The news from the euro meeting concerning Greece will be front and center for tomorrow since this will impact the euro, and thus the dollar and thus commodities and equities. China inflation data is key on Wednesday since it will help forecast how fast the next China rate hike is coming. The rate hikes are weak for commodities and equities. 10-year note auction will be watched closely; this impacts the 2-10 spread. Economic data is back week weighted with the PPI and CPI inflation data, retail sales, claims, business inventories and sentiment all hitting on Thursday and Friday. The retail sales data may show damage from higher gasoline prices. The eclipse sell off technique targets this period now as a potential large market sell off event area.
1. POMO Pumps for QE2: Markets receive bullish pumps between 10 AM and 11 AM each day favoring market bulls. Pumps continue thru 5/11/11 when the next schedule into June will be announced. We will find out if the Fed announces the plan thru 6/11/11 or thru 6/30/11. N-D 75, D-J 75, J-F 80, F-M 80, M-A 80, A-M 80 B, projection M-J 80, J 50. Thus, POMO pumps should stay at this current pace for the next 7 weeks. POMO pumps=bullish equity markets.
2. Japan Quake-Tsunami-Nuclear Disaster; Currency Intervention: The disaster continues without any end in sight but the global markets are largely ignoring the situation. Supply concerns are hitting now, especially automobile parts and technology markets. Additionally, Japan is performing policy manipulation and currency intervention to keep the dollar/yen in the 85-86 target zone. Below 83 now towards 81 so expect further intervention now. Possible effect dollar/yen up=dollar index up=equities down=euro down.
3. Ongoing Wars: Libya, Iraq and Afghanistan. Libya not a big deal concerning oil, Saudi’s can easily step up production. Premiums remain, albeit less so, in gold, silver and oil. Any positive resolution to the Colonel Gaddafi situation, or ME tensions in general, will cause this premium to come back out super fast. Rational price of oil is low to mid 80’s but rationality never matters in trading. Wars and ME unrest continue=bullish for commodities, and, visa versa.
4. Continuing Geopolitical Events other than Ongoing Wars such as Egypt, Syria, Saudi Arabia, Bahrain, N. Korea: Dollar bullish and equity bearish. Gold, silver and oil bullish. Bahrain is the big worry; this will seriously affect oil supply. Yemen as well since it is a southern border. Bahrain news impacts commodities in real time. Any bad Bahrain news=higher gold, silver and oil prices, and, visa versa.
5. State and Muni Crisis; Union Busting: Muni’s should experience pain first. Muni’s rely on State funds. Many State budgets turn over in June and July, we are now entering this zone. Colleges relied on State funds. Lingering unemployment lessens government tax inflows. Multiple U.S. cities now experiencing budget fights and protests. California financial decisions are occurring now. Will these decisions spook the country?
6. College Debt Bubble: Students continue to take on mountains of debt and cannot get a job after education. No effect near term but months forward the loan defaults may become a problem.
7. Europe Crisis Continues: Portugal, Ireland, Italy, Greece and Spain, the PIIGS. Italy’s close ties with Libya are strained which may expose Italy’s bad paper. Italy is shaky and may provide negative shock value to the markets, even more so than Spain. A sudden meeting was called by euro leaders this weekend to discuss Greece. Weaker euro=stronger dollar index=weaker U.S. equities.
8. ECB Rate Hikes: Trichet announces next rate decision early June, but the bite has came out of his bark. No change 5/5/11. Trichet less hawkish no longer talking about ‘strong vigilance’. Trichet raised rates 25 bips on 4/7/11. An informal target of 2% by the end of 2011 is the traders consensus but this is changing now due to Trichet’s less hawkish mood. 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. Strong euro=weak dollar=strong commodities=strong equities has been the recent trend but last week, after Trichet’s less hawkish talk, we now see a weaker euro=stronger dollar=weaker commodities=weaker equities.
9. 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. This is going to end very badly. China bubble pops=global markets down.
10. PBOC, China Rate Hikes: First hike 10/19/10, 25 bips; second hike Christmas 12/25/10, 25 bips; third hike at end of China New Years on 2/8/11; fourth hike 4/5/11. China said in 2010 that it will project about five hikes into June 2011 so projection for next hike is June. Hikes have occurred October, December, February, April so the pattern reinforces the June hike next. Bank reserve requirements are now ratcheting up continuously to slow down inflation. Rate hikes cause commodities, gold, silver, PM’s and copper to sell off although the 4/5/11 effect was muted. Chairman Bernanke’s hot easy QE2 money is more powerful. Typically, rising rates reflect a countries currency, economic and market strength, but, China growth is slowing now, not increasing. China raising rates, or reserve requirements, and hawkish policy=lower commodities=lower US equities.
11. India, Brazil, Taiwan 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.
12. Congress: Market bullish when not in session, market bearish when in session. The debt ceiling is the next crisis to play out by mid May. Congress now back from break, so market bearish.
13. Oil; Strategic Oil Reserve; Hurricane Season: The talk of using the reserve is moot since about 7 million bbls over next few months will be drained for SOR renovations anyway; say one million bbls per month oil supply will hit the market now into the Fall. Higher oil supply=lower oil price. Hurricane season starts June 1; hurricane=higher oil price=good for construction material companies.
14. Wiki Leaks: Embarrassing bank information rumored to affect BAC most of all. 2-10 spread nearing Keystone’s 255 number where the yield curve is no longer as attractive for banks, watch this closely, a 2-10 spread under 255 means banks will weaken further. Weak financials places a cap on broad market upside.
15. 5/9/11: Earnings, TSN, AES, 3-mth bill auction, Greece news and effects on euro
16. 5/10/11: Earnings, MDR, NFIB Small Business Optimism Index, Wholesale Trade, 4-week bill and 3-year note auctions
17. 5/11/11: Earnings TM, China inflation and retail sales data, 10-year note action, new POMO Pump Schedule 2 PM EST
18. 5/12/11: Earnings, PPI, Retail Sales, Claims, Business Inventories, 30-year bond auction
19. 5/13/11: Earnings, South Korea rate decision, CPI, Consumer Sentiment
20. 5/15/11: Eclipse Sell-off Technique targets this time frame now as a potential large market selloff area.
21. 5/16/11 and on: Congress to Raise Debt Ceiling. This may be another down-to-the-wire fight like the budget crisis was. Interesting that this deadline coincides with the eclipse sell-off projection. Geithner says May 16th deadline but drop dead date to raise ceiling is moved from July 8th to August 2nd.
22. 6/1/11: Hurricane season begins.
23. June 2011: PBOC (China) Rate Hike. Probably 25 bips again but perhaps 50 bips which would shock markets.
24. June 2011: EU Bank Stress Test Results.
25. June 2011: QE2 Ends. See the POMO information above.
26. 6/15/11: Bradley Turn date.
27. 6/22/11: Bradley Turn date.
28. 7/15/11: Eclipse Sell-off Technique targets this time frame as a potential large market selloff area.
29. 7/29/11 and 7/30/11: Major Bradley Turn date.
30. 2012: China chooses a new Premier, smooth transition?
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