An hour into the morning trade and we find futures down across the board. This sell-off, in my opinion, has less to do with downbeat economic forecasts out of Europe and more to do with investors continuing to trade around the mythical taper date. Currently the E-mini S&P 500 future for December delivery is off 9 points at 1754.00 or .50%, followed by precious metals that have also under selling pressure with December Gold off 7.80 sitting at 1306.90 and December Silver off .07 at 21.63.
What leads me to believe this weakness is related more to taper talks than European reports is that we are continuing to see a rather strong sell-off in treasuries (or a rise in rates) as the 10-year Treasury has inched up to 2.66%, considerably higher than the 2.50% we saw just a week ago. This selling pressure in the treasuries, with a simultaneous sell off in equities, has me attributing much of this mornings action to "QE posturing", similar to the action that we saw in late May.
We warned in a note last week to our clients that we are heading back into a volatile trade, as speculation around the Fed tapering its quantitative easing program will once again consume the market. With a Fed governor or president speaking virtually every day this week and key economic reports due out both Thursday (Q3 GDP) and Friday (October Jobs), the futures market is certain to be choppy.
With that said, we continue to caution investors to be in tune with their current holdings and to understand the underlying risk such positions may present. With the Federal Reserve front and center once again, it is not out of the question for all markets to act irrationally for an extended period of time. Therefore, remain fluid with the markets and do not get caught being dogmatic in your views.
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