Keystone's Key Events and Market Movers for Week of 5-23-11

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.

The euro crisis and U.S. debt crisis figure prominently this week. Markets remain in the eclipse sell off window.  Markets are closed next Monday so typically Thursday and Friday would be expected to be buoyant.

Keystone’s ‘Short Term’ Key Dates and Market Movers Week of 5/23/11 and on:

·         5/23/11: News on Portugal, Ireland, Italy and Greece debt crisis that will affect the euro and in turn, the dollar, commodities and equities. Euro down=dollar up=commodities down=equities down, and visa versa.

·         5/23/11 and on:  Congress to Raise Debt Ceiling; Geithner says May 16th deadline but drop dead date is July 8^th but that was now pushed forward to August 2nd. Any news will affect markets.

·         5/23/11: Eclipse Sell-off Technique targets this time frame now as a potential large market selloff area.

·         5/23/11 to 6/1/11: Watch Bahrain prior to emergency rule being lifted on 6/1 since this will dramatically effect oil price. If peaceful, oil price will drop.  If violence flares up, oil will rise.

·         5/23/11: 3 and 6-month Bill Auctions 11:30 AM EST.  Earnings; CPB.  Bullard (hawk) speaks at 8:10 PM EST.

·         5/24/11: New Home Sales 10:00 AM EST.  4-week Bill Auction 11:30 AM EST.  2-year Note Auction 1:00 PM EST. Lots of Fed talk all day long; Rosengren, Duke, Hoenig, Bullard. Earnings; AMAT, MDT, SAFM, TTWO.

·         5/25/11: Durable Goods 8:30 AM EST.  Oil Inventories 10:30 AM EST. 5-year Note Auction 1:00 PM EST. Earnings; NDN, COST, TOL, ZLC.

·         5/26/11: GDP and Jobless Claims 8:30 AM EST.  7-year Note Auction 1:00 PM EST. Earnings; BCSI, HNZ, TIF.

·         5/27/11: Personal Income and Outlays 8:30 AM EST.  Consumer Sentiment 9:55 AM EST. Markets are closed for the Memorial Day holiday on Monday, 5/30/11—markets are typically bullish the two days ahead of a three day holiday weekend (Thursday and Friday).

·         6/1/11: Hurricane season begins.

·         June 2011:  PBOC (China) Rate Hike. Probably 25 bips again.

·         June 2011:  EU Bank Stress Test Results.

·         June 2011:  QE2 Ends.  See the POMO information below.

·         6/15/11:  Bradley Turn date.

·         6/21/11 and 6/22/11: Fed FOMC Rate Decision and Policy.  No change expected, note the same date as the Bradley turn, perhaps a surprise is on tap.

·         6/22/11:  Bradley Turn date.

·         7/15/11: Eclipse Sell-off Technique targets this time frame as a potential large market selloff area.

·         7/29/11 and 7/30/11:  Major Bradley Turn date.

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

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

·         POMO Pumps for QE2 thru 6/30/11:  Markets receive bullish pumps between 10:00 AM and 11:30 AM each trading day favoring market bulls.  Pumps continue thru 6/10/11 when the final QE2 schedule will be announced. N-D 75, D-J 75, J-F 80, F-M 80, M-A 80, A-M 80 B, M-J 80, thus, a total of 550 billion.  The POMO program was slated to be 600 billion total so on 6/10/11 theFed will release the final schedule thru 6/30/11 which will be most likely the final 50 billion where the Fed uses the entire amount they originally targeted.  This reinforces Chairman Bernanke’s dovish view and more worries towards the recovery rather than worries with the transitory inflation.  Thus, POMO pumps continue for 7 more weeks but traders will now worry about what happens when the punch bowl is taken away, probably falling markets. POMO pumps=bullish equity markets. POMO pumps end=bearish equity markets.

·         FOMC Meetings and Rate Decisions:  6/21-22/11; 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 says May 16th deadline but drop dead date is July 8^th but then he pushed it forward again to August 2nd. Some in Congress say if Geithner has already moved the deadline forward, maybe it is not that big of a deal after all.  This attitude is worrisome; Congress never makes a decision until a deadline is in place.  After moving the deadline forward, many fear that this fosters complacency in Congress.  Some republicans already saying the consequences will not be too bad if the deadline is missed—‘we’ll just shuffle some money around’.  Congress clowns have 10 weeks to raise the debt ceiling, tick, tock, tick…

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

·         Europe Crisis Continues:  Portugal, Ireland, Italy, Greece and Spain, the PIIGS.  Italy’s bad paper may become exposed due to Libyan War.  Portugal, Ireland, Italy and Greece the focus, so watch for news.  Greece is a lost cause. Weaker euro=stronger dollar index=weaker U.S. equities.

·         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 was the consensus but this is dropping after no change 5/5/11 and 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.  Trend has been euro up=dollar down=commodities up=equities up.  Markets now drifting towards the visa versa, euro down=dollar up=commodities down=equities down.

·         Ongoing Wars: Libya, Iraq and Afghanistan. Libya not a big oil producer; Saudi’s can easily step up production to handle any Libyan oil loss.  Premiums remain in gold, silver and oil prices.  Any positive resolution to the Colonel Gaddafi situation, or ME tensions in general, will cause this premium to come back out.  Rational price of oil is low to mid 80’s but rationality never matters in trading. Oil will probably settle in the low to mid 90’s as the months tick along.  Wars and ME problems continue=bullish for commodities, gold, silver and oil, and, visa versa.

·         Continuing Geopolitical Events other than Ongoing Wars: Egypt, Syria, Saudi Arabia, Bahrain, 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 in Bahrain is to be lifted June 1, only two weeks away, so the coming days violence, or lack of violence, will move the oil price accordingly. Yemen is important as well since it is a southern Saudi border. Bahrain news impacts commodities in real time.  Any bad Bahrain news=higher gold, silver and oil prices, and, visa versa.

·         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. U.S. will probably see an increase in the cash society, due to higher taxes, hurting government coffers more.  Multiple U.S. cities now experiencing budget fights and protests.  Governments trying to reduce burden of high union costs.  California financial decisions are occurring now.  Will these decisions spook the country? State and Muni problems are a H2 2011 and 2012 story.

·         College Debt Bubble: Students continue to take on mountains of debt and cannot get a job after education.  No effect near term but in the months forward the loan defaults will be a 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.  This is going to end very badly.  Keystone agrees with much of what Jim Chanos says on China. China bubble pops=global markets down. Current trend is China economy and growth higher=global markets up.

·         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.  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 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 is 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.  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 nine months.

·         Japan Disaster; Yen Currency Intervention:  The global markets are treating the disaster as a Japan problem with limited global impact.  Supply and parts concerns are occurring now due to Japan factory outages; automobile and technology markets most affected.  Additionally, Japan is performing policy manipulation and currency intervention to target the 85-86 dollar/yen area.  This could not be maintained so far, or 83, or 81.  Expect further intervention now. Dollar/yen up=dollar up=euro down=commodities down=equities down, and visa versa.

·         Oil; Strategic Oil Reserve (SOR); Hurricane Season:  SOR should be performing renovations now so this adds to the oil supply as tanks are drained; Keystone projects that 1 million barrels of oil supply is coming into the market now per month and this will continue into the Fall.  Higher oil supply=lower oil price. Hurricane season starts June 1; hurricane=higher oil price=good for construction material companies. Rational oil price is 80-85 so a 20 dollar premium remains; oil likely to move sideways thru the low to mid 90’s as the year progresses.

·         Wiki Leaks; Financials:  Embarrassing bank information rumored to affect BAC most of all.  2-10 spread nearing 255 number as per Keystone’s 2-10 Spread Indicator, where the yield curve is no longer as attractive for banks.  Watch the spread closely since a spread under 255 will exacerbate the fall in financials.  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.