Keystone's Key Events and Market Movers Week of 7-25-11

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 markets are at the mercy of the news wires, the slightest sound bite sending markets multiple handles up or down in a heartbeat. This action is heating up over the weekend due to the debt ceiling talks reaching ‘volcanic’ levels of disagreement. The Euro mess continues as well.

Against that back drop, economic data on Tuesday is key. The gloomy Gus’s will appear on the tube with the Case-Shiller report, then most importantly, Consumer Confidence at 10 AM. Keystone considers this a top tier number each month; markets should pivot on this data release.  The 2-year note auction at 1 PM is important since it is one part of the 2-10 spread which helps gauge the yield curve for the banksters.  The Beige Book is 2 PM Wednesday and then Claims on Thursday morning.  Friday morning receives a barrage of data including GDP. Consumer Confidence is 10 AM. Note the manufacturing data releases this week which will highlight a recovery in place, or slap it down.

Earnings season is in full force this week.  Early week more bank earnings so this affects the XLF which in turn which will drive the broad markets.  Chemicals and rubber will indicate how a recovery is proceeding. UPS is probably the single most important release all week since shipping will judge the economic recovery. Utilities are important since they will ultimately lead the broad markets lower so their earnings are key.  Steel, defense and M&A also on tap. The shale gas plays will receive attention as well, especially on the heels of Petrohawk’s bounce last week.

Only 8 days remaining until the 8/2/11 deadline for the debt ceiling decision.  Keystone maintains that much of this is simple political theatre, the politicians are actors, and resolution should be achieved. 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, and this should be viewed more seriously.

Continue to 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. PM’s have potential of getting hit with a triple whammy; debt ceiling resolution, more positive Euro news and raising of margin requirements, all of which would drive the PM’s lower. Of course, no resolution to the debt ceiling, increased problems with Italy, Portugal and Spain, and no change in margin requirements will continue to provide a bid under the PM’s.

Markets are now under the influence of a major Bradley turn window for the next ten trading days, with the Tuesday thru the following Wednesday area a high potential for very erratic markets. The month ends on Friday. Within nine trading days, we will know the debt ceiling resolution and the ECB rate decision. Cancel your vacation plans, the markets require close watching for the next two weeks.

Keystone’s ‘Short Term’ Key Dates and Market Movers Week of 7/25/11 and on:

·         Monday, 7/25/11: Chicago Fed Activity Index 8:30 AM.  3 and 6-month bill auctions 11:30 AM. A major Bradley turn window is now open until 8/5/11 so expect a major trend change in the coming days; stay especially on guard for a wild market move 7/26 thru 8/3. A possible tropical storm is forming now that would target the Gulf by Friday. Earnings: ACUR, APC, NLY, BIDU, BHI, BRCM, CALM, ETN, FLML, FTI, GMO, MAS, NFLX, NUTR, OSTK, RRC, SWC, SYNM. Lots of banks reporting so watch XLF closely; financials currently greatly impacting broad market direction.

·         Tuesday, 7/26/11: Anecdotal retail sales data early morning.  Case-Shiller Index 9:00 AM. Consumer Confidence and New Home Sales 10 AM. Richmond Fed Mfg Index 10 AM. State Street Confidence 10 AM. 4-week and 52-week bill auction 11:30 AM. 2-year note auction 1 PM.  Hoenig talks 2 PM.  Earnings: MMM, AMZN, AMLN, BIIB, CBT, ELY, COV, CMI, EK, ERTS, FISV, F, GNK, GILD, HSY, ITW, IGT, IRBT, JEC, JBLU, JNPR, LXK, LMT, LZ, MTW, NBR, NOV, NSC, OXY, ODP, PCAR, PNRA, PCX, PNR, RSH, RF, SPG, TLAB, UA, UPS, X, VLO, WAT, WBSN, WU.

·         Wednesday, 7/27/11: Mortgage Applications 7 AM.  Durable Goods 8:30 AM.  Oil Inventories 10:30 AM. 5-year note auction 1 PM. Beige Book 2 PM. Earnings: AET, AFL, AKAM, ATI, AMP, AMKR, BMC, BA, BYD, BP, COG, GTLS, CTXS, CLF, COP, GLW, CROX, CCI, DAL, DOW, ECL, EFX, EXC, FLS, GD, GMCR, HLS, HES, LRCX, MCO, MUR, OII, OI, PX, QTM, RYL, SKX, SO, SYMC, TER, TEVA, TMO, TUP, UHR, VAR, V, WLP, WFM, ZMH.

·         Thursday, 7/28/11: Jobless Claims 8:30 AM. Pending Home Sales 10 AM.  Natty Inventories 10:30 AM.  Kansas City Mfg Index 11 AM. Lacker speaks 12:45 PM.  7-year note auction 1 PM. Williams speaks 2:30 PM. Fed Balance Sheet and Money Supply 4:30 PM. Earnings: DDD, ABX, AGCO, AEM, ARG, ADP, AVP, BLL, BSX, BG, CAB, CELG, CERN, CHK, CDXS, CSTR, CL, CNX, DECK, DLR, DRIV, D, DHI, DTE, DD, EMN, EQT, EVR, XOM, GMT, GNW, HERO, IP, KBR, K, KMT, KLAC, LLL, LAZ, LM, LIZ, MHP, MCK, MF, MSA, MWW, MMI, MSI, NANO, NTGR, NTRI, OSK, PACR, PEIX, PAR, PTEN, PHM, RTN, RS, REV, ROK, SWN, S, SBUX, RGR, TASR, TDY, GT, VECO, VRTX, WM, XEL.

·         Friday, 7/29/11: EOM. Employment Cost Index 8:30 AM. GDP 9:30 AM. Chicago PMI 9:45 AM. Consumer Sentiment 9:55 AM. Farm Prices 3 PM.  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: AXL, AEP, AGP, AMGN, AON, CVX, CVH, HP, ITT, LPX, MRK, NEM, PPC, WY.

·         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.

·         Saturday, 8/20/11: Bradley turn date so a window opens for a market trend change between 8/12 and 8/26.

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

·         Earnings:  Earnings season should match or exceed expectations as typically is the case. Carefully watch the top line revenue numbers since the beats are by no means spectacular sans AAPL. Earnings meet or beat will provide the bulls with market buoyancy, or visa versa. Watch the individual sectors as outlined above.

·         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 continuing operations and the release of oil from the Strategic Petroleum Reserve (SPR), although the SPR said there would not be any further releases.  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 Chairman 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, now only days away.  Congress clowns now only have 8 days to raise the debt ceiling. S&P is considering a review of U.S. for downgrade within three months, by 10/15/11, highly detrimental for equities markets.

·         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. Gold continues to bounce on any negative Euro news.

·         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 price 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. Syria news on unrest and riots keeps a fear premium built up for the Middle East.  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. Further, months ago the analysts said a hard landing was out of the question, now those same voices are not so sure.  China growth rates are trailing off, there are only so many empty cities that you can build.  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, however, are now 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 and 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.  Now the SPR says no further hikes are on tap.  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. A possible storm is forming as of this writing that may hit the Gulf by Friday.  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 as of mid-May.

·         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 had a big recovery last week but they sit on the bull bear line now.  Use XLF 15.32 as a guide to start the week, above and the financials are bullish and they will push the broad markets higher.  If the XLF loses the 15.32 level, that is weak financials and they will dray the broad markts lower.

·         Eclipse Selloff Target Areas: Allow a week or so plus or minus on each side of the following dates as potential areas of major market selloffs. Note how the May and July targets were spot on.  This technique next targets the late October early November area as a potential large market selloff area.  5/15/11 (check, large sell off occurred May-June); 7/15/11 (check, large sell off occurred 7/8 thru 7/18); 11/3/11; 1/3/12.

·         Bradley Turn Dates: 7/29-30/11 (major turn area); 8/20/11; 8/30/11; 9/26/11; 10/12/11; 10/28/11; 11/22-23/11; 12/28/11 (major turn area); 1/11/12. Typically allow a +/- 7 day window with actual turns usually occurring in closer to the actual date, say +/- 3 day window. Dates are courtesy of Donald Bradley, Peter Eliades and Arch Crawford; please reference their sites for additional information.