Keystone's Key Events and Market Movers Week of 7-18-11

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.

News out of euro will continue to affect markets.  The Euro stress tests were a non-event. Italy is on the front burner now along with Portugal and Spain. Euro woes are giving gold a boost although gold looks to be developing a major top currently. The debt ceiling talks are heating up with only 16 days remaining until the 8/2/11 deadline and only 5 days in front of the President’s deadline of 7/22/11 (this Friday). S&P is in the mix now since they warned of a U.S. ratings downgrade within three months if the lawmakers do not get their act together quickly.  Keystone views the debt crisis as political theatre, each side must act as it they are fighting hard, so their reelection chances are not affected, and then at the 11^th hour they will kiss and make up extending the debt ceiling. The bond market must agree with this projection since yields were not affected to any great extent last week.

Earnings season is in full swing this week with heavy hitters coming up to bat.  Financials and technology are a key focus, especially since these two sectors are bearish lately.  Earnings beats, or not, for these two sectors, will determine broad market buoyancy and direction moving forward.

Watch for margin requirements to be raised in the oil and commodities sector. This will hit as a surprise to many traders and should result in prices falling abruptly.

Housing Starts is extremely important Tuesday morning. Keystone considers this one of the top monthly data points each month and a key market mover.  Existing Home Sales will be important on Wednesday since this will correlate to construction employment as well as provide a further gauge on housing in general. Thursday’s important data are Claims, Philly Fed and Leading Indicators; all will be known by 10 AM. Friday has no economic data so the President’s debt ceiling deadline will be the major focus.

The full moon last Friday provided some market buoyancy. This last half of July is a window for a potential large selling event based on Keystone’s Eclipse Indicator. Next week and the first week of August is a target window for a major Bradley turn so suffice it to say that the markets will be very erratic for the next 17 trading days which takes us thru the ECB and FOMC rate decisions.  Hang on tight.

Keystone’s ‘Short Term’ Key Dates and Market Movers Week of 7/18/11 and on:

·         Monday, 7/18/11: . Treasury International Capital (TIC) data 9 AM. Housing Market Index 10 AM. 3 and 6-month bill auctions 11:30 AM. Eclipse sell off technique targets the next couple weeks as a potential large market selloff area. Earnings: ANDS, SCHW, CHKP, COR, DAL, GCI, GHL, HAL, HAS, HBNC, HCBK, BLUD, IBM, LNCR, PKG, STLD.

·         Tuesday, 7/19/11: Anecdotal retail sales data early morning.  Housing Starts 8:30 AM, this is always a key market mover and requires close watching.  4-week bill auction 11:30 AM. Hoenig talks in the evening at 7:30 PM. Earnings: AAPL, BAC, BK, CMG, KO, CSX, FRX, HOG, ISRG, KEY, BTU, RVBD, SYK, AMTD, UNH, VMW, WFC, YHOO.

·         Wednesday, 7/20/11: Mortgage Applications 7 AM.  Existing Home Sales 10 AM. Oil Inventories 10:30 AM. Earnings: ABT, MO, AXP, AMR, BLK, CLB, EBAY, EMC, FFIV, JCI, KMP, PNC, QCOM, USB, XLNX.  

·         Thursday, 7/21/11: Jobless Claims 8:30 AM. House Price Index, Philly Fed Survey and Leading Indicators 10 AM. Natty Inventories 10:30 AM.  10-Year TIPS Auction. Fed Balance Sheet and Money Supply 4:30 PM. Earnings: APKT, AMD, ALXN, T, ATHN, BAX, BBT, BX, CSH, CPHD, CBI, CHNR, CRUS, CY, DO, LLY, EZPW, FITB, FCX, GDI, HGSI, HBAN, IR, IBKR, KSU, MAN, MHS, MSFT, MS, NCR, NYT, NFX, NUE, PENN, PEP, PM, PLCM, PPG, RT, SWY, SNDK, SCHL, SWKS, TRV, UNP, VFC, WDC, WHR.

·         Friday, 7/22/11: No economic data. President’s deadline for a debt ceiling agreement today; sides need to be close now to allow time to draft the paperwork.  A major Bradely turn window opens now for the next two weeks, 7/22 thru 8/7, indicating a high potential for a major market trend change. This occurs in conjunction with the Eclipse selloff technique projecting this area as a potential large market selloff area. Earnings: APD, CAT, GE, HON, MCD, SLB, STI, VZ, XRX.

·         Tuesday, 8/2/11: Geithner deadline date for debt ceiling agreement.

·         Thursday, 8/4/11: ECB rate decision.

·         Tuesday, 8/9/11:  Fed FOMC Rate Decision and Policy. No rate change expected. Traders will be listening for QE3 talk.

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

·         Earnings:  Huge week for earnings this week with financials and technology a major focus.  This is interesting since they are two firmly bearish sectors recently and positive news would greatly enable the broad markets to gain upward buoyancy. Earnings season in general should match or exceed expectations as typically is the case. Earnings meet or beat will provide the bulls with market buoyancy, or visa versa.

·         QE3:  Quantitative easing, QE2, ended 6/30/11.  Chairman Bernanke took away the punch bowl that elevated equities markets like clockwork between 10:00 and 11:30 AM each session. 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 of oil from the Strategic Petroleum Reserve (SPR).  Watch for additional moves from the SPR. Also, watch out for raising margin requirements that will dampen commodity enthusiasm.  Tentative projection for QE3 is September 2011. Watch as the dollar index moves up in the weeks ahead, this will be an initial signal that Bernanke will come back into the markets with more quantitative easing.

·         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. Of interest is the 9/20/11 meeting which is a potential target date for a QE3 announcement.

·         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 16 days to raise the debt ceiling, tick, tock, tick. The President set a 7/22/11 deadline, five days away, since time will be needed to draft legislation and the U.S. downgrade is worrisome requiring quick action.  Moody’s is considering a review of U.S. for downgrade and the S&P announced last week that the U.S. will be downgraded within three months, by 10/15/11, if things do not improve quickly.

·         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). The five little piggies.  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.  Italy is looking ugly now. Portugal and Spain woes are in play again.  Weaker euro=stronger dollar=weaker commodities=weaker U.S. equities.

·         ECB Rate Hikes:  Trichet announces next rate decisions 8/4/11, 9/8/11, 10/6/11, 11/3/11, 12/8/11, 1/12/12.  Past decisions are a 25 bip hike 7/7/11. No change occurred 6/9/11 or 5/5/11. 25 bip hike on 4/7/11. When Trichet says ‘strong vigilance’ that means a rate hike and the euro will be stronger.  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, time will tell.  Trend has been euro up=dollar down=commodities up=equities up.  Euro is propped up by Trichet’s hawkishness.  If this should reverse, 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.  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.  Muni and State layoffs increasing. Colleges relied on State funds and tuition increases are already hitting cash-strapped students. 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. Now that State funding is being lost to colleges, tuition hikes are occurring, students now have to pay more for an education that no longer leads to a well-paying job.

·         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; fifth hike 25 bips 7/7/11.  China said in 2010 that it will project about five hikes into June 2011.  Hikes have occurred October, December, February, April and now July, so China should hold steady for the weeks and months ahead. 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.   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. Gold was unaffected by China’s latest hike and actually increased in price; this is due to the Euro news dominating the China rate hike moves.

·         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 now appear to be subsiding.  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 or lower 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 oil release had little effect but once another release or two is announced, they may develop psychological impetus to develop a lower bias for oil prices.  The SPR is adding some supply to the oil markets 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 but the season is very quiet thus far. 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. Watch for an announcement on raising margin requirements which will immediately slap down the oil price.

·         GSE (Government-Secured Enterprises): A decision will need to be made on extending the GSE limit of 730K; is it time to end this or will the limit be extended over and over again?  This should hurt the market since the GSE’s back 9 of every 10 mortgages. Now folks will have to go elsewhere to seek financing where the down payments are 25 to 30% down.  In essence, the demand will be reduced, thus, the market will tighten and house prices will continue lower moving forward. Keystone’s proprietary algorithm shows that housing has already fallen back into a double dip.

·         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 which dances above and below the critical 255 spread number.  Financials and technology earnings this week will greatly impact these sectors and the broad markets.