Keystone's Key Events and Market Movers for Trading the Week of 3/25/13

Key Dates and Times for the Week Ahead:

·         Keystone’s Comments on the Upcoming Week: The Cyprus drama is front and center and will dictate market direction come Monday morning. Watch Italy as well since the markets may have to deal with a new election.  Consumer Confidence data is important this week. GDP will cause a stir on Thursday morning. The Fed releases manufacturing data which will either show a continued slow improvement, or, not. The month and quarter ends on Thursday since U.S. markets are closed for Good Friday. The Fed is out in force this week to pump the markets starting with Chairman Bernanke on Monday.  The last week in March is typically up. Window dressing is in play. Markets are also typically buoyant in front of a three-day holiday weekend. The bears have their work cut out for them although when a month is strongly higher it typically finishes flat to weak.  The Sequestration is here and will bite as time moves along.  Congress has approved the Continuing Resolution to push the CR off until September so President Obama should sign and another deadline is averted with political can-kicking.  The Debt Ceiling limit is mid-May, only 6 weeks away. Traders are no longer worried or concerned of any market downside since politicians always kick the can. Of course, if a stumble occurs, it would impact markets severely because of this ongoing complacency. Congress is taking a break so this is a market positive. The European debt crisis drama continues with the Cyprus crisis.  Cyprus will receive a bailout (fourth country to receive a bailout; Ireland, Greece, Portugal, now Cyprus) of 10 billion if they confiscate 5.8 billion in bank depositors funds. The Eurozone finance ministers are meeting today followed by the Cyprus parliament. The decisions may have implications across Europe with bank runs or decreased spending but as yet, Spain and Italy bond yields remain calm.  Cyprus citizens are peacefully protesting.  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 since a major country, with ever-increasing debt, will continue on without a government. Watch the Italy, Spain an Greece 10-year yield to see if they blow out, or not, to gauge the turmoil, or lack thereof.  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, export and automobile sectors weaken in large part due to the U.S. and Japan debasing their currencies. Draghi will have to capitulate by lowering rates to stimulate the economy and help Europe grow out of the debt mess, perhaps on 4/4/13, which will send the euro lower.  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, even as the current dividend, blue chip, utilities, REIT’s, home-building and high-yield corporate’s, the perceived safe haven bubble, grows). 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 how is this 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 his is exposed as unwarranted optimism.  FDX reports a slowdown in China. 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 and chemical weapons may have been used. Egypt remains in chaos creating trouble along the Suez Canal. The Israel-Iran tensions grow.  Use Brent oil 112 level as a proxy on the Middle East violence.  WTIC crude oil remains weak 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 all but over but several retailers will report with DG, FIVE and PVH very important.  Confessional (pre-announcement) season is beginning now through early April so keep an ear open for any companies reducing forecasts.  Last week the guidance from FDX and CAT was terrible but markets did not care since the Fed is pumping.  UNF reports which indicates economic strength depending if companies have an increased need for uniforms, or not. Last week, CTAS disappointed showing that manufacturing and healthcare sectors may not be as rosy as thought.  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) and small caps (RUT) are 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 and there are signs of distribution taking place. A full moon occurs on Wednesday and markets are typically buoyant through the full moon. 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 moving forward. Keybot the Quant remains long and is focused on 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.

·         Sunday, 3/24/13: Palm Sunday. Eurozone Finance Ministers meet. Cyprus parliament meets to develop a final plan to receive bailout funds.  Italy decides this week if there is a new coalition government of if a new vote is required in May-June.

·         Monday, 3/25/13: Cyprus and Italy dramas.  Chicago Fed Activity Index 8:30 AM. Dallas Fed Mfg Survey 10:30 AM. BRIC's Summit begins. Fed’s Dudley speaks 12:30 PM. Chairman Bernanke speaks 1:15 PM.  The Continuing Resolution (CR) should receive President Obama’s signature this week averting the government shutdown on Wednesday. Markets are usually bullish the last week of March in large part due to window dressing for the quarter end. But the market mixed signals continue since when a month is strongly higher, such as March is, the last few days tend to show weakness. Earnings: APOL, DPW, DG, JOSB, WAG.

·         Tuesday, 3/26/13: Passover. Cyprus banks reopen so watch for bank runs. 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. Earnings: ALXA, PLCE, LUNA, SAI.

·         Wednesday, 3/27/13: Deadline for the Continuing Resolution (CR) approval to fund the government which should be easily averted. Mortgage Applications 7 AM—is the trend up or flat? (2/13 down; 2/20 down; 2/27 down; 3/6 up; 3/13 down; 3/20 down, 3/27 ?)  Oil Inventories 10:30 AM. Fed’s Evans speaks 11 AM.  Fed’s Rosengren speaks 11:30 AM.  Fed’s Pianalto 12:15 PM. Fed’s Kocherlakota speaks 1 PM.  5-Year Note Auction 1 PM. Farm Prices 3 PM. The full moon occurs and markets tend to be bullish through the full moon. Markets tend to be bullish moving into a three-day holiday weekend. Earnings: FIVE, PAYX-payroll indicator, PVH-retail, SCS, TXI, UNF-uniform indicator (remember last seek CTAS was weak), VRNT.

·         Thursday, 3/28/13: EOM. EOQ1.  Corporate Profits, Jobless Claims and GDP 8:30 AM. Chicago PMI 9:45 AM. Natty Gas Inventories 10:30 AM. Kansas City Fed 11 AM. 7-Year Note Auction 1 PM. SIFMA Markets Early Close 2 PM. Earnings: ACN, CMC, FNL, FRED, GME, MOS, WGO.

·         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. Earnings: EXM-shipping.

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·         Sunday, 3/31/13: Easter.

·         Monday, 4/1/13: U.S. Markets Open for Trading. Construction Spending and ISM Mfg Index 10 AM. First day of trading for the new month and for Q2.

·         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.