Keystone's Key Events and Market Movers for Week of 6-13-11

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 comes to a head over the next ten trading days.  China rate hike should occur any time which will stir up an already jittery market. Inflation, manufacturing and retail areas figure prominently this week.

NFIB Small Biz Optimism hits Tuesday morning and this has carried some clout with traders lately.  PPI, CPI and inflation discussions will set the tone early week. Traders are watching to see if the manufacturing data confirms the recent weakness in all regional manufacturing groups.  Housing Starts are critical on Thursday morning and Consumer Sentiment on Friday morning.

Continue to expect a volatile June. We are in a Bradley turn window now and another window follows immediately for month end, so the markets may experience wild swings and trend changes. The winners in this type of environment tend to be the volatility players so watch to see if volatility creeps up as the week moves along. Also keep in mind that the week of 6/20/11, the week after June expiration, has been down 18 of the last 20 times, thus, any strength late this week must be viewed cautiously.

Keystone’s ‘Short Term’ Key Dates and Market Movers Week of 6/13/11 and on:

·         Monday, 6/13/11:  Lacker (Hawk) speaks 9 AM EST.3 and 6-month bill auctions 11:30 AM.  Earnings; PURE. Lacker is a hawk so he should talk up inflation ahead of the PPI and CPI numbers this week. Inflation discussions will affect the dollar and bond yields, thus affecting equities markets.

·         Tuesday, 6/14/11: NFIB Small Biz Optimism Index 7:30 AM will set the early tone for trading. PPI and Retail Sales at 8:30 AM. Biz Inventories 10 AM. 4-week bill auction 11:30 AM. Earnings; BBY, CPST, TRE.TO.  Inflation discussions will affect the dollar and bond yields, thus affecting equities markets. Retail data will gauge consumer strength, or weakness, which will impact equities.

·         Wednesday, 6/15/11: CPI and Empire State Manufacturing Survey 8:30 AM. Industrial Production at 9:15 AM.  Housing Market Index 10 AM. Oil Inventories 10:30 AM. Earnings; FNSR, PRLS.  Inflation discussions will affect the dollar and bond yields, thus affecting equities markets. Empire kicks off the manufacturing data for this week and traders will look for confirmation, or lack of confirmation, to this evolving weakness in manufacturing over the last couple months.  The data will set the trading mood from mid-morning on.  Full moon now typically sees some buoyancy in the markets although this is nothing to be relied upon, only to be aware of as a trader.

·         Thursday, 6/16/11: Jobless Claims and Housing Starts 8:30 AM. Philly Fed Survey 10 AM. Natty Inventories 10:30 AM. Fisher (Hawk) speaks 1:10 PM so he may try to pump up the inflation rhetoric affecting the dollar, bond yields and equities.  Fed Balance Sheet and Money Supply after the market closes at 4:30 PM.  Earnings; CHNR, KR, PIR, SFD, WGO. Watch commodities, basic materials, infrastructure and especially retail today.

·         Friday, 6/17/11: OPEX expiration; Quadruple Witching Day. Consumer Sentiment 9:55 AM. Leading Indicators 10 AM. Keep in mind that next week, the week after June expiration, is typically a down week for equities.

·         June 2011:  PBOC (China) Rate Hike. Probably 25 bips again, target date area for China raise is 6/13/11 thru 6/24/11.

·         June 2011:  EU Bank Stress Test Results, Euro Finance Ministers 6/20/11, Greek Bond 6/20/11. Euro Heads of State meeting 6/24/11—a 24-hour Greece strike also targets this date, consider 6/24/11 a deadline date, thus, markets have ten trading days to sort out the euro woes.

·         June 2011:  QE2 Ends.  See the POMO information below. 6/10/11 final POMO schedule.

·         6/15/11:  Bradley Turn date. Market turn window 6/8/11 thru 6/22/11.

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

·         6/22/11:  Bradley Turn date. Market turn window 6/15/11 thru 6/29/11.

·         7/15/11: Eclipse Sell-off Technique targets this time frame as a potential large market sell off area. The May time frame that was targeted sold off over 3%.  Therefore, this lessens the likelihood of a sell off in July ever so slightly since the May sell off absorbed some of the negativity for this May to July eclipse zone. But, remain on guard for a substantial July sell off 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 June 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 6/30/11 which is the completion of QE2.  Chairman Bernanke saved equities in August 2010, the QE2 raly lasted 10 months.  When will he announce QE3?  The punch bowl is empty in 14trading days. 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 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 7 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 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. Look for more demonstrations against austerity.  Eurozone Finance Ministers meetings 6/20/11. Greece to repay a 5-year bond 6/20/11. Euro Heads of State meeting 6/24/11—also the target date for Greek 24-hour strike, consider the 6/24/11 date as a major deadline to have euro remedies in place.  Thus, only ten trading days remain to bring Eurloand under control.  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 returned to a more hawkish tone on 6/9/11 mentioning ‘strong vigilance’ again, which were his words prior to the 4/7/11 hike by Trichet of 25 bips. 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, if euro now reverses, 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 Qaddafi situation, or ME tensions in general, will cause this premium to continue 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, 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 as well since it is a southern Saudi border. News wires impact commodities in real time.  Syrian trouble is ramping up in recent days.  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 budgets turn over in June and July.  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 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:  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 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. Target for China rate hike is 6/13/11 thru 6/24/11, any day now.  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 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 coordinated currency intervention to target the 85-86 dollar/yen area.  This could not be maintained so far, or 83, or 81.  Expect further coordinated intervention now. Dollar/yen up=dollar up=euro down=commodities down=equities down.

·         Oil; OPEC; Strategic Oil Reserve (SOR); Hurricane Season:  SOR adding some supply each month due to renovations.  OPEC meeting 6/8/11 ended in mass confusion with no agreed to solution; 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=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, 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. Nasdaq Composite dropped into negative territory for 2011 on Friday. For the bankers, continue to monitor Keystone’s 2-10 Spread Indicator; the 255 spread identifying the line between happy bankers and sad bankers, due to the yield curve slope.