Keystone's Trading Week in Review and Path Ahead 5/4/13

On Friday, 4/26/13, BOJ maintains the pledge for stimulus but data shows the deflation continues.  The yen actually strengthens on the news, so the dollar/yen drops to 98.64 from well over 99 yesterday and equity futures move lower. Analysts are now questioning if the dollar/yen will reach the psychological 100 level. The Nikkei is up an obscene 35% this year purely due to money-printing. The Japanese banks and auto manufacturers benefit from the weaker yen created by ‘Abenomics’. Spain protests flare-up with rioters clashing with police over the austerity and 27% unemployment rate.  Portugal protests heat up as well. Two million households in Spain have no one in the family working.  Protestors are now targeting individual politicians and others perceived to have created the current fiscal mess; a new and troubling twist in the debt saga.  All politicians, bankers and other power brokers around the globe are watching this new societal development with grave concern. Perhaps pitchfork and torch stores will open up on city street corners. The general public is up in arms since the bankers that created all the economic problems were bailed out and are now wealthier than ever, and the too-big-to-fail banks are larger than ever, while individual citizens are struggling each day mired in unemployment with taxes and other expenses increasing daily. The ECB says the bond-buying program may not be needed going forward since yields have calmed.  The BOJ easy money is finding its way to European bonds causing the drop in yields so the reason for calmer yields is not due to a recovering Europe, but rather more central banker intervention in markets continuing to distort price discovery. About 4% of Cyprus’s money deposited in banks was pulled over the last month, perhaps a bit under what would be expected since money is no longer truly safe in banks.  Of great interest is that the other European nations do not show significant outflows from bank deposits so folks do not appear worried about losing money when a bailout occurs. Go figure. Gucci reports the weakest sales in three years indicating that the wealthy continue to cut back on spending.  Merkel softens the rhetoric from the Bundesbank comments yesterday.   The initial read on Q1 GDP is 2.5%, weaker than the expected 3.2%. The markets open and sell off. The Consumer Sentiment is in line with estimates but markets sell off further with the SPX at 1578 at lunch time. Volatility moves strongly higher signaling trouble for markets but then trails off lower into the closing bell allowing the broad indexes to recover. The flat day ends with the SPX at 1582 failing to print all-time highs this week.  The Dow closes at 14713. For the week, the SPX is up 1.7%, the Dow up +1.1%, the Nasdaq up +2.3% and RUT up +2.5%.  Tech and small caps led higher which is a plus for the bulls.  Semiconductor’s are up 4.4% this week.  The parabolic move in utilities continues as traders use the Fed and BOJ easy money to fuel new asset bubbles in dividend stocks, utes, REIT’s, high-yield instruments, healthcare and other perceived safe havens.  Congress passes stop-gap measures to remedy the airport problems caused by the sequester cuts; of course just in time for themselves to fly home for a short recess.

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On Sunday, 4/28/13, as Letta is sworn-in as the new Italy leader that will try to form a new government, two police officers are shot at the event. The targeted attacks on individuals that created the global economic mess are increasing, as also evidenced in Spain last week.

On Monday, 4/29/13, Japan markets are closed today. The dollar/yen drops under 98. Greece passes a bill eliminating jobs so this troubled nation can receive more European aid to handle debt. Greek protestors take to the streets and riot on the news.  Euro-area sentiment Is weaker than expected.  The Italy 10-year yield drops under 4%, a 2-1/2 year low, showing a continued perceived calmness in Europe.  The European indexes and futures are higher this morning as traders expect more stimulus talk from the Fed and ECB this week.  Personal Income and Outlays shows incomes rising at a slower rate but consumption and spending is up.  Folks are not receiving raises at their jobs, their wages are stagnant, and others are working under the table now, so income is lackluster.  The Dallas Fed Manufacturing data is very weak completely falling out of bed but the equity markets ignore the bad news since it only means that the Fed and BOJ will pump more easy money.  Markets run higher into the afternoon with the SPX printing a new all-time closing high at 1593.61. The Nasdaq prints new 12-year highs at 3290.  The broad indexes start the week strongly anticipating more central banker easy money. After the bell, MAS, a bellwether for the housing sector misses on bottom and top line earnings.

On Tuesday, 4/30/13, EOM today. Italy’s Letta says the situation remains difficult and warned people to not expect too much, obviously trying to lower the already lofty expectations. Euro-area unemployment is 12.1% continuing to rise. Germany unemployment increases.  Europe, however, is in the central banker mode of bad news is good news since the ECB will likely cut rates this week and start the printing presses which will send equities higher regardless of bad news. The broad indexes are flat to lower to begin the day. Chicago PMI is much worse than expected at 49, a reading under 50, comparable to the readings from 2009.  Consumer Confidence is better than expected.  Markets see-saw up and down with the VIX moving above 14 creating market selling but by 11 AM, volatility collapses lower again and equities move higher. The FOMC two-day meeting begins. The 10-year yield drops to 1.64% but recovers to 1.68% as equities recover.  The major indexes move higher into the closing bell and the SPX prints new all-time closing and intraday highs at 1597.57.  AAPL conducts the largest bond offering ever which is well received and creates an optimistic bullish market vibe. April finishes as an up month for the Dow, SPX and Nasdaq, however, the Trannies, Cyclicals and the RUT (small cap stocks) log down months. The NYMO McClellan Oscillator chart signals a significant market top in place.

On Wednesday, 5/1/13, Australia manufacturing data is at multi-year lows since there is less need for commodities in a slowing global economy. China’s PMI manufacturing data is weaker than expected indicating a continued slowdown. Copper, oil, steel, iron ore and other commodities sell off. Today is International Labor Day and May Day protests occur across Europe.  European markets are closed for the holiday. Moody’s downgrades Slovenia to junk status.  The ADP Jobs Report is far weaker than expected and sends the futures markets lower (ADP is used as an early read for the Friday Jobs Report).  MRK and MA earnings disappoint.  The broad indexes are weak after the opening bell. Volatility jumps higher with the VIX over 14.  Copper collapses -3.3%.  Oil collapses -3.1% as crude oil supplies are at the highest levels ever verifying a slowing global economy. Airlines are happy about the lower fuel costs. ISM Mfg Index is 50.7 above the 50% expansion-contraction level but below last month’s number. Construction Spending is weak.  Markets pivot lower on the negative news this morning. Keystone’s 30-minute chart shows the 8 MA stabbing down through the 34 MA signaling bearish markets for the hours and days ahead. The FOMC Meeting Announcement provides something for everyone.  The wording ‘increase or reduce’ is added in reference to QE so instead of talk of tapering, an increase in QE is placed on the table. This is due to the deflationary conditions occurring as highlighted by Keystone’s Inflation-Deflation Indicator that has signaled deflation starting in March.  The committee says ‘downside risks remain’. The bulls wave the ‘increase’ word and the bears wave the ‘reduce’ word and markets move flat. Chairman Bernanke stressed the importance of Congress to become more involved. He is likely concerned, as he should be that the Fed may be creating a fiscal drag and hurting the economy more than helping. The Fed is worried about deflation. Many analysts have now reduced their GDP forecasts for H2 2013 down to 1.0 to 1.5%. As the afternoon plays out the markets roll over to the downside with the SPX closing in the low 1580’s.  

On Thursday, 5/2/13, the HSBC China PMI confirms the weak manufacturing data as reported by the official number yesterday. Global giant Siemens cuts guidance moving forward. BMW’s profits drop. Swiss banks are logging strong profits. Germany’s DAX is back above 7900. France’s 10-year auction results in a record low yield at 1.81%. Italy’s 2-year yield drops to 1.07%, a record low, as the BOJ easy money continues to buy European bonds and U.S. stocks. The ECB Rate Decision results in a one-quarter point rate cut to 0.50% as expected.  The markets take the news in stride with global indexes and futures remaining flat.  In the press conference, however, Draghi comments about potential negative deposit rates where banks would have to pay the ECB for holding euro deposits (the ECB is trying to encourage banks to lend money out rather than hold it at the central bank). The euro drops on these comments. Jobless Claims are at the lowest in five years pumping life into the futures markets turning a gloomy bear day to a happy bull day. Companies may not be hiring anyone but they do not appear to be laying off anyone either. Markets rally all day long recovering Wednesday’s losses. Oil recovers the 3% loss from yesterday with WTIC printing at 94.  Copper recovers half its losses from the prior day. Volatility collapses, with the VIX falling under 14, creating upside fuel for the broad indexes. Keystone’s 30-minute chart shows the 8 MA moving up through the 34 MA signaling bullish markets for the hours and days ahead. The SPX prints a new all-time high at 1598.60 and a new all-time closing high at 1597.59. Traders are very optimistic ahead of the Jobs Report in the morning. After the bell, AIG and LNKD earnings beat but LNKD reduces guidance and the stock is sold off over 10%.

On Friday, 5/3/13, India cuts rates one-quarter point to 7.25% but trader’s wanted more; the Bombay Sensex drops -0.6%. Italy’s 2-year note yield drops under 1% for the first time ever.  Spain 10-year yield falls under 4% (last seen October 2010). The BOJ’s easy money continues buying European bonds. ECB’s Nowotny plays down the negative interest rate talk from yesterday and says “markets over-interpreted Draghi’s comments on negative deposit rates. This would have to be analyzed closely and is not relevant for the immediate future.”  The euro jumps from 1.3060 to over 1.3120. The EU cuts the Eurozone economic growth forecast. U.K.’s RBS bank sells off as it loses customers due to the weak European economy. The dollar, USD, drops under 82.  The government is investigating JPM for questionable energy trading practices.  IBM is also under investigation on bribery charges. The Monthly Jobs Report is 165K jobs and 7.5% unemployment rate, better than the 145K and 7.6% consensus. The prior month’s revisions cause the futures markets to sky rocket higher. The March number is revised up from the paltry 88K to 138K and February from 268K to 332K, a multi-year high.  Average earnings are up 0.2% (flat last month) but hours worked are 34.4 down from last month. So folks may be paid a wee bit more per hour but they are working less hours, so the actual take home pay is lower.  Less hours worked is not a hopeful sign despite all the euphoria. The labor participation rate remains flat and weak at 63.3% with many folks giving up looking for work. The ADP Jobs Report loses its luster as a prediction tool. The S&P futures are +13, the Dow Industrials are +130 and Nasdaq is +23.  The SPX is now set to print new all-time highs and easily cruise above 1600 for the first time ever. Copper is up strongly, +6%, with its best day in one and one-half years. The bulls have everything going their way. Good news is good news and bad news is good news.  Any negative earnings or economic data are viewed as positive since the Fed and BOJ will only pump markets higher due to the weak data. The broad indexes soar higher at the opening bell.  The SPX prints above 1600 for the first time in history in the opening minute and runs 20 handles higher to 1618.46, a new all-time high.  At 10:20 AM, the Dow Industrials print above 15K for the first time in history running over 170 handles higher to 15009.59, a new all-time high. Ralph Acampora, noted stock analyst, says the Dow will reach 20K within four years. Jeremy Siegel, noted professor, who made the bold Dow 16K call recently for the end of this year, repeats his bullishness on television. Short-sellers capitulate adding more upside fuel. Volume remains below average for the market up days. The broad indexes float higher into the close but the Dow is unable to close above 15K. The SPX prints a new all-time closing high at 1614.42 and new all-time high at 1618.46.  The Dow prints a new all-time closing high at 14973.96 and new all-time high at 15009.59. The Nasdaq prints a new 12-½ year high at 3388.12. RUT prints a new all-time high at 959.55. Crude oil jumps strongly the last couple days closing at 95.61. Look for the gasoline price at the pump to move higher again. Gold is 1470 recovering from its drubbing last week. The 10-year Treasury yield moves from 1.63% this morning to close at 1.75% showing that money is leaving the bond market and moving into stocks. The parabolic utilities sector, pumped by the Fed’s easy money is actually down today. Traders are rotating into tech and industrials sectors, tripping over each other to buy the XLI which was up over 2% today before closing up 1.7%. The recent negative manufacturing and other economic data shows a slowdown ahead but traders are buying steel, coal, and industrials with both hands. The trading session is one large euphoric bull party. Despite the bullishness, the NYMO McClellan Oscillator chart signals a significant market top in place. The SPXA150R chart hits the 90 level signaling time to short the market. Market complacency continues as evidenced by the low VIX (now under 13) and CPC put/call ratio.

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On Monday, 5/6/13, China and Japan PMI Composites. Flash Crash 3-Year Anniversary.

On Tuesday, 5/7/13, 3-Year Note Auction. Consumer Credit.

On Wednesday, 5/8/13, 10-Year Note Auction.

On Thursday, 5/9/13, Jobless Claims. Wholesale Trade. 30-Year Bond Auction.

On Friday, 5/10/13, Treasury Budget. Chairman Bernanke speaks. G8 Meeting begins.

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On Monday, 5/13/13, Retail Sales. Business Inventories.

On Tuesday, 5/14/13, Import and Export Prices.

On Wednesday, 5/15/13, PPI.  Industrial Production.

On Thursday, 5/16/13, Jobless Claims, CPI and Housing Starts. Philly Fed.

On Friday, 5/17/13, Consumer Sentiment. Leading Indicators.

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On Wednesday, 5/22/13, Existing Home Sales. FOMC Meeting Minutes.

On Thursday, 5/23/13, Jobless Claims, PMI Mfg Index. New Home Sales. 10-Year TIPS Auciton.

On Friday, 5/24/13, Durable Goods Orders.

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On Monday, 5/27/13, U.S. Markets are Closed in Observance of Memorial Day.

On Tuesday, 5/28/13, U.S. Markets Open for Trading.  Consumer Confidence. 2-Year Note Auction. The 16.4 trillion Debt Ceiling limit is hit, however, the government is taking in more revenue than expected, the sequester cuts are in place, and Congress is developing a plan to extend the Debt Ceiling deadline to August or September, so this can will likely be kicked about three months into the future. The politicians are trying to line up all the problems, debt ceiling, fiscal cliff, and CR resolution to fund the government, for a combined August-September deadline thus providing this summer as the time to conduct a knock-down drag out political fight to set the U.S. on the correct fiscal path forward. This political behavior is similar to the summer of 2011 which did not receive a happy ending.

On Wednesday, 5/29/13, 5-Year Note Auction.

On Thursday, 5/30/13, Jobless Claims, GDP. 7-Year Note Auction.

On Friday, 5/31/13, EOM. Personal Income and Outlays. Chicago PMI. Consumer Sentiment.  Farm Prices.

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On Monday, 6/3/13, PMI Mfg Index. ISM Mfg Index. Construction Spending.

On Tuesday, 6/4/13, International Trade.

On Wednesday, 6/5/13, ADP Employment Report. Productivity and Costs. Factory Orders. ISM Non-Mfg Index. Beige Book.

On Thursday, 6/6/13, Jobless Claims.

On Friday, 6/7/13, Monthly Jobs Report.

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In September, Merkel (Germany) seeks re-election and will not want to see Greece or other nations exit the euro before the election but will not care afterwards. Perhaps Greece and others, or Germany, may exit the euro in the future.

In Q4 2013, European bank stress tests will occur.

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. Will Yellen, even more dovish and likely wanting to see QE on steroids, take the reins?

In March 2014, the ESM is officially “fully operational.” The banking union schedule has been delayed from January 2013 to January 2014 and now to March 2014.