The S&P futures are off sharply Tuesday after economic data from China came in shy of analyst expectations. We highlighted the importance of China’s Industrial Production number, which came in at 10.8% vs. 11.5% expected. While today’s headline number is still a basis point above last month’s release, investors are concerned the pace of economic recovery in China is cooling. However, investors shouldn’t read too far into one mediocre release since it doesn’t necessarily mean a reversal in the medium-term’s upward pattern.

Regardless, investors didn’t receive the data they were hoping for, and the S&P futures are getting punished for it. The U. S. released economic data of its own, including Prelim Non-Farm Productivity and Prelim Unit Labor Costs. Today’s data points show productivity is rising while labor costs shrink due to higher unemployment and greater pressure on employees to retain their present job. The combination of weak Chinese and U. S. data are giving investors a great opportunity to cash in some profits.

Meanwhile, the S&P futures are fighting to stay above August 7th lows. If these lows don’t hold, the futures will likely decline to our 1st tier uptrend line and August 3rd lows. Therefore, the S&P futures still have a couple technical cushions in place to prevent a more protracted selloff. However, the S&P futures may opt to hold present levels and technical supports ahead of tomorrow’s Fed meeting. Positivity from Bernanke and a slight hint at a reigning in of liquidity in the foreseeable future would likely pop the S&P futures back above 1000. Although, we don’t expect any revelations from tomorrow’s monetary policy meeting. We expect the Fed to play it cool and wait for more positive signs economically before breaching the subject of tightening liquidity. Additionally, we don’t see any reason for the Fed to increase liquidity since economic data and 2nd quarter earnings have been positive. Hence, the S&P’s battle with its highly psychological 1000 level lives to see another day.

Correlation-wise, the GBP/USD, EUR/USD and gold are stabilizing after their respective pullbacks while crude futures slide with equities. We’re receiving no clear signals via correlation today, further supporting our belief that the S&P futures may opt to consolidate from here ahead of tomorrow’s meeting. The U. S. will also release its Trade Balance number tomorrow in addition to key employment data from Britain. Hence, tomorrow could prove to be a volatile day in the markets.

Price: 992.50

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