mini S&P 500 futures volume decreased by 10.5% in the month of February while the E-Mini S&P 500 Options increased by 8.7%. A trader will often observe trends in trading to gain better insight into their own methodologies.
The European Central Bank's cheap loans released on Wednesday created a rally helping to decrease the bond yields of some of the debt ridden countries to prevent any non-sustainable levels. Friday, the E-Mini S&P 500 seemed exhausted and European Central Bank's President Mario Draghi comes under fire with concerns that out of the approximate $1 trillion euros of the three-year loans that $777 billion euros of the commercial banks, redeposit the funds back into the European Central Bank's overnight deposits. This move was more of a time delay for the Euro Zone to execute reforms and restructure some of the debt.
25 members of the European Union met in Brussels to sign the "fiscal compact" which was derived at a previous meeting. Only 2 had not signed the treaty, the UK and Czech Republic. This is only relevant to those members wishing to adopt the euro FX.
Those countries that are now part of the treaty must maintain a balanced budget rule, cannot have a deficit to exceed 0.5% and must maintain a deficit in line with the GDP of the country. The euro FX had fallen sharply today as Spain had set a fiscal target that was out of line with the new "fiscal compact". They set a deficit target of 5.8% of the gross domestic product while they had previously agreed to 4.4%.
Spain also should be announcing budget cuts of about $15 billion euros to comply with some of the reforms. Spain has an increased jobless rate of 2.4% with 4.7 million people out of work. Spain's economy is forecast to contract about 1% this year. Fitch's credit ratings agency had supported the deficit target of Spain with remarks that it may be more realistic and should not hurt the credit rating. Prime Minister Mario Monti had prioritized the austerity budget for Italy, but the same measures that saved the country from default may slacken the growth for the years to come.
The Euro summit scheduled for March 30 and 31st may be focused on a firewall to insure the debt crisis will not have contagion effects. The European Financial Stability Facility had been named the temporary fund to aid in the debt crisis with $250 billion euros left in it. The European Stability Mechanism had been deemed the permanent fund with $500 billion euros. The summit may re-evaluate the power of the funds and create a sort of 'superfund' combining the funds for the European Stability Mechanism.
The temporary fund had been set to function until around June or July of this year. The debt problems seem to snowball over time. Where consumers have little to no money to spend, demand for products fall reducing the potential work force along the way. The European money market funds had outflows of about $13 billion in the last week. Outflows from the stocks and bond funds were in some cases re-allocated into the US funds. The global economies are all connected.
Last week, a news story derived from Iran's Press TV cited a pipeline explosion in Saudi Arabia taking crude oil over $110.00! The market pulled off the highs after realizing that the story was trumped up and no explosion or incident took place! Iran is said to have enriched uranium at its research sites leaving the US and the Euro Zone issuing sanctions against the contrary country. Iran insists that the uranium is for consumer usage such as electricity and medical. The enrichment under 20 % is typically consumer levels while 90 % and above would typically be for military usage. They have been purchasing additional equipment for the project leaving Israel extremely nervous.
General Norton Schwartz, US Air Force chief of staff, stated that the Joint Chiefs of Staff have prepared military options to strike the cited Iranian nuclear sites in the event of a conflict. President Obama has issued further that US military action may ensue should Iran build a nuclear weapon. Further, he cautioned against Israel striking without US talks. President Obama is sensitized to the world views of the potential conflict in light of the relationships among the varied countries. Early on in this drama, Russia had said something to the effect that a strike on Iran would be viewed as a strike against Russia.
China has also had trade relations with Iran over the years, so diplomacy is of the utmost importance. Sanctions have played havoc with the way Iran has done business over the years. They have resorted to bartering with gold and oil for the food products necessary to feed the nation and have had to effect discounts to countries that do trade with them. A potential conflict may ensue, but it is hoped that a peaceful resolve would be found still.
On the stock side: JP Morgan Chase and Co. (NYSE:JPM) was up 0.64 % to $40.60. Citigroup Inc. (NYSE:C) was down 0.09 % to $34.05. Bank of America (NYSE:BAC) was up 0.12 % to $8.13. Alcoa Inc. (NYSE:AA) was down 0.29 % to $10.23. Boeing Co. (NYSE:BA) was down 0.24 % to $74.78. Caterpillar Inc. (NYSE:CAT) was down 0.79 % to $112.80. General Electric Co. (NYSE:GE) was down 0.78 % to $18.97. Halliburton Co. (NYSE:HAL) was down 1.23 % to $36.05. Hewlett Packard Co. (NYSE:HPQ) was up 0.28 % to $25.38. SPDR Select Sector Fund - Financial (NYSEARCA:XLF) was down 0.37 % to $14.88.
Monday, we have US Factory Orders and ISM Non-Manufacturing Index at 9:00 AM CST!
E-Mini S&P 500 Chart.
Monday, what to expect: We maintain a bullish bias unless the E-Mini S&P 500 penetrates $1356.75. Monday, we anticipate an inside to lower day. Friday's range was $1377.00 - $1365.00. The market settled at $1368.75. Our comfort zone or point of control for this market is $1370.00. Our anticipated range for Monday's trading could is $1375.50 - $1350.50.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.