The Obama Administration and the Republicans in Congress remain at loggerheads and have yet to pass a Budget for the new financial year that starts tomorrow and without which the Government will commence shutting down. The Republicans have said that they will only agree to pass the Budget if there is a one year delay in the implementation of ‘Obamacare’ a key element of the Administration’s Healthcare Reform Policy. The Fed’s Dudley warned of the risk of the Budget impasse to the economic outlook. This has led to a Mexican standoff between the petulant participants as the last day of the US Financial year looms with spending authorisations expiring today at midnight US time. Perhaps there will be some compromise delay of ‘Obamacare’ to avert a shutdown, essentially ‘kicking the can down the road’ for a time.
Equity markets are lower across the board this morning on this news. The markets are not helped by the collapse of the Italian Government Coalition, as former PM Berlusconi pulled his Ministers out of the Cabinet on Sunday forcing PM Latta to scramble together another Coalition just seven months after the Election. Last Friday the Italian Cabinet failed to agree on Fiscal measures to get the Budget back on the EU track and avert an increase in the VAT from 21 to 22% that will kick in tomorrow Oct 1. This has led to an increase in Italian Bond Yields this morning.
This morning on the economic front we have UK Mortgage Approvals and Euro-Zone CPI. Later from the US, we have the Chicago Purchasing Managers Survey and the Dallas Fed Manufacturing Activity but all eyes will be on Capitol Hill to see if we can get a Budget resolution before midnight.
December S&P 500
The nightmare scenario of Capitol Hill not passing a Budget before midnight US time tonight looms large as the Mexican stand-off between the Republicans and Democrat parties continues. I still believe that some sort of deal will be brokered ahead of the deadline and as a result it is very difficult to short the market. On top of this, today is also month and quarter end.
After I posted on Friday, the S&P was trading at my 1687 buy level, I took a position but I was quickly stopped out at 1682 and I am still flat. The S&P had a very narrow and quiet trading session on Friday and the market has now closed lower for 6 of the last 7 trading sessions. It is now trading near my 1670 support zone and I will be a small buyer from 1668/1672 with a 1664 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer on any dip to 1645/1652 with a 1639 stop as I believe a deal will be brokered quickly even if the deadline passes this evening with no agreement. I still do not want to be short the market at this time.
Euro/USD
My long Euro position at 1.3480 worked really well on Friday as the Euro had a nice rally and I was able to cover this position at 1.3550 and I am now flat. Today I will be a small buyer again on any dip to 1.3440/1.3460 with a tight 1.3425 stop. Even though Italy is back in crisis mode I do not want to sell the Euro unless we trade back to 1.3550/1.3575 in which case I would do so with a 1.3590 stop.
December DAX
The Dax worked well on Friday as, after I posted, the market was trading at my 8630 buy level. I bought the Dax at 8635 and after a nice rally I was able to cover this position at 8665 and I am now flat. I do not like the way it is trading this morning and the fact that we are back below the key 8590 support level. Today I am a small seller from 8580/8610 with a tight 8625 stop. I do not want to be long the Dax at this time.
December FTSE
Again, just like the Dax and S&P, the FTSE was also trading in my buy level when I posted last Friday. I bought the market at 6510 and I was quickly stopped out of this position at 6495 and I am now flat. The fact that the FTSE broke and closed below 6480 is bearish and today I will be a seller on any rally to 6470/6495 with a 6510 stop. I do not want to be long the FTSE at this time.
December 10 Year Treasury Bond
No change as I am still a buyer on any dip to 125.30/125.60 with a 125.10 stop.
December BUND
The Bund traded up to my 140.30 sell level and I entered short but I was stopped out of this position this morning at 140.65 and I am now flat. I am impressed that the Bund has managed to close over 140.00 and today I will be a small buyer on any dip to 140.20/140.50 with a 139.95 stop.
Gold Rolling Contract
Thursday’s Gold plan worked well, as after I posted on Friday, the market was still trading at my 1322 buy level, at which I had taken a long position on Thursday, before having a nice rally and I was able to cover this position at 1338 and I am now flat. I still like Gold and today I will be a small buyer on any dip to 1322/1332 with the same 1314 stop.
Silver Rolling Contract
Silver just missed my 21.40 buy level before trading higher and I am still flat. Today I will raise my buy level to 21.40/21.65 with a 21.35 stop which is just below last Friday’s low.
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