Keystone's Key Events and Market Movers Week of 7-5-11

Keystone presents the following underlying market currents, sometimes subtle sometimes turbulent, that move global markets in real time.  The key dates and times below typically correspond to market pivot points.

Data is clearly absent until the back end of the week with the oil inventories on Thursday and the job report on Friday. The big news this week will be the ECB rate hike.  Trichet promised a pony for Thursday morning and he better deliver, otherwise the euro, and equities markets will plummet. Earnings will be the focus moving forward kicking off next Monday with AA. The markets may idle along early to mid week until the ECB rate hike and economic data hits in force on Thursday and Friday.  Perhaps get the beach in early week so you can focus on trading later in the week.

Happy Independence Day. Thank you to all the veterans and currently serving military personnel. Our troops are the best and their efforts and sacrifice are greatly appreciated.

Keystone’s ‘Short Term’ Key Dates and Market Movers Week of 7/5/11 and on:

·         Monday, 7/4/11: U.S. Markets Closed for the Independence Day holiday.

·         Tuesday, 7/5/11: Factory Orders 10 AM-watch to see if the positive manufacturing data over the last few days is reinforced, or not.  3 and 6-month bill auctions 11:30 AM.  Earnings; LWSN.

·         Wednesday, 7/6/11: Challenger Job Report 7:30 AM provides insight for Friday. ADP Employment Report 8:15 AM provides insight for Friday. ISM Non-Mfg Index 10:00 AM. 4-week bill auction 11:30 AM.

·         Thursday, 7/7/11: ECB rate hike-Trichet promised a pony so he better deliver a pony, otherwise, the euro, and the commodities and equities markets, will tumble.  Retail sales data will trickle out.  Monster Employment Index provides insight for Friday.  Jobless Claims 8:30 AM. Natty Inventories 10:30 AM.  Oil Inventories 11:00 AM-note that this is delayed one day due to the holiday.  Hoenig speaks 12:30 PM. Fed Balance Sheet and Money Supply 4:30 PM. Earnings; CHNR (commodities), COR ( data storage centers).

·         Friday, 7/8/11: Employment Report 8:30 AM.  Wholesale Trade 10:00 AM. Consumer Credit 3:00 PM.

·         Mid-July:  Moody’s considering a review of U.S. for downgrade unless Congress shows progress with raising the debt ceiling.

·         7/15/11: Eclipse Sell-off Technique targets this time frame as a potential large market selloff area. The May time frame that was targeted sold off substantially thru June.  This may mute any negative effects in July, but, remain on guard for a substantial July sell off, especially the back half of the month, nonetheless.

·         7/29/11 and 7/30/11:  Major Bradley Turn date. Major market turn window 7/22/11 thru 8/7/11.

·         8/9/11:  Fed FOMC Rate Decision and Policy. No change expected.

Keystone’s Short Term to ‘Intermediate Term’ Key Dates and Market Movers July and on:

·         Earnings:  Double A, Alcoa, will kick things off next Monday, 7/11/11.  Some companies have preannounced lowering their estimates, thus lowering the bar they have to step over, like F, but for the most part, the earnings season should match or exceed expectations as typically is the case. This will provide the bulls with market buoyancy.

·         QE3:  Quantitative easing, QE2, ended last week.  Chairman Bernanke takes away the punch bowl that elevated equities markets like clockwork, each session between 10:00 and 11:30 AM, at least for now. Once the equities markets fall again, like July-August 2010, the Fed will step in with QE3.  For now, a QE light is in place with the release from the Strategic Petroleum Reserve (SPR).  Watch for additional moves from the SPR.

·         FOMC Meetings and Rate Decisions:  8/9/11; 9/20/11; 11/1-2/11; 12/13/11. Fed should keep the Zero Interest Rate Policy (ZIRP) in place for the foreseeable future.

·         Congress to Raise Debt Ceiling: Geithner said 5/16/11 first, then 7/8/11, but now he really, really means it, with a drop dead date of August 2nd. Geithner’s moving of the goal line has some believing that there is no big deal to miss the deadline making this situation very dangerous.  Congress never makes a decision until the deadline looms so look for this to heat up the back half of July.  Congress clowns now only have 4 short weeks to raise the debt ceiling and it looks like they are farther apart than ever, and complacent about the deadline, tick, tock, tick… A nearer term deadline is mid-July since Moody’s considering a review of U.S. for downgrade unless Congress shows progress over next couple weeks.

·         Congress In or Out of Session:  Market bullish when not in session, market bearish when in session. Congress is in session due to debt ceiling deadline, so market bearish.

·         Europe Debt Crisis Continues:  Portugal, Ireland, Italy, Greece and Spain (PIIGS).  Italy’s bad paper may become exposed due to Libyan War.  Greece paper probably worth 30 cents on the dollar, Ireland 50 cents, Portugal 85 cents but no one knows for sure. Greece, Ireland and Portugal are currently in stabilization programs. Spain’s high unemployment is an issue. The can was kicked down the road for Greece.  Portugal woes should come in play now.  Weaker euro=stronger dollar=weaker commodities=weaker U.S. equities.

·         ECB Rate Hikes:  Trichet announces next rate decisions 7/7/11, 8/4/11, 9/8/11, 10/6/11, 11/3/11, 12/8/11, 1/12/12.  No change occurred 6/9/11 or 5/5/11.  Trichet spewed the ‘strong vigilance’ key phrase again which was a main cause for the explosive upward move in the equities markets.  Trichet hiked 25 bips on 4/7/11. Trichet may have unwittingly called another top in the commodities markets just like he mistakenly did by raising rates at the wrong time in July 2008.  Trend has been euro up=dollar down=commodities up=equities up.  Euro is propped up by Trichet’s hawkishness, thus, Trichet has to provide a rate hike on Thursday, otherwise, the euro will be pummeled, euro down=dollar up=commodities down=equities down. As a side note, the Chinese are now supporting the euro helping maintain equity buoyancy.

·         Ongoing Wars: Libya, Iraq and Afghanistan. Libya is not a big oil producer; Saudi’s can easily step up production to handle any Libyan oil loss.  Any positive resolution to the Colonel Qaddafi situation will cause oil to fall.  Rational price of oil is low to mid 80’s and with the SPR release, an 8 handle was touched but oil then recovered higher again.  Wars and M.E. problems continue=bullish for commodities, gold, silver and oil, or, visa versa.

·         Continuing Geopolitical Events other than Ongoing Wars: Egypt, Syria, Saudi Arabia, Bahrain, Yemen, N. Korea:  Dollar bullish and equity bearish.  Gold, silver and oil bullish.  Bahrain is the big worry since, unlike Libya, further unrest will impact oil supply.  Emergency rule now lifted in Bahrain and it appears that things have settled down.  Yemen is important since it is a southern Saudi border. News wires impact commodities in real time.  Any bad news=higher gold, silver and oil prices, or, visa versa.

·         State and Muni Crisis; Union Busting:  Muni’s should experience pain first.  Muni’s rely on State funds.  Many State fiscal budgets turn over NOW.  State funding of local municipality projects will be impacted.  Colleges relied on State funds. Lingering unemployment lessens government tax inflows. U.S. will probably see an increase in the cash society since folks will find ways to avoid higher taxes, hurting government coffers rather than helping.  Multiple U.S. cities now experiencing budget fights and protests.  Governments trying to reduce burden of high union costs.  Watch to see if California financial decisions spook the country. State and Muni problems are an H2 2011 and 2012 story. Prices on MUB chart appear to be topping and ready to roll over again now like Fall 2010, thus, Meredith Whitney should be vindicated in the months ahead.

·         College Debt Bubble: Students continue to take on mountains of debt and cannot get a job after education. One poll cited 80% of college graduates moving back home to live with parents.  No effect near term but in the months forward the loan defaults will develop into a big problem.

·         China Property Bubble and China Contagion:  When it pops, anytime now, it will be extremely negative on global markets causing contagion in Asia and elsewhere. China has built uninhabited cities to fuel their explosive growth during this century. Some evidence of Chinese now using hoarded copper supplies as collateral to continue the building.  Additionally, China is now targeting margin regulations to slow down the commodities and PM bubbles. This is going to end very badly. Keystone agrees with Jim Chanos’ view on China. China bubble pops=global markets down.

·         PBOC; China Rate Hikes:  China projections for rate hikes in 2011 targeted June as a final hike, but, since inflation pressures appear to be easing, their talk is more dovish now, thus, China may hold steady here on out.  First hike 25 bps on 10/19/10; second hike 25 bps Christmas 12/25/10; third hike 25 bps China New Years on 2/8/11; fourth hike 25 bps on 4/5/11.  China said in 2010 that it will project about five hikes into June 2011.  Hikes have occurred October, December, February, April so the pattern reinforced the June hike next, but nothing occurred due to softening of the inflation picture.  Bank reserve requirements are now ratcheting up continuously to slow down inflation but these appear to have less of an effect now.  Rate hikes cause commodities, gold, silver, PM’s and copper to sell off.  The 4/5/11 rate hike had a muted effect since Chairman Bernanke’s hot easy QE2 money was more powerful. Typically, rising rates reflect a countries currency, economic and market strength, but, China growth is slowing now, not increasing, which creates an odd rate raising environment. Target for China rate hike is now although they have turned dovish over the last couple weeks so China may be done with the hikes for now.  If no hike occurs over the next couple weeks, then China will be on hold for a while.  China raising rates and reserve requirements=lower commodities=lower US equities.

·         China New Premier:  Chosen in 2012, will it be a smooth transition?

·         India, Brazil, Taiwan, South Korea and other Emerging Market Rate Hikes:  Same effects as China rate hikes; commodities will sell off.  China, India and Brazil hikes are most important to global markets. Some emerging countries now choosing to stay on hold reinforcing the belief that inflation is transitory in nature. Chairman Bernanke’s hot easy QE2 money pumped up emerging markets and commodities for the last ten months creating new asset bubbles.

·         Japan Disaster; Yen Currency Intervention:  The global markets are treating the quake/tsunami/nuclear disaster as a Japan problem with limited global impact.  Supply and parts concerns are occurring now and have affected Toyota and Honda negatively. The negative affects to the auto industry and technology will subside moving forward.  Additionally, Japan is performing policy manipulation and coordinated currency intervention to target the 85-86 dollar/yen area.  This could not be maintained so far, or 83, or 81, now at the 80 level.  Expect further coordinated intervention now. Dollar/yen up=dollar up=euro down=commodities down=equities down.

·         Oil; OPEC; Strategic Petroleum Reserve (SPR); Hurricane Season:  SPR adding some supply each month due to renovations.  OPEC meeting 6/8/11 ended in mass confusion with lack of unified agreement on production, the producers will do whatever they want as they always have.  Hurricane season now so that may keep oil price buoyant. Higher oil supply=lower oil price. Hurricane=lower oil supply=higher oil price=good for construction material companies. Rational oil price is 80-85 but oil price will probably move across the low to mid 90’s as the year progresses, or lower.

·         Wiki Leaks:  Embarrassing government information and bank information on ongoing basis, rumored to affect BAC most of all.  Weak financials places a cap on broad market upside. Also, financials and technology go hand in hand, thus, weak financials weakens technology further limiting upside potential for the broad market indexes. Watch Keystone’s 2-10 Spread Indicator.  Last week was a game changer, watch to see if there is follow thru.  The 2-10 spread is back up to 270-ish, well above any worries at 255, for now.