Keystone's Morning Wake-Up 3/4/13

That was an active weekend for business and economics especially in Europe and China.  On Saturday, 3/2/13, China’s central bank governor Yi Gang said “China is fully prepared for a currency war.”  On Sunday, 3/3/13, incoming BOJ head Kuroda says he will do “Whatever it takes to end deflation,” obviously taking a lead from Draghi’s famous words in July 2012 about ‘supporting the euro by all means necessary’ and do ‘whatever it takes’. The race to debase continues. China strengthens the property curbs and other measures to further slowdown the real estate bubble. The 60 Minutes Sunday evening news magazine television show highlights a story on the empty cities in China. The Shanghai Index plummets 4% and copper, oil and commodities are weak. On Monday, 3/4/13, HSBC Bank misses expectations. Euro leaders meet to discuss a bailout for Cyprus. The Italy drama continues with the Italy 10-year yield at 4.82% moving toward Spain’s 10-year yield at 5.06%; the spread is narrowing. The deadline for Italy to announce a coalition is Friday, 3/15/13, only ten days away, otherwise a new vote will have to take place in May or June. The euro falls under 1.30. Use the euro 1.30 level as a bull-bear gauge today.

Volatility will dictate market direction. If the VIX stays under 15.65, the market bulls will rule. If the VIX moves above 15.65, the bears will rule. The S&P futures are down about five at this writing three hours before the U.S. open.  For the SPX, starting at 1518, the bulls need to push above 1520 and it is all blue skies above. The SPX will likely then test last week’s high at 1524-1526 quickly, and then onward to 1531. Above 1531 and the 1550-1565 target that every trader is currently looking for would occur. The market bears need to come to play this week if they plan on moving markets lower. As seen by Keystone’s March Seasonality missive, the second and fourth weeks of March are set up as bull-friendly, so if the bears want to make a move they better start this week. The bears need to push under 1502 to accelerate the downside. A move through 1503-1519 is sideways action today. Looks like a test for the ‘Teflon Market’ is ahead this morning. Crude 90.55. Brent oil is 110.54. Copper is negative. Euro 1.2996.  The 10-year yield is 1.84%. Keystone’s Inflation-Deflation Indicator slips into deflation.