Cannon Trading Futures Blog: Daily Support and Resistance Levels

U.S. Preview

• The Asian stock markets today sold off sharply on the renewed drop last Friday in the US stock market and on Chinese Premier Wen Jiabao's comment that the Chinese government will take further steps to curb lending and investment. China's Shanghai & Shenzhen 300 index closed -1.32%, while the Japanese Nikkei index showed a steep decline of -3.34%, the Hong Kong Hang Seng fell -4.00%, and the South Korean stock market fell -2.78%. European stocks this morning are down sharply by about -1.5%.

• This week's key US economic news includes today's Feb ISM non-manufacturing index (expected -2.0 to 57.0), tomorrow's Jan factory orders report (expected -4.1%), Wednesday's Fed Beige Book report, Friday's Jan trade deficit report (expected -$59.5 bln), and Friday's Feb unemployment report. Friday's Feb payroll report is expected to show a lackluster increase of +100,000 following January's report of +111,000, and the Feb unemployment rate is expected to be unchanged at 4.6%.

• There are numerous appearances by Fed officials this week. Fed Chairman Bernanke tomorrow will deliver remarks to community bankers in Honolulu on the topic of government-sponsored enterprises. Fed officials this week will likely reiterate their inflation concerns to some extent, but they may tone down their inflation-risk remarks somewhat and provide a more uplifting view of the US economy, if for no other reason than to avoid being the one who sparks a new downdraft in the US stock market.

• Fed policy – Market expectations for Fed easing increased substantially last week due to the sharp US and global stock market sell-off. The market is now discounting a small 8% chance of a Fed 25 bp easing to 5.00% as earlier at the next FOMC meeting on March 20-21. The market is discounting about a one-third chance for a 25 bp Fed easing at the following FOMC meeting on May 9 and a 100% chance of a Fed easing by August. The market is discounting an overall 50 bp easing to 4.75% by December and 50% chance for a further 25 bp easing to 4.50% by March 2008.

• ISM non-mfg index – Today's Feb ISM non-manufacturing index is expected to show a -2.0 point decline to 57.0, reversing most of January's gain of +2.3 points to 59.0. Even after today's expected -2.0 point decline to 57.0, however, the ISM non-manufacturing index would still be well above the boom-bust level of 50. The market will be especially sensitive to today's report after last week's stock market sell-off and the concern about the US economy and earnings growth. The market was relieved that the Feb ISM manufacturing index (released March 1) rose +3.0 points to 52.3 from 49.3 in Jan and avoided back-to-back months below 50. However, the market wants to see continued firm growth in the US service sector as an offset to the weak US manufacturing and housing sectors.