The E-Mini S&P 500 continued its slide Tuesday with the hitch in US Unemployment and renewed Euro concerns. The thing about the futures markets is that they will overshoot or undershoot a market condition initially before finding real market value. The Unemployment report has averaged about 245,000 new jobs in the previous three-months while Friday's report gave a scant 120,000. 200,000 has been the floor and the E-Mini S&P500 was getting toppy.
It needed to retrace or pause in the midst of bullish sentiment that was actually dampened a week ago as Federal Chairman Ben Bernanke had expressed little interest in any potential QE3. "Operation Twist" is over at the end of June and the next Federal Open Market Committee meeting also takes place in June. While it seems unlikely that the Fed would refocus on any stimulus in the near-term, past June, the elections should take precedence leaving the summer the most opportune time if they were to unleash another round of quantitative easing.
They have another policy meeting April 24th and 25th but it seems unlikely that any further stimulus will be announced until the June meeting. The stimulus may boost jobs and industry growth, but inflation is on the other side of the coin, so each step must be monitored. Again, to overshoot or undershoot a monetary policy change may create further imbalances in the economy.
The US markets may focus on earnings with expectations for 3.2% increase in earnings for the first quarter. Earnings could suffer with the slowdown in China and Euro debt concerns contracting in the US. The austerity programs may impede export sales from the US and China. Monday's US Wholesale inventories were up 0.9% to $478.9 billion while forecasts were for +0.5%. Wholesale Sales increased 1.2% while forecasts were for -0.1%. Wholesale Inventories are a key component of the US GDP.
The European Central Bank has dropped over a trillion euros into the European banking system, and has further committed support. The euro FX has been maintaining support at $1.3000 and may possibly be supported at this level in a range-traded market. The recent bond auctions for Spain and Italy have been met with higher non-sustainable yields. Spain has come up with about $10 billion euros in budget cuts to alleviate investor concerns as the Spanish yields had risen to about 6%. The yields on the Italian debt instruments rose to about 5.6%. The contagion fears of these larger economies, particularly Spain resume to overshadow the marketplace.
Again, the loosened monetary policy may support the market in the short-term, but later inflation may also hamper growth. Consumer spending would be the healthy way to obtain growth prospects. Some analysts anticipate an increase in consumer spending in 2012. While many investors have looked to the governments for growth, it may be likely that the consumer may be the game changer.
Iran's oil production may decrease this year by 15% in light of the sanctions against them by the US and Europe! The Energy Information Administration foresee that the daily production from Iran could decrease by 500,000 barrels a day. In light of this, it is hard to believe that Iran could ban exports to Greece and Spain and may even halt shipments to Germany and Italy. Iran has been stockpiling grains as the domestic crops have fallen short of expectations. They have bartered, used Gold and Rupees for their purchases due to the financial constraints of the ban.
The imposed sanctions have prevented Iran from the US dollar and euro transactions with SWIFT even agreeing to the terms of the ban. SWIFT is the most prevalent inter-bank wiring service effecting global business. The counter sanctions were not anticipated as the Euro Zone is the second largest buyer of the Iranian oil. Given the slowed global growth, the demand may in fact be in line with the current production levels as Saudi Arabia has pumped up the volume of their oil exports and can increase them even more.
Iran and the six nation leaders are slated to resume talks in Istanbul on Saturday. The talks hope to accomplish plans potentially for NATO inspectors to visit the alleged nuclear research sites to confirm that there are no uranium enriched bombs created.
On the stock side: JP Morgan Chase and Co. (JPM) was down 2.10 % to $42.96. Citigroup Inc. (C) was down 3.36 % to $32.84. Bank of America (BAC) was down 4.48 % to $8.54. Alcoa Inc. (AA) was down 2.81 % to $9.33. Boeing Co. (BA) was down 2.47 % to $70.64. Caterpillar Inc. (CAT) was down 2.99 % to $100.47. General Electric Co. (GE) was down 2.40 % to $18.74. Halliburton Co. (HAL) was down 1.16 % to $32.01. Hewlett Packard Co. (HPQ) was up 0.56 % to $23.27. SPDR Select Sector Fund - Financial (XLF) was down 2.16 % to $14.97.
E- Mini S&P 500 Chart.
(click to enlarge)
Wednesday, what to expect: We maintain a bearish bias unless the E-Mini S&P 500 penetrates $1410.00. Today we anticipate an inside to lower to inside day. Monday's range was $1380.75 - $1352.50. The market settled at $1356.75. Our comfort zone or point of control for this market is $1368.00. Our anticipated range for Wednesday's trading is $1378.50 - $1346.50.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
