Keystone's Key Events and Market Movers Week of 9-12-11

KEYSTONE’S KEY DATES AND MARKET MOVERS FOR THE WEEK OF 9/12/11 FORWARD:

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.

Markets remain at the mercy of the European crisis. The Euro leaders continue their reactionary course instead of a proactive out-in-front approach to the dilemma.  The global markets are simply reacting to each news snippet out of Europe. The G-7 leaders are attempting to calm markets this weekend releasing statements reminiscent of Fall 2008. The euro dropped last week, the dollar moved up. Equities move in the direction of the euro and opposite the direction of the dollar.

Economic data heats up this week after a slow start on Monday. Richard Fisher, Dallas Fed, speaks at 5 PM. On Tuesday, the NFIB Small Business Optimism survey is released at 7:30 AM and this news has been weak month after month. The survey has street cred, however, since it took slack for being gloomy months ago and it actually had it right and everyone else was wrong.  Import and Export prices hit at 8:30 AM.  The Ceridian-UCLA PCI data at 9 AM provides a real-time glimpse at diesel fuel consumption for over the road trucking. The 10-year auction is at 1 PM so look for a market pivot point here. Treasury Budget at 2 PM. On Wednesday, the fire becomes hotter with PPI and Retail Sales at 8:30 AM, then Business Inventories at 10AM, followed by Oil Inventories at 10:30 AM and the 30-year bond auction at 1 PM. Thursday keeps the data on full speed with CPI, Empire State and Jobless Claims at 8:30 AM, then Industrial Production at 9:15 AM, Philly Fed 10 AM (that tanked the markets last time so this is a potential market pivot point), and Natty Inventories at 10:30 AM. The TIC data is released Friday at 9 AM before the open followed by Consumer Sentiment at 9:55 AM, another potential market pivot point.

Earnings continue to wind down as we approach the confessional season. Nothing much noteworthy except Best Buy and Pier One providing a gauge on retail. Along with retail data this week, the retail sector will play an important role this week.  BQI provides input on the status of the oil sands, which has been one of the bright spots for manufacturers over the last couple years, with the demand for equipment, pumps and tanks, but, does that continue as oil price languishes? Swift is also of interest on Friday to gauge how the trucking sector is doing, the diesel fuel consumption data front runs their numbers on Tuesday.

 OPEX week this week so watch max pain. Professional traders typically perform a quickie trade during OPEX week going long Tuesday to sell Wednesday, so watch for some potential market buoyancy from Tuesday afternoon into Wednesday morning. Watch the Friday OPEX close since Monday markets will tend to move opposite the way they close this Friday.

The next Bradley turn date is 9/26/11 so pay particular attention to a turn window, and potential turn in the broad market indexes during the back half of September.

Further CME raises of the gold margins remains likely. Following the orchestrated silver slap down play book from April, more margin raises are expected for gold resulting in a 200 to 400 dollar slap down.  The first gold margin hike was 8/10/11, second 8/24/11, thus, another strong move was anticipated by last Wednesday but did not occur, thus, gold maintained buoyancy. This remains a tough nut to crack. Extreme caution is warranted in the gold market this week. With daily and weekly gold charts lining up with negative divergence, and the CME lurking in the background, this may be an epic week for gold trading (to the down side).

Yen intervention by the BOJ remains highly likely. Swiss intervention in the franc will continue. Continue to watch for the dollar to rise, this will serve as one of the signals for Chairman Bernanke to step in with QE3 in the weeks ahead. A rise in the dollar will place further pressure on oil and commodities.

The search for Gaddafi continues and the last stand is occurring in his home town of Sirte, thus, resolution to the Libyan conflict should provide overall market buoyancy, with further premium coming out of oil, commodities, gold and silver, although none of the news flow is reliable.

Keystone’s ‘Short Term’ Key Dates and Market Movers Week of 9/12/11 and on:

·         Monday, 9/12/11: Markets remain at the mercy of Europe news moving forward. Watch OPEX max pain this week. 3-Year Note Auction 1 PM. Richard Fisher (Dallas Fed) speaks at 5 PM. Earnings: BDSI, JVA, FUL, VALU.

·         Tuesday, 9/13/11:  NFIB Small Business Optimism Index 7:30 AM. Import and Export Prices 8:30 AM. Ceridian-UCLA PCI (diesel fuel consumption) 9 AM. 4-Week Bill Auction 11:30 AM. 10-Year Note Auction 1 PM. Treasury Budget 2 PM.  OPEX week so professional traders typically buy Tuesday to sell Wednesday. Earnings: BBY, BQI, QXM, XING, QTWW.

·         Wednesday, 9/14/11: Mortgage Purchase Applications 7 AM. PPI and Retail Sales 8:30 AM. Business Inventories 10 AM. Oil Inventories 10:30 AM. 30-Year Bond Auction 1 PM. Earnings: PLL.

·         Thursday, 9/15/11: CPI, Empire State Mfg Survey and Jobless Claims 8:30 AM. Current Account data 8:30 AM. Industrial Production 9:15 AM. Philly Fed Survey 10 AM (remember how this tanked the markets last time?). Natty Inventories 10:30 AM.  Fed Balance Sheet and Money Supply 4:30 PM.  Earnings: DMND, PIR, ORCL, RIMM.

·         Friday, 9/16/11: Treasury International Capital (TIC) data 9 AM.  Consumer Sentiment 9:55 AM. OPEX so markets typically open Monday the opposite of the way they close today. Earnings: SWFT.

·         Tuesday, 9/20/11 and Wednesday, 9/21/11: Fed Meeting, Chairman Bernanke will provide QE3 strategies, ‘Operation Twist’, moving forward.

·         Monday, 9/19/11 thru Friday, 9/30/11: Bradley turn window in affect with the actual turn date 9/26/11, thus, especially watch 9/22/11 thru 9/29/11 closely for a market turn.

·         Friday, 9/23/11 thru Friday, 9/30/11 (EOM; EOQ3): Q3 window dressing so the successful plays during September will receive additional juice.

·         Thursday, 9/29/11: “Sell Rosh Hashanah and buy Yom Kippur (10/8/11),” although approach this ole Wall Street adage with skepticism, simply be aware.

·         September: Congress in session with budget talks and the super committee front and center, a market negative.

·         Back half of September into early October: Pre-announcement season.

Keystone’s Short Term to ‘Intermediate Term’ Key Dates and Market Movers for September, October and on:

·         Earnings:  The majority of companies have reported for Q2 and September will finish off the remaining numbers. Many companies are ratcheting down future expectations. The confessional season, pre-announcements, will affect markets in late September and early October. Earnings affects are likely negative on the markets moving forward as the global recovery continues to stagnate.

·         QE3:  Quantitative easing (QE2), ended 6/30/11.  Chairman Bernanke took away the punch bowl that elevated equities markets like clockwork with POMO pumps between 10:00 and 11:30 AM each session. Traders are confused concerning QE3; do they applaud it since the booze will flow again or do they continue to sell since QE2 can be deemed a failure?   Tentative projection for QE3 announcement a la Operation Twist remains at 9/20/11 or later.  The Fed has now expanded the September meeting to two days to facilitate QE3 strategy discussions. Keystone projects the September-November time frame for QE3; deflation must raise its ugly face first and this is more likely to be verified in October-November.  Watch as the dollar index, $USD, moves up in the weeks ahead and commodities, $CRB, move lower. This, along with lower treasury yields, will verify a move towards disinflation and deflation, and signal Bernanke to announce QE3.

·         FOMC Meetings and Rate Decisions:  9/20/11-9/21/11; 11/1/11-11/2/11; 12/13/11. Fed announced that the Zero Interest Rate Policy (ZIRP) will remain in place until mid-2013. QE3 strategies will be discussed during the September meeting with a QE3 announcement anticipated for the September-November time frame. Disinflation and deflation needs to occur first so the October-November time frame is a better target.

·         U.S. Downgrades: S&P announces a downgrade of U.S. debt from AAA to AA+. Moody’s and Fitch have not downgraded as yet.  Therefore, 2 of 3 rating agencies have not downgraded so the affects of the S&P downgrade should be muted. A downgrade from either Moody’s or Fitch will seriously impact equity markets to the negative side, which Keystone projects to potentially occur before 10/15/11. Fitch announced that it will retain its AAA on the U.S. S&P is on hold until the end of the year when they will reassess the U.S.  S&P says there is a one in three chance of a further downgrade.  The U.S. should have been downgraded already, why is everyone wringing their hands? Perhaps the politico’s will downgrade other AAA countries as a way to bring them down to the U.S.’s new level rather than expecting the U.S. to move back up. Moody’s is hinting that European banks will be downgraded. Downgrade talk is a market negative and if any additional downgrade occurs from any of the three rating agencies, the equities markets will sell off large.

·         Congress In or Out of Session:  Market bullish when not in session, market bearish when in session. The political circus is back in town so strike up the calliope. Further budgets fights will continue in September. Kyl starts the super committee off on a sour note stating he will walk out if any defense cuts occur.  Congress and President are picking up their childish bickering where they left off, negatively impacting the broad markets.

·         Europe Debt Crisis Continues (PIIGS):  Portugal, Ireland, Italy, Greece and Spain. The five little piggies.  Greece on the verge of default with contagion now a major worry. Italy in major trouble. Italy is the third largest debtor nation in the World, only trailing the U.S. and Japan.  Greece paper probably worth 30 cents on the dollar, Ireland 50 cents, Portugal 85 cents but no one knows for sure. Spain and U.K. high unemployment for young people is a major concern and the root reason for riots—what else do the young folks have to do with themselves? Italy and Spain are too big to fail, too big to bail. Solutions are limited. Europe may consolidate all member debt into a single Eurobond issue.  Germany says ‘nein’ to this idea but has softened their rhetoric as the Eurozone crumbles.  Perhaps rich Uncle China will step in? China is the one wild card that could actually enable the global economies to kick the can down the road once again. Weaker euro=stronger dollar=weaker commodities=weaker U.S. equities, which played out late last week. Gold is buoyant on any negative Euro news but the gold margin hikes will take precedence on the gold price action.

·         ECB Rate Hikes:  ECB announces next rate decisions 10/6/11, 11/3/11, 12/8/11, 1/12/12.  Past decisions are no hike on 9/8/11 (although the door is now cracked open for lower rates), no hike 8/4/11 followed by a confusing press conference where Trichet spoke gibberish-he realizes the rate hikes from April were a mistake.  25 bip hike 7/7/11. No change occurred 6/9/11 or 5/5/11. 25 bip hike on 4/7/11 that began Trichet’s mistake like July 2008 when he raised at the peak in the commodities market, exactly the wrong time.  Trichet is finishing up his tenure on a down note and he became quite animated last week defending himself. Euro was propped up by Trichet’s hawkish talk this year. The euro buoyancy kept equities markets buoyant. Watch for euro down=dollar up=commodities down=equities down. As a side note, the Chinese are now supporting the euro behind the scenes helping maintain equity buoyancy, and euro strength, to some extent, although last week the euro is starting to crumble.

·         Ongoing Wars: Libya, Iraq and Afghanistan. Libya oil production loss not a major issue and some strides are occurring to bring things back on line as Gaddafi is cornered. Any positive resolution to the Colonel Gaddafi situation will place pressure on the oil price.  Rational price of oil is the low to mid 80’s and lower considering the global recession ahead but markets are rarely rational.  Wars and M.E. problems continue=bullish for commodities, gold, silver and oil, or, visa versa. Resolution to the Middle East conflicts will remove the premium in commodities.

·         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 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, although gold moves will be tempered now due to the CME  raising margin requirements.

·         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. MUB charts are in negative divergence so lower prices are ahead.  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. Europe is China’s major customer so the Euro woes will only accelerate the problems.  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. 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. Watch the copper price to gauge China moving forward. China has to decide if they want to play a larger role in the world and help prop up the global mess. 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; there is a hint that one hike will occur by the end of the year, however. 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’s 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 with respect to commodities. The CME hikes in gold margins will trump all moving forward.

·         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. Watch India closely this week. 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 from August 2010 thru May 2011 creating new asset bubbles. India is now experiencing civil unrest as citizens demonstrate against corruption at all levels of government.  India directly supports one-third of the global gold market and we are entering the marriage season now where gold buoyancy typically occurs. This year has been far from normal, however, and the CME margin hikes should trump all. Moving forward, watch India as a proxy for gold price.

·         Japan Disaster; Yen Currency Intervention:  The global markets are treating the quake/tsunami/nuclear disaster as a Japan problem with limited global impact.  The negative affects to the auto industry and technology are subsiding substantially. This disaster had a greater negative impact on markets over the last few months than traders give it credit.  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, or 80, and now dollar/yen has fallen well into the 70’s. The 76.5 current level will more than likely be defended so expect currency intervention now, any day forward, would not be a surprise. Currency intervention occurred 8/4/11, expect further coordinated intervention in the coming days and weeks.  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.  SPR hinted at no additional releases but the picture has again become cloudy so another release cannot be ruled out, especially in the light of a now active hurricane season. The SPR had become a non issue as oil price has fallen due to a coming global recession, but the hurricane season has renewed interest in a potential release.  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’s coming=lower oil supply=higher oil price=good for construction material companies like HD and LOW. Rational oil price is 80-85 or lower due to global slowdown but markets are never rational.

·         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 2011. This is deflationary behavior giving Chairman Bernanke many sleepless nights. Keystone considers real estate to be a key investment over the next year or two but prices have much lower to fall first. 

·         Eclipse Selloff Target Areas: Allow plus or minus a week or two 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.  Targets this year; 5/15/11 (large sell off occurred May-June); 7/15/11 (large sell off occurred 7/8 thru 7/18 then the crash the week of 8/1/11); 11/3/11 area is next; then 1/3/12.

·         Bradley Turn Dates: 9/26/11 (turn window 9/19 thru 10/3/11, more specifically 9/22/11 thru 9/28/11); 10/12/11; 10/28/11 (this date matches up with the eclipse sell off projection); 11/22/11-11/23/11; 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. Markets more than likely change their trends, if headed up, they reverse down, or if they have been moving down, they reverse up.  Every now and then, however, the markets will melt up or down in an acceleration move of the current trend. Dates are courtesy of Donald Bradley, Peter Eliades and Arch Crawford; reference their web sites for additional information.