Keystone's Key Events and Market Movers for Trading the Week of 2/19/13

Key Dates and Times for the Week Ahead:

·         Keystone’s Comments on the Upcoming Week: Housing Starts are the most important data release this week on Wednesday morning. There is lots of housing information and earnings hitting this week so the fate of the markets will be decided by the housing sector, live by the sword, or die by the sword. As the housing data goes this week, so goes the markets. The FOMC Minutes on Wednesday afternoon are important as well, and then the data on Thursday.  Fed speakers will be speaking and spinning the news again this week. Earnings season is in full swing with second tier companies reporting. WMT earnings are key especially in light of the leaked memo that says “February sales are a disaster.” The bulls continue to run higher with markets continuing to print new highs.  The next political deadline is the Sequestration on 3/1/13, only 11 days away, followed by the Continuing Resolution on 3/27/13, only 38 days away, then the Debt Ceiling limit comes into play again mid-May, three months out. Traders are no longer concerned of any market downside occurring due to these political deadlines. The politicians solved the Fiscal Cliff and the Debt Ceiling deadlines with can-kicking and this will simply continue on indefinitely, so there is no reason to price in any market downside moving forward.  Of course, if a stumble occurs, it would impact markets more greatly due to this complacency. Congress is on vacation for one week, its great work if you can get it. After all, it is not like they have any important business to handle (said cynically).  With Congress gone this week that would be a market positive, then a market negative when they return next week.  The European debt crisis news directly dictates global market direction and is heating up with the Spain turmoil and rising bond yields. As the euro goes, so goes the equity markets.  Spain is delaying their bailout request so the ECB’s OMT bond-buying program cannot be unleashed in full force, although simply having the OMT in place has greatly calmed Europe.  Spain is reluctant to give up sovereignty and accept conditionality. European countries are denying that money is moving out of banks but denial is always the first sign of serious trouble ahead.  Italy wants Spain to request a bailout since the ECB bond-buying will immediately improve Italy’s debt situation. Look for a strong market bounce and rally if Spain requests a bailout. European riots and violence continue. Cyprus will need a bailout by April. Merkel wants Greece to stay in the euro until her election in September then will not care afterwards. The next ECB Rate Decision and Press Conference is Thursday, 3/7/13.  Draghi is reluctantly moving dovish as Weidmann plays the hawk role.  Traders will be anticipating a cut by Draghi at some point forward.  Europe is standing by watching their manufacturing and exporter worsen while the U.S. and Japan devalues their currencies. If the European economy continues to falter, and the automobile sales are dropping significantly, and Germany dropping off, Draghi will have to cut to weaken the euro and help the Eurozone grow out of the debt mess. The China hard versus soft landing saga continues. Watch for further China easing measures such as lowering rates or triple R’s, which will bounce copper, commodities and equity markets. As copper and commodities go, so goes the markets.  China correctly worries about the new commodities inflation and asset bubbles that will be created by their easy money policies (Chairman Bernanke incorrectly defends QE saying it does not create asset bubbles). New leaders President Xi Jinping and Premier Li Keqiang will supply economic targets in March. China professes a 7.8% growth rate but no one asks how this is possible when their number one customer, Europe, is in recession and depression, the U.S. is flat, and uninhabited cities litter the China countryside, waiting for the urban shift to a domestic-led economy. China demographics are a mess due to the multi-decade one-child policy now causing a lack of workers to fuel economic health and the income figures show that the rural Chinese are making more money than the urban dwellers providing no incentive to move to the cities. China retail sales are also lagging. CAT, YUM, and DE, three key China bellwethers, are unenthusiastic moving forward.  The Australia disinflationary and deflationary scent in the air must be studied closely moving forward. The equity markets continue to ignore the geopolitical landscape. Syria is out of control with refugee’s now threatening collapse of neighboring nations. Egypt remains in chaos.  The sharp rise in Brent oil to 119 verifies the concern over Northern Africa and the Middle East. At the same time, WTIC oil drops on over supply issues remaining as well as a weakening global economy so the crude to Brent spread hits historic highs over 23.  Use Brent oil as a proxy for the Middle East turmoil. If Brent is above 112, now well above, it signals that tensions are rising. Calm is returning under 112.  As oil goes, so goes the markets. Watch WTIC oil 95.50 support level since further weakness will occur if 95.50 is lost.  The earnings season continues. Companies are meeting lowered estimates although the percentage beats are slightly under the typical 70 to 75% expected. Top line revenues continue to be challenged. The housing earnings are going to determine market direction this week. If the housing data and forward guidance remain strong, the bulls will be happy, if chinks form in the armor, weak housing data could act as a catalyst to begin a broad market correction. WMT earnings are important and JWN will provide a gauge of whether or not the wealthy are spending.  Tech (COMPQ) lost leadership last week ending a six week winning streak.  The SPX and RUT (small caps) continue along with seven-week winning streaks.   Volatility remains at a six-year low but the VIX is poised for a strong rebound with positive divergence.  The CPC put/call remains low verifying the market complacency.  Traders never doubted the positive outcome for the fiscal cliff and debt ceiling limit and those beliefs are now reinforced creating complacency.    The market bears are absent this year thus far. There is upside momo in the markets currently but topping action and roll over is anticipated as the days and weeks play out. Q1 is anticipated to be a significant market topping area.

·         Sunday, 2/17/13: Cyprus elections.

·         Monday, 2/18/12: U.S. Markets are Closed in Observance of President’s Day. Earnings: APL, BBG, CQB, CEP, HLS, HTZ, IDIX, INFI, KYAK, LNG, LXRX, MNST, SKUL, SWC-platinum, TNK-shipping, TNH-fertilizer.

·         Tuesday, 2/19/13: U.S. Markets Open for Trading. Housing Market Index 10 AM beginning an important week for housing data. Earnings: ACPW, AMRS, BCRX, BOBE, CCO, DAKT, DELL, DDS, EE, FDP, FUN, GPC, GLRE, HLF, HHC, LZB, MAR, MDRX, MDT, NBR, NI, NU, OIS, PNX, PRGX, RAIL, SEE, UNB, WTS, YNDX.

·         Wednesday, 2/20/13: Mortgage Applications 7 AM—is the trend up or flat (last Wednesday was weak).  PPI and Housing Starts 8:30 AM.  FOMC Minutes 2 PM. Earnings: AFAM, ARII, AUY, BALT, BYD, CLH, CROX, CW, DVN, DISH, DTE, ETP, FLR, FST, GRMN, GNK-shipping, IDCC, JACK, KBR, LEAP, LL-housing, MELI, NFX, OC-housing, PPO, PVR, SAM, SB, SODA, SZYM, SYNC, TSLA, TOL-housing, WIRE, WLT-coal, WMB, XCO, XRAY.

·         Thursday, 2/21/13:  CPI and Jobless Claims 8:30 AM. Flash PMI 8:58 AM.  Existing Home Sales, Philly Fed and Leading Indicators 10 AM.  Natty Gas Inventories 10:30 AM. Oil Inventories 11 AM (delayed one-day due to holiday).  Fed’s Bullard speaks 12:30 PM.  Fed’s Williams speaks 1 PM.  30-Year TIPS Auction 1 PM.  Fed’s Fisher speaks 9:15 PM.  Earnings: AIG, ARUN, ATLS, COG, CG, CHK, CDE, EVEP, FIRE, FLS, HPQ, HEP, JWN-retail, LINE, MHK-housing, NEM-gold, PKD, PWR, RS, SAFM, SWN, SWY, TASR, TK-TGP-TOO-shipping, TTC, WBMD, WMT, ZLC.

·         Friday, 2/22/13:  Fed’s Powell speaks. Typical Friday buoyancy ahead of the weekend, and some lift due to the full moon nearing, may be on tap for the afternoon. Earnings: ANF, BBG, COR-server real estate, IPG, PDLI, WPO.

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·         Sunday, 2/24/13: Italy two-day national election begins. Flag Day.

·         Monday, 2/25/13: Italy election results. Full moon.

·         Tuesday, 2/26/13: New Home Sales and Consumer Confidence 10 AM. Chairman Bernanke speaks 10 AM.

·         Wednesday, 2/27/13: Durable Goods Orders 8:30 AM. Chairman Bernanke speaks 10 AM.

·         Thursday, 2/28/13: Jobless Claims and GDP 8:30 AM. Chicago PMI 9:45 AM. EOM.

·         Friday, 3/1/13: Personal Income and Outlays 8:30 AM. PMI Mfg Index 8:58 AM.  Consumer Sentiment 9:55 AM. Construction Spending and ISM Mfg Index 10 AM. Sequestration hits with one trillion in automatic spending cuts for government. An 85 billion hit takes place quickly as well as a 0.7% hit to GDP. Estimates are that over 600K people may lose their jobs, much of the cuts in defense industries.

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·         Moving into March:  New China President Xi Jinping and Premier Li Keqiang take over complete control and the ten-year transition of power is finished. China now sets inflation and budget targets moving forward. China is pushing to a domestic-led economy. The growth projections are important; 2012 grew at an average 7.8% rate.

·         Wednesday, 3/27/13: Continuing Resolution (CR) is required to fund the government.

·         In March and April:  The BOJ head’s will be replaced and strong QE will likely occur. Perhaps a pull-back and low in the Nikkei in February and March may provide a point of entry ahead of the additional money-pumping.

·         Sunday, 5/19/13:  16.4 trillion Debt Ceiling limit is hit.

·         In September:  Merkel (Germany) seeks re-election and will not want Greece to exit the euro before the election, but will not care afterwards.  Perhaps Greece and Germany will both exit the euro in the future.

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·         In March 2014: ESM is officially ‘fully operational’. The banking union schedule has been delayed from January 2013 to January 2014 and now to March 2014.