Fed's Taper Can Occur Soon, Markets Down

U.S. markets fell yesterday and Treasury yields spiked higher as the FOMC minutes revealed that the central bank could begin tapering sometime soon. As soon as they feel the economic conditions are right and would support this move, it could happen. The timeline is the “coming months.”

The minutes revealed that they feel economic reports could “prove consistent with the committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pact of purchases in coming months.”

After the FOMC release, Treasury yields on the 10 year bond spike 9 basis points over 2.8 percent.

This morning, we are seeing the Nikkei outperform thanks to a weaker yen but the rest of Asia are down thanks to the FOMC notes and a weaker than expected PMI reading from China. The HSBC Flash PMI showed it slowing to 50.4, down from last month’s seven month high at 50.9.

STOCKS

The DJIA did climb above 16,000 at one point, then fell. The Dow Jones ended up falling 66.20 points on the day to close at 15,900.82. The S&P 500 is now on its longest losing streak in nearly eight weeks as it closed 6.5 points to 1,781.37. The Tech heavy Nasdaq Composite lost 10.28 points to finish at 3,921.27.

In Asia, which is open now, the Nikkei is up over 1.4 percent to 1,295.35. This is its highest level since May 23 and is rising as the USD/JPY has hit a 10 week high trading above 100.50. The Bank of Japan left monetary policy the same as we had expected.

The Shanghai Composite has fallen 1.05 percent on the weak PMI reading as investors are questioning the sustainability of the country’s economic recovery. The Australian ASX 200 is down 16.47 points and is at its lowest level in over a month. The South Korean Kospi is down over one percent as large cap electronic companies were sold off as the Yen weakens. A weak Japanese currency hurts the competitive edge for domestic imports.

CURRENCIES

USD/JPY (100.447) has hit a high today at 105.00 and we continue to test this level. This is a four month boundary high (upper level of a range trade). If we break above 100.60 we can target 105.00.

EUR/USD (1.3415) has hit the support zone of 1.3420. We are dangerously close to 1.34 and a break of this level opens the doors for 1.33 and then 1.3150 and lower. GBP/USD (1.6077) failed at 1.6180 as expected. Any future rallies need to break this level but face a challenge at 1.6300.

COMMODITES

The Fed’s FOMC minutes did not favor Gold very kindly.

Gold (1246.40) has fallen sharply. If we can hold above 1240, then we could bounce higher. Below that level targets 1225 and lower. Silver (19.80) is also falling and faces a crucial support level at 18.50. Copper (3.147) was not too happy with China’s flash PMI and has fallen. We are still trapped in a sideways range from 3.10 to 3.20 but while below 3.20 we remain bearish.

TODAY’S OUTLOOK

Markets will be digesting the FOMC meeting minutes all day as the renewed threat of when the Fed will begin to taper its asset purchases concerns investors.

As far as U.S. data we get weekly job claims at 0830 EST and the PPI at 0830.