Keystone's Key Events and Market Movers for Trading the Week of 4/1/13

Key Dates and Times for the Week Ahead:

·         Keystone’s Comments on the Upcoming Week: Happy, or rather, Hoppy Easter. The Cyprus and Italy drama’s continue. Italy takes the front seat this week.  China PMI will set the tone for the start of the week and the ISM Mfg Index will move markets 10 AM Monday.  The ECB Rate Decision and Press Conference is Thursday morning and the week finishes with the Monthly Jobs Report.  The Sequestration is here and will bite as time moves along.  The Debt Ceiling limit is mid-May, only 5 weeks away. The Continuing Resolution (CR) to fund the government will need approved in September. 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 Italy and Cyprus dominating the news flow.  Italy needs to either form a government or announce new elections. The equity markets will sell off on uncertainty in Italy. Watch the Italy, Spain, Portugal and Greece 10-year yields to see if they blow out to the upside signaling trouble, or not.  As the euro goes, so goes the equity markets but this asset relationship is skewed over the last month with the euro dropping but equity markets rising. 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, however, the euro is now dropping under its own weight.  China PMI is released overnight Sunday evening and will affect copper, CAT and the commodity currencies, as well as set the tone in the S&P futures. 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, healthcare, REIT’s, home-building and high-yield corporate perceived safe haven bubbles grow). 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 stumbles sideways at 97 on over supply issues and a weakening China economy.  As oil goes, so goes the markets but oil dropped like a stone and equities moved higher. This verifies that the equities rally is due to the Fed’s money-pumping which is causing a break down in expected asset relationships.  North Korea is saber-rattling creating tensions in Asia. Confessional (pre-announcement) season is in play so listen for any lowered guidance from companies. FDX and CAT lowered guidance but markets do not care.  CAG and MON are important releases on Wednesday which will affect the ag sector and commodities.  In general, top line revenues continue to be challenged and many companies are decreasing dividends. Companies are meeting EPS targets by squeezing every last drop out of each employee. If top line revenue remains flat or lower, companies will have to start cutting jobs rather than adding jobs.  Tech (COMPQ) and small caps (RUT) are not showing the leadership they showed in January and February.  Oddly, healthcare, staples, utilities, the defensive stocks, are leading, which is not a sign of a robust recovery. Tech and financials should be leading not the safer plays that are typically favored in recessions. This is due to the Fed’s easy money with traders chasing the same stocks creating new asset bubbles in dividend stocks, blue chips, and the other perceived safe haven, high-dividend plays. The light market volume indicates a lack of conviction and there are signs of distribution taking place. 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, commodities and semiconductors for the new week ahead. If the VIX moves above 14.65, Keybot will likely flip short.  In the most simple terms for equity markets, the market bears will do damage when the VIX moves above 14.65. Bulls will continue to party sideways with an upward bias if the VIX stays under 14.65. The SPX all-time high is 1576.09.

·         Sunday, 3/31/13: Easter. China PMI overnight which will set the market tone-watch copper, CAT and the commodity currencies.

·         Monday, 4/1/13: U.S. Markets are open for trading after the three-day holiday weekend. Construction Spending and ISM Mfg Index 10 AM. First day of trading for the new month and for Q2. Markets are usually up the first day or two of the month, especially as a new quarter begins. Earnings: ASUR, CALM, DPW, RH, STP, VECO.

·         Tuesday, 4/2/13: Factory Orders 10 AM. Earnings: GPN, MKC, RSOL, PBY.

·         Wednesday, 4/3/13: BOJ meets with new members and the money pumping and yen weakening continues. 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 up, 4/3 ?) ADP Employment Report 8:15 AM-initial indication for Friday’s job numbers. ISM Non-Mfg Index 10 AM. Oil Inventories 10:30 AM. Earnings: CAG, MIND, MON, OMN, SCHN.

·         Thursday, 4/4/13: Challenger Jobs Report 7:30 AM.  ECB Rate Decision 7:45 AM and Press Conference 8:30 AM. Jobless Claims 8:30 AM Natty Gas Inventories 10:30 AM. Earnings: GBX, WDFC, XRTX.

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

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·         Monday, 4/8/13: Earnings: ADK, AA kicks off earnings season after the bell.

·         Tuesday, 4/9/13: NFIB Small Biz Optimism Index 7:30 AM. Wholesale Trade 10:00 AM. 3-Year Note Auction 1 PM. Earnings: EXM, ZEP.

·         Wednesday, 4/10/13: 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 up, 4/3 ?). Oil Inventories 10:30 AM. 10-Year Note Auction 1 PM. FOMC Minutes 2:00 PM.  Treasury Budget 2 PM. New moon-markets are typically weak moving through the new moon. Earnings: APOG, BBBY, KMZ, STZ, FDO, FAST, JKS, NG, RT, TITN.

·         Thursday, 4/11/13: Jobless Claims and Import/Export Prices 8:30 AM. Natty Gas Inventories 10:30 AM. 30-Year Bond Auction 1 PM. Earnings: JBHT, PIR, RAD.

·         Friday, 4/12/13: Producer Price Index (PPI) and Retail Sales 8:30 AM. Consumer Sentiment 9:55 AM. Business Inventories 10 AM. Earnings: CSUN, KNL.

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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.