Keystone's Key Events and Market Moves for Trading the Week of 2/25/13

Key Dates and Times for the Week Ahead:

·         Keystone’s Comments on the Upcoming Week: Happy Flag Day to our Mexico friends. This week is the lollapalooza of retail earnings. The retail sector has supported the markets for many months; this week will decide if that continues, or not.  Fed manufacturing indexes are also important. Consumer Confidence at 10 AM Tuesday is the most important data release this week. Consumer Sentiment and ISM Mfg Index is Friday.  Chairman Bernanke and other Fed speakers are on tap to pump the markets like Bullard last Friday. Of course the Sequester that hits Friday is the 900-pound gorilla in the room. The month ends on Thursday. The next political deadline is the Sequestration on 3/1/13, only 4 days away, followed by the Continuing Resolution on 3/27/13, only 31 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 returns from vacation this week which is a negative for markets. The European debt crisis news directly dictates global market direction.  Spain protests are growing.  As the euro goes, so goes the equity markets.  Italy elections are today and tomorrow and will cause trouble if two or three of the candidates all receive the same number of votes. Italy will take the month of March to form a coalition government. 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 but 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 export industries 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 Flash PMI this evening is critical and may set the broad market tone into Tuesday. 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.  Pay attention to JOY earnings this week. The Australia disinflationary and deflationary scenario 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 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. The WTIC oil 95.50 support level failed last week which sent oil directly to 93. If oil moves above 93, the equity markets move higher, under 93 signals more disinflationary concerns and markets will sell off.  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 retail earnings are key and LOW and HD will provide insight into housing and retail.  Watch DRYS on Wednesday to see if ocean shipping shows any signs of life. The weak Baltic Dry Index signals a sick global economy.  JOY is the most important earnings report all week since it is a key global bellwether. Chinks in the housing sector showed last week, will retail disappoint as well this week?  Housing and retail has held the markets together all these months.  Tech (COMPQ) and small caps (RUT) strongly led the broad markets lower last week, a bearish indication.  The SPX and RUT lost their seven-week winning streaks last week and logged their first down weeks for 2013. Volatility remains at a six-year low but the VIX moved above 16 last week before dropping back down. Further VIX upside is expected. The CPC put/call remains low verifying the market complacency ongoing, consistent with market tops.  Traders never doubted the positive outcome for the fiscal cliff and debt ceiling limit and those beliefs are now reinforcing continued complacency.  The market bears finally flexed their muscles for the first time this year but the Fed’s Bullard ran to the television studio to broadcast a soothing message that the printing presses will run indefinitely. Continued market topping and roll over action is anticipated for the broad indexes as the days and weeks play out. Q1 is anticipated to be a significant market topping area.

·         Sunday, 2/24/13: Italy elections begin. Congress returns from vacation to address the sequestration deadline on Friday. Flag Day. China Flash PMI 8:45 PM EST will push copper and commodity prices immediately, one way or the other, and this will set the tone and direction for U.S. markets tomorrow morning.

·         Monday, 2/25/12: Italy elections continue. Chicago Fed Activity Index 8:30 AM. Dallas Fed Mfg Survey 10:30 AM.  2-Year Note Auction 1 PM. Fed’s Lockhart speaks 7 PM. Darden Analyst Meeting may provide insight into consumer discretionary spending. Markets may experience buoyancy into the full moon. Earnings: ADSK, BIG-retail, CZR, CTB, DDD, DNDN, FE, HALO, HCN, HL, HTZ, IDIX, LOW-retail and housing, MHR, MELI, MR, OKE, OKS, KWK, UNB, URS, VECO, VVUS, WTR.

·         Tuesday, 2/26/13: S&P Case-Shiller House Price Index and FHFA House Price Index at 9 AM. New Home Sales and Consumer Confidence 10 AM. Chairman Bernanke speaks 10 AM.  A market pivot point will occur at 10 AM. Richmond Fed Mfg Index 10 AM. 5-Year Note Auction 1 PM. Earnings: AMT, AWK, AZO, BIO, BZ, CRZO, DWA, EIX, FSLR, GAME, GWRE, HD-retail and housing, JAZZ, LDL, M-retail, MAKO, MSO, PCS, PCLN, RSH-retail, QCOR, RRC-natty, SKS-retail, SRE, THC, TIVO, TSL, SLCA, UTHR, WFT.

·         Wednesday, 2/27/13: Mortgage Applications 7 AM—is the trend up or flat? (2/13/13 down; 2/20/13 down)  Durable Goods Orders 8:30 AM. Chairman Bernanke speaks 10 AM. Pending Home Sales 10 AM-markets may take a stutter step. Oil Inventories 10:30 AM. 7-Note Auction 1 PM.  The month of February typically finishes weak the last couple days. Earnings: BSFT, BWC, CRI, CBI-an LNG gauge, CDXS, CLR, DLTR-low end retail, DRYS-shipping, GRPN, ITT, JCP-retail, JOY-global bellwether, KERX, LTD-retail, MWE, MNST, MYL, NRG, PLL, KWR, SWC, RGR-guns, TJX-retail, PANL, VPHM, WEBM, WES.

·         Thursday, 2/28/13: EOM. Jobless Claims and GDP 8:30 AM. Chicago PMI 9:45 AM. Natty Gas Inventories 10:30 AM. Kansas City Fed Mfg Index 11 AM. Farm Prices 3 PM. Fed’s Fisher speaks 4:30 PM. .Fed’s Evans speaks 8 PM. Earnings: ALSK, AWR, BID, BKS, BBY-retail, CERS, CHS, GTLS-natty, CLNE-natty, CPNO, CRM, DECK-retail, FCN, GPS-retail, GXP, HK, IMMR, ISIS, JOE, KOG, KSS-retail, MTZ, MDR, MCP-rare earths, PANW, RDC, SD, SHLD-retail, TTI, UHS, WEN, WNR, WWE.

·         Friday, 3/1/13: Motor Vehicle Sales. 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-expect a market pivot point at 10 AM. Sequestration hits with one trillion in automatic spending cuts for government. An 85 billion hit takes place quickly as well as a 0.07% hit to GDP. Estimates are that over 600K people may lose their jobs with much of the cuts in defense industries so States such as Virginia are more strongly affected. Earnings: DUF, FWLT, SUP.

------------------------------------------------------------------------------

·         In 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 and will be judged against the 7.8% growth rate in 2012.

·         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 on tap.

·         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.

---------------------------------  2014  ----------------------------------

·         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.