Keystone's Key Events and Market Movers for Trading the Week of 3/18/13

Key Dates and Times for the Week Ahead:

·         Keystone’s Comments on the Upcoming Week: Lots of drama on tap this week with the Sequester, CR deadline, Cyprus, Italy, FOMC, Housing Starts, KBH and LEN earnings, FOMC, FDX earnings and Flash PMI’s.  The Sequestration is here and will bite as time moves along.  The Continuing Resolution is on 3/27/13, only 9 days away.  The Debt Ceiling limit comes into play mid-May, only 7 weeks away. Traders are no longer concerned of any market downside occurring due to the political deadlines since politicians will perpetually can-kick.  Of course, if a stumble occurs, it would impact markets severely due to this ongoing complacency. Congress is in session which is a market negative. The European debt crisis drama is heating up again.  Cyprus receives a bailout (fourth country to receive a bailout; Ireland, Greece, Portugal, now Cyprus) but the big news is the confiscation of from 6.8% to 9.9% of depositor’s funds.  This may have implications across Europe with bank runs.  Spain and Greece protests continue.  As the euro goes, so goes the equity markets but this asset relationship is skewed in recent days.  Italy election drama is ongoing and a decision must be made this week where either a coalition government is formed or new elections are required for May-June. New Italy elections will likely hurt global equity markets. Watch the Italy 10-year yield to see if it blows out, or not, especially if it blows past Spain’s yield. 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 in recent months.  Spain and other nations are reluctant to give up sovereignty and accept conditionality as terms of a bailout package. 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. Merkel wants Greece to stay in the euro until her re-election in September but will not care afterwards. The next ECB Rate Decision and Press Conference is Thursday, 4/4/13.  Draghi is walking a tightrope as the European manufacturing and export sectors weaken due to the U.S. and Japan debasing their currencies. Draghi will have to capitulate by lowering rates, perhaps on 4/4/13, which will send the euro lower.  If the European economy continues to falter with automobile sales continuing to stumble, 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, but the equities markets move higher over the last month as oil, copper and commodities collapsed, verifying that the move up in equities is purely Fed-driven. The copper-equities relationship has broken down (Dr. Copper leads the markets) but should reestablish itself moving forward.  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 are in power now targeting a 7.5% growth rate for 2013. The China data continues to forecast blue skies ahead 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.  The urban shift to a domestic-led economy is occurring far more slowly than anticipated and the new housing is too expensive for folks moving to the cities.  China demographics are a mess due to the multi-decade one-child policy now causing a lack of workers to fuel economic health.  Income figures show that the rural Chinese are making more money than the urban dwellers providing no incentive to move to the cities.  Retail sales are lagging and manufacturing data shows a standstill. CAT, YUM, and DE, three key China bellwethers, are unenthusiastic moving forward.  JOY is more upbeat but this appears to be misplaced optimism due to data pointing the other way. The Australia disinflationary and deflationary scenario must be studied closely moving forward. Commodity currencies such as Australia and Canada are weakening due to China and Asia weakness. 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 creating trouble along the Suez Canal. The Israel-Iran tensions grow.  Use Brent oil 112 level as a proxy and the price is actually under signaling that the turmoil is not causing major concern as yet.  WTIC crude oil drops on over supply issues and a weakening China economy.  As oil goes, so goes the markets but oil dropped like a stone and equities are moving higher. This verifies that the equities rally is due to the Fed’s money-pumping. The expected oil-equities relationship should reestablish itself moving forward. North Korea is saber rattling creating tensions in Asia.  The earnings season is finishing up with some notable companies on tap. Confessional season is beginning now through early April so keep an ear open for any companies reducing forecasts. Housing is key this week with KBH and LEN. The Housing Starts data is the most important economic data this week and this trio of information will provide a gauge on the housing sector and move markets. Uranium miners earnings will provide a gauge on the nuclear industry. CTAS is a uniform supplier so great earnings means that more uniforms are needed so the U.S. economy is stronger than expected, especially manufacturing, or, weak earnings signal a lessening need for uniforms and business conditions remain weaker than the rosy data suggests. FDX provides a gauge on shipping and is the key earnings report for the week and will move markets. GES and NKE provide insight into the retail sector. TIF will indicate if the wealthy are spending, or not.  DRI will indicate if people have the money to go out to eat, or not.  In general, companies are meeting lowered earnings estimates although the percentage beats are slightly under the typical 70 to 75% expected. Top line revenues continue to be challenged and many companies are decreasing dividends.  Tech (COMPQ) is lagging the broad market which is not an enthusiastic endorsement of the recent explosion higher in equities.  The light market volume questions the strength of the equities rally. The VIX remains at six-year lows but is expected to launch higher moving forward.  Broad market topping and roll over action is anticipated for the broad indexes for March-April. Keybot the Quant remains long and is focused on copper, commodities, volatility and semiconductors for the new week ahead. In the most simple terms for equity markets, the market bears will do damage when the VIX moves above 15. Bulls will continue to party sideways with an upward bias if the VIX stays under 15.

·         Monday, 3/18/12:  The Sequester and CR Deadline drama continues.  Italy decides if there is a new coalition government of if a new vote is required in May-June. Watch for any increase in Euro bank runs due to Cyprus confiscating depositor’s money. Housing Market Index 10 AM—markets may stutter step. Earnings: ARTX, ASA, EGLE-shipping, GNOM, FTEK, MU, USEG, USU.

·         Tuesday, 3/19/13: Housing Starts 8:30 AM. FOMC Two-Day Meeting begins. Earnings: ADBE, CTAS-uniform indicator, RTK, SVNT, SBLK-shipping, VECO, WSM.

·         Wednesday, 3/20/13: First Day of Spring; Vernal Equinox.  Mortgage Applications 7 AM—is the trend up or flat? (2/13 down; 2/20 down; 2/27 down; 3/6 up; 3/13/13 down; 3/20 ?)  Oil Inventories 10:30 AM. FOMC Meeting Announcement and Forecasts 2 PM.  Chairman Bernanke Press Conference 2:30 PM. Markets will pivot and react wildly for the last two hours of trading. Bernanke will no doubt defend and pump QE—the Q&A is very important.  China HSBC Flash PMI 9:45 PM EST. Earnings: FDX-shipping, GIS, GES, JBL, LEN-housing, PSUN.

·         Thursday, 3/21/13: Eurozone Flash PMI’s. Jobless Claims 8:30 AM. PMI Mfg Flash PMI 8:58 AM.  FHFA House Price Index 9 AM. Existing Home Sales, Leading Indicators and Philly Fed 10 AM—a market pivot point. Natty Gas Inventories 10:30 AM. 10-Year TIPS Auction 1 PM. Earnings: AGRO, HIS, KBH-housing, NKE-retail, RUE, SCHL, TIBX, WTSL, WOR.

·         Friday, 3/22/13: No economic data today. Earnings: DRI-discretionary spending, ENZN, KYAK, LORL, TIF-are the wealthy spending?

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·         Sunday, 3/24/13: Palm Sunday.

·         Monday, 3/25/13: Chicago Fed Activity Index 10:30 AM.

·         Tuesday, 3/26/13: Passover. Durable Goods Orders 8:30 AM. S&P Case-Shiller House Price Index 9 AM.  Richmond Fed Mfg Index, New Home Sales and Consumer Confidence 10 AM. 2-Year Note Auction 1 PM.

·         Wednesday, 3/27/13: Continuing Resolution (CR) is required to fund the government, otherwise the government will shut down. 5-Year Note Auction 1 PM. Farm Prices 3 PM. Full moon—markets tend to be bullish through the full moon.

·         Thursday, 3/28/13: EOM. EOQ1.  Corporate Profits, Jobless Claims and GDP 8:30 AM. Chicago PMI 9:45 AM. 7-Year Note Auction 1 PM.

·         Friday, 3/29/13: Good Friday. U.S. Markets Are Closed until Monday. Personal Income and Outlays 8:30 AM.  Consumer Sentiment 9:55 AM.

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·         Sunday, 3/31/13: Easter Sunday.

·         Monday, 4/1/13: U.S. Markets Open for Trading. Construction Spending and ISM Mfg Index 10 AM.

·         Tuesday, 4/2/13: Factory Orders 10 AM.

·         Wednesday, 4/3/13: ADP Employment Report 8:15 AM. ISM Non-Mfg Index 10 AM. BOJ meets with new members and the money pumping and yen weakening continues.

·         Thursday, 4/4/13: Jobless Claims 8:30 AM.

·         Friday, 4/5/13: Monthly Jobs Report 8:30 AM.  International Trade 8:30 AM. Consumer Credit 3 PM.

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·         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.

·         In Q4 2013:  European bank stress tests will occur.

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

·         On Friday, 1/31/14: Chairman Bernanke’s term ends at the Fed, unless there is news during Q4 2013 that he will stay on.

·         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.