Cannon Trading Futures Blog: Daily Support and Resistance Levels

U.S. Preview

• European stocks this morning are trading mildly lower with the DJ Stoxx 50 index trading -0.22%. China's Shanghai-Shenzhen 300 index today fell sharply by -5.51% on plans for $20 billion in upcoming share sales. However, the other major Asian stock markets today are trading higher. The Nikkei index today closed +0.29% and the Hang Seng closed +0.16%.

• The Bank of England today raised its base rate by 25 bp to a 5-year high of 5.75%, which was in line with market expectations. The BOE took the action due to above-target inflation and firm economic growth. The BOE's action reinforces the fact that world interest rates in general continue to move higher. The BOE rate of 5.75% is now 50 bp above the Fed's 5.25% funds rate target.

• Mortgage applications - US home sales so far appear to be holding together despite the recent rise in mortgage rates. This morning's overall MBA mortgage applications index rose slightly by +0.1%. The refi sub-index fell by -2.6%, adding to the 20% decline seen since mid-May due to higher mortgage rates. However, the more important purchase sub-index today closed +2.0%, reversing part of the recent -7.7% drop. The increase in the purchase index, and the fact that it remains well above the levels seen earlier this year in Jan-April, suggests that home buying activity is continuing despite the recent rise in mortgage rates. The 30-year mortgage rate in the past 2 weeks has fallen by 7 bp to 6.67% from the 11-month high of 6.74% posted in the week ended June 14, but is still up by a net 52 bp from the 6.15% level seen in mid-May before Treasury yields soared.

• ISM non-manufacturing index - Today's Jun ISM non-manufacturing index is expected to show a decline of -1.7 to 58.0, giving back part of May's +3.7 point increase to 59.7. The expected decline today would not be surprising given that the ISM non-manufacturing index in the past 2 months has surged by 7.3 points to the 1-year high of 59.7 seen in May. The improvement in the non-manufacturing index confirms the recent pickup in the US economy. However, the markets will continue to watch carefully for any signs of economic weakness stemming from the rise in interest rates seen in late-May and early-June.

• Unemployment claims - Today's unemployment claims report is expected to indicate little change in the US labor market situation. Initial claims are expected to show a small +2,000 rise to 315,000 and continuing claims are expected to show a +13,000 increase to 2.503 million. That would follow last week's report of -13,000 to 313,000 in initial claims and the -27,000 decline in continuing claims to 2.490 mln units.

• Regarding the US labor market; the markets are mainly looking ahead to tomorrow's June unemployment report, which is expected to show a steady US labor market. June payrolls are expected to show an increase of +123,000, which should be enough job growth to keep the June unemployment unchanged at 4.5%. The US labor market remains relatively tight with the May unemployment rate of 4.5% just 0.1 point above the recent 6-year low of 4.4%.