On 8/31/12, Friday, Japan and Korea industrial output numbers are weak. Japan remains mired in deflation. Spanish retail sales drop 7% for July, now negative for two years. ECB council member Nowotny warns that Europe will decrease growth rates moving forward. Weidman considers resigning from the Bundesbank but decides to stay on to continue fighting against ECB bond-buying. News from Europe hints that the ECB bond-buying program is much further along than anyone thought so the futures markets catapult higher into the opening bell upstaging Chairman Bernanke’s talk occurring in a few hours time. Pre-market S&P futures are up over 12 points. Fed’s Bullard says the Fed should wait a few months before launching additional stimulus. Markets jump higher at the opening bell. Consumer Sentiment is better than expected. Bernanke’s speech script is released from Jackson Hole and traders scour thru the pages to look for hints of quantitative easing. Bernanke says the labor market is of “grave concern” and that he will act “when needed.” The quant’s drop the markets at 10 AM as the news hits but as the day moves along more traders view Bernanke’s words as guaranteeing QE in the near future perhaps as soon as the 9/12/12 meeting (traders ignore the ‘when needed’ phrase from the Fed which suggests that stimulus may be delayed well into the future). The dollar weakens to three-month low so copper, commodities and PM’s strengthen. Gold catapults to a five-month high in the 1690’s. Keystone’s SPX 30-minute chart shows the 8 MA piercing back up thru the 34 MA to signal that the bulls are back in the driver’s seat for the hours and days ahead. Markets float upwards into the three-day holiday weekend recovering yesterday’s losses and the broad indexes finish relatively flat on the week overall. The EOM occurs and the SPX is now up for three months in a row closing at 1407. The SPX is moving sideways for the last eight trading days thru the 1399-1413 range.
On 9/1/12, Saturday, U.S. jobs data shows that the jobs now created are lower paying than the jobs lost during this Great Recession. The unemployment problem is structural as many workers are unable to find work and many others only working part-time that desire full-time work.
On 9/2/12, Sunday evening, China’s PMI drops to 49.2 under 50 and showing that the Chinese economy is deteriorating. China GDP growth will continue falling, perhaps under the 7.5% targeted for this year. China has not missed a GDP growth target number since the late 1990’s. Despite the bad news, Asian markets, and copper, jump higher on the news since traders are trained to now expect stimulus for the markets. The Aussie dollar drops one-half percent on continued worries about the economy in the land down under. Hollande’s approval rating continues to fall.
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On 9/3/12, Monday, U.S. Markets are Closed in Observance of Labor Day. Italy’s PMI is 43.6, lower than expected, showing a country mired in recession with an extremely weak economy. The news does not improve for Europe as France, Germany, Spain and Ireland all show PMI’s under 50 indicating continued contraction in the Eurozone manufacturing industries; the Eurozone PMI is 45.1, very weak, a 7-month low, with new orders falling. Commodities rise, however, due to traders expecting stimulus from central bankers. The expectations increase for Draghi to deliver strong stimulus on Thursday. Traders are now the least bearish on the euro in the last five months (traders were extremely bearish on the euro in July which marked the euro’s recent bottom). Schauble warns that disappointment may result from the ECB meeting on Thursday. Spain is to further recapitalize troubled Bankia bank. Merkel says that bailouts are here to stay for a while in Europe.
On 9/4/12, Tuesday, Moody’s cuts the EU outlook to negative citing greater risks moving forward. ECB’s Draghi says he is ‘comfortable’ with buying bonds which causes the euro to move above 1.26 and bond yields in Spain and Italy remain calm. U.S. markets reopen for trading after the Labor Day holiday. ISM Mfg Index disappoints. The markets drop at the opening bell and the bears gather steam to the downside, the SPX drops under 1400 and the Dow Industrials drop under 13K, but, on continued positive rumors from Europe, markets recover in the afternoon to end flat on the day. Volatility jumped higher and semiconductors and utilities were weak in the early going, these three accounting for the bulk of the market move today. Keystone’s SPX 30-minute chart shows the 8 MA down thru the 34 MA favoring the bears going forward. After the closing bell, FDX warns on earnings moving forward due to a global manufacturing slowdown. The bombshell news hits FDX and UPS hard in the AH’s trading. If products, parts, packages and paperwork are not moving around the U.S. and the world, obviously the planet is in a serious global economic slowdown.
On Tuesday, Keystone’s algorithm, Keybot the Quant, flips bearish at SPX 1399 at 10:34 AM EST where it looks like the market bears are here to stay. Then wham! At 2:13 PM, the markets pull a hard reversal back up to the bull side and Keybot the Quant whipsaws, flipping back to the bull side, at SPX 1402 signaling that the bulls remain in charge moving forward.
On 9/5/12, Wednesday, Eurozone Services PMI is under 50 indicating contraction and that Europe is mired in recession. Futures are in a sour mood with the S&P’s down almost ten handles on the FDX news last evening. The ECB leaks a few tidbits on Draghi’s plan saying that he pledges unlimited sterilized bond-buying. Bingo, the markets recover, another Pavlovian response by traders running markets higher on crack cocaine stimulus talk. The word ‘sterilization’ attempts to accommodate easing while minimizing the future effects of inflation. Gold moves over 1700. Keystone’s SPX 30-minute chart shows the 8 MA moving up thru the 34 MA at the opening bell favoring the market bulls going forward. AMD reports weakness so the semiconductors are in a malaise all day long, and, along with the utilities sector, maintain downward pressure on the broad indexes. Markets continue along sideways into the close awaiting the ECB decision.
On 9/6/12, Thursday, futures are up strongly (S&P’s plus nine) anticipating Draghi’s move. ECB’s Draghi surprises traders by not lowering rates to spur growth. The ECB leaves rates on hold so the euro bounces immediately off the news. Europe needs growth and Germany can especially use a lower euro to help Europe grow out of the morass but alas, no rate cut. Draghi brings a bazooka and delivers on his promise that he will do whatever it takes. He provides details on his unlimited, sterilized bond-buying program. Countries must request a bailout and agree to give up some sovereignty in doing so, thus, the path ahead remains murky. Draghi will buy at the short end thereby keeping the yields low while helping to maintain a steep yield curve with the longer dated maturities which, in turn, helps the banks recover. Spain has been reluctant to request a bailout due to the worry of exactly what conditionality will be required. Merkel meets with Rajoy. The U.S. equity markets explode higher. The SPX ends the day up 29 points, 2.0%, to 1432. The Dow Industrials are up 245 points, 1.9%, to 13292. The Nasdaq is up 67 points, 2.2%, to 3136. The RUT is up 17 points, 2.0%, to 838. The SPX closes above the 5/19/08 high printing four-year highs, however, the SPX has not surpassed the intraday 5/19/08 high at 1440.24 . The Nasdaq prints 12-year highs going back to November 2000 just after the March 2000 Dot-Com Bubble market top. President Obama gives his nomination speech from the Democratic convention.
On 9/7/12, Friday, Asian stocks rally strongly as China provides infrastructure stimulus. Copper lagged the markets yesterday but today explodes higher with all commodities, traders now responding to Chinese crack cocaine stimulus. Hungary industrial output falls off a cliff for July showing a deepening Euro zone recession. Spanish 10-year bond yield falls under 6% for the first time in many months. This shows calm returning to Europe. The euro pops above 1.27 for the first time since late June and starts to attack 1.28. The U.S. futures continue the bullish fun with the S&P’s up about five points going into the jobs number. The Monthly Jobs Report is very disappointing with 96K jobs and 8.1% unemployment rate. The labor participation rate is the lowest in 30 years! These folks are not finding jobs, they are simply being forgotten. This is causing the slight down tick in the rate from 8.3% last month to 8.1%. The consensus was from 125K to 150K jobs so the number fell way short. Average hourly earnings and hours worked were flat which means companies have no plans on hiring anyone, they are simply trying to maintain their businesses at the current level. The trend for many years now, and especially over the last couple years, is that the higher-paying jobs are being replaced with lower-paying jobs. Other workers work part-time but desire to work full-time. The unemployment problem is structural, pathetic and depressing for those struggling each day. Food service jobs, such as waiters, waitresses and bartenders were the big gainers this month; perhaps folks are eating and drinking their troubles away? The markets, however, in this backward bazarro world, where free markets now only appear in history books, run higher on the news since traders figure that QE3 from Chairman Bernanke on Thursday is now virtually guaranteed. GOOG tops 700 not seen since 2007. The markets are mixed in the session but end up on the day. For the week, the broad indexes experience large gains of 2% or more. The SPX is up 2.2% to 1438. The Dow Industrials are up 1.7% to 13307. The Nasdaq is up 2.3% to 3136. The RUT is up 3.7% to 842; traders are chasing into small cap growth stocks pumping the risk-on stimulus trade. The easy money policy provided this week has traders running into commodities, small caps, gold, PM’s, miners and financials. After the close, Keystone highlights the CPC Put/Ratio at 0.74, uber low signaling rampant trader complacency. Traders do not have a care in the world, they are fully loaded on the bull side of the boat completely convinced that nothing will go wrong and the central banker stimulus moves will fully support the long side for the markets well into the future. Traders see no reason to purchase protection so volatility continues lower with the VIX printing a 14 handle. The CPC and VIX say that analysts, pundits and traders that wax concern about markets on television or in print are actually not worried at all. This uber complacency and complete lack of fear is exactly when the markets hand you a surprise. The uber low CPC at 0.74 signals that the broad indexes have now placed a significant market top. It is very prudent to think about all long positions held currently in the context of what you will do in the event of a large market pull back occurring at any time.
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On 9/10/12, Monday, Congress is back in session, a market negative, the childish behavior begins again.
On 9/11/12, Tuesday, Patriot Day; Anniversary of the U.S. Terrorism Attacks. Euro Banking Union proposals provide regulatory blueprint (today and tomorrow).
On 9/12/12, Wednesday, German vote on the constitutionality of the ESM (European Stability Mechanism). FOMC Meeting begins. AAPL releases new iPhone5.
On 9/13/12, Thursday, FOMC Rate Decision, Forecasts and Press Conference. G-20 Finance Ministers meet today and tomorrow.
On 9/14/12, Friday, Euro zone Finance Ministers meet today and tomorrow. Retail Sales. Consumer Sentiment.
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On 9/19/12, Wednesday, Housing Starts.
On 9/20/12, Thursday, Rajoy and Monti meet.
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On 9/25/12, Tuesday, Consumer Confidence.
On 9/28/12, Friday, Consumer Sentiment.
In late September, Troika Report is due which is needed for the Greece decision. Spanish bank audits are due so watch for a potential ratings downgrade. Window dressing for Q3 occurs in the equity markets.
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On 10/4/12, Thursday, ECB Rate Decision and Press Conference.
On 10/5/12, Friday, Monthly Jobs Report.
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On 10/8/12, Monday, Eurozone Finance Ministers meet to discuss Greece aid.
In October, Troika Report on Greece is due (this is needed for leaders to make a decision on Greece) and has been delayed since the original due date in early September.
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On 10/18/12, Thursday, ECB/Euro Summit (Merkel may avoid a decision on Greece until now? Will Greece exit the euro? Is the banking union outline accepatable?)
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On 11/2/12, Friday, Monthly Jobs Report—last report before the election.
On 11/6/12, Tuesday, U.S. Presidential Election Obama v. Romney.
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On 1/1/13, Tuesday, if Congress does not act, the U.S. hits the ‘massive fiscal cliff’ (a phrase coined by Chairman Bernanke in early 2012) that will cut the GDP, increase unemployment and immediately launch the country into recession, but, on the positive side, the nation’s debt will decrease.
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In March, the new China Premier takes over control.
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