FX Futures Edge: October 3, 2013

STOCKS: The world economy is muddling through. The US payroll tax increase and sequestration are headwinds to the US economy, China is being pressured by Japan, and both the US and Chinese housing market are weakening. The eurozone remains mired in inaction, athough showing signs of growth. Quite clearly, we feel risk is being mispriced at current levels given the economic backdrop and developing pressure upon corporate revenues/margins/earnings. At some point, the market will view the central banks will be non-sequitur.

STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1382; and the standard 200-dma support level at 1592. But perhaps more importantly, the distance above the 160-wma “falied” at the +23- to +25% zone that is our “bubble-like rally” threshold. Hence, a correction of some proportion is forthcoming — perhaps -15% or more.

WORLD MARKETS ARE ONE AGAIN “CONFUSED” THIS MORNING as there is no rhyme or reason for the gains and losses seen around the world. Asian bourses were mixed, with Japan lower and China higher – ostensibly higher given her services PMI expanded at the faster rate in 6-months. Most European bourses are lower, although modestly so even though the economic data release in Europe should be seen as equity friendly. In generalities, quite a few MARKIT PMI surveys were released on the individual countries, and in most cases it was at the consensus or slightly above it. In a turn around, Italy’s services PMI rose when it was supposed to have fallen, and Spain’s fell when it was supposed to have risen. This, when combined with Italian PM Letta winning a confidence vote in parliament after Berlusconi backtracked on this threats to be bring down the government – should have been sufficient to for Italian stocks to rise. They did not and that is of interest, but of what interest we are simply not sure of just yet.

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