Keystone's Key Events and Market Movers Week of 6-27-11

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 continues.  China rate hike should occur any time which will stir up an already jittery market--although China toned down the inflation talk last week. Seasonality-wise, markets are buoyant the two days preceding a three day holiday weekend, thus, look for some bullish buoyancy Thursday and Friday.

Euro news will dominate the week and the market action. Commodities and equities move up with an increasing euro, and visa versa.  The dollar moves opposite of the euro, commodities and equities, so an up dollar means down euro, down commodities and down equities.

Personal Income data at 8:30 AM Monday and the 2-year Note Auction at 1 PM will affect markets.  On Tuesday, Case-Shiller hits 9 AM and this has been depressing news for the last few months, no change is expected, so be prepared for gloominess.  At 10 AM, the market will pivot since Consumer Confidence is one of the key monthly numbers.  Oil Inventories will be watched closely on Wednesday at 10:30 AM since the SOR release news occurred last week.  Claims are Thursday morning as well as Chicago PMI. The week ends with Consumer Sentiment, ISM Manufacturing and Construction Spending on Friday.

Energy may pop this week considering the standard buoyancy it experiences ahead of the ISM number each month.  Manufacturing data all week long will either confirm or reverse the recent trend of weaker data.  Four Fed heads will be out and about all week speaking as well which is simply another fly in the ointment; Bullard at 9 AM Thursday should be watched.

We continue along in a Bradley turn windows now, and with volatility on the increase, this equates to jumpy markets ahead.  A New Moon appears on Friday further adding to the overall emotion.

Keystone’s ‘Short Term’ Key Dates and Market Movers Week of 6/27/11 and on:

·         Monday, 6/27/11: Eurozone news front and center effecting the euro, dollar, commodities and equities. Personal Income and Outlays 8:30 AM. Kocherlakota speaks 11 AM. 3 and 6-month bill auctions 11:30 AM. Hoening speaks 1 PM. 2-Year Note Auction 1 PM. Earnings: NKE (retail, consumer spending). Keep your ears open for preannouncements for Q2 earnings; F guided lower, look for others, or not, to assess markets.

·         Tuesday, 6/28/11: Retail Sales data before the open.  Case-Shiller 9 AM. Consumer Confidence 10 AM. Richmond Fed Mfg 10 AM. 4-week and 52-week bill auctions 11:30 AM. 5-year note auction 1 PM.  Earnings; SHAW (infrastructure).

·         Wednesday, 6/29/11: Greek lawmakers vote on austerity measures today.  Pending Home Sales 10 AM. Oil Inventories 10:30 AM. Bloom-Raskin speaks at noon.  7-year note auction 1 PM. Farm Prices 3 PM.  Earnings; FDO (low-end retail), GIS (food), KBH (housing), MON (commodities, ag, fertilizer, seeds).

·         Thursday, 6/30/11; EOM; EOQ2; EOH1; and end of QE2: The data closes out for the first half of the year.  Chairman Bernanke’s punch bowl is now empty. Greek 5-year implementation law plan approval deadline today. Jobless Claims 8:30 AM. Bullard speaks 9 AM—traders watching for a hawkish or dovish tone.  Chicago PMI 9:45 AM.  Natty Inventories 10:30 AM. Kansas City Fed Mfg 11 AM. Fed Balance Sheet and Money Supply 4:30 PM.  Earnings; APOL (education), CHNR (commodities), DRI (restaurants, consumer spending), MITL, SCHN (steel, scrap), XRTX (data storage).

·         Friday, 7/1/11: First day of H2, first day of month. Auto Sales data.  Consumer Sentiment 9:55 AM. ISM Mfg and Construction Spending 10 AM. Earnings:  LBIX (beverages).

·         Coming Days:  PBOC (China) Rate Hike. Probably 25 bips again.  Last week, however, China toned down the inflation talk.

·         Coming Days:  Europe/Greece mess continues to move markets.  Resolution needed before mid-July.

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

·         6/30/11:  QE2 Ends.  See the POMO information below. Only four more POMO pump trading days remaining.

·         7/4/11: Independence Day Markets Closed.

·         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 sell off 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 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:  We are in the confessional season, companies will lower QE2 estimates or H2 guidance to give investors a heads up for weak numbers.  F lowered their guidance last week, look for others, and use this as an indicator for economic strength and market direction.

·         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 rally lasted 10 months.  When will he announce QE3?  The punch bowl is empty in four trading days. POMO pumps=bullish equity markets. POMO pumps end=bearish equity markets.

·         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 5 weeks to raise the debt ceiling, tick, tock, tick… A nearer term deadline is Moody’s considering a review of U.S. for downgrade unless Congress shows progress with raising the debt ceiling by mid-July.

·         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. Spain’s high unemployment is an issue. Look for more demonstrations against austerity. Greek austerity vote 6/29/11, 5-year implementation plan approval 6/30, European finance chiefs decide on Greek payment 7/3/11.  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.  Any positive resolution to the Colonel Qaddafi situation will cause oil to fall further.  Rational price of oil is low to mid 80’s and with the SOR release, an 8 handle should be explored.  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 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:  China rate hike should occur any day. 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 now although last week they turned more dovish.  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 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, now at the 80 level.  Expect further coordinated intervention now. Dollar/yen up=dollar up=euro down=commodities down=equities down.

·         Oil; OPEC; Strategic Oil Reserve (SOR); Strategic Petroleum Reserve (SPR); Hurricane Season:  SOR 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; the 255 spread identifying the line between happy bankers and sad bankers, once this fails, financials are in serious trouble. Note: Friday shows failure. 10-year is 2.86%.  2-year is 0.33%.  286-33=253.  Bingo. Sad banksters.