Keystone's Trading Week in Review and Path Ahead for Markets 6/1/13

On Friday, 5/24/13, Aussie banks sell off the most in one year’s time. BOJ’s Kuroda says sufficient monetary easing has taken place and that he has not set targets for the yen or the Nikkei Index. The yen strengthens with the dollar/yen dropping to 101.57 overnight.  The Nikkei drops at the opening bell but recovers as the session plays out. Volatility jumps nearly 60%! Germany’s Weidmann expresses skepticism over whether the BOJ’s actions will be successful. Markets are becoming increasingly concerned over the Fed and BOJ exit strategies. GS says that Kuroda may not actually fully understand the implications of his policies. German GDP data is lackluster reflecting the weakness in Europe.  German trade data disappoints as well but IFO confidence is far above expectations. Global markets remain very jumpy.  U.S. futures were up, then went negative at 3:30 AM EST, then up again, then start to deteriorate again at 5 AM EST. Crude oil drops under 94. The 10-year yield is 2.01%. The rock-steady retail sector is weak after disappointing ANF earnings.  Durable Goods Orders are better than expected especially with defense spending which is surprising due to the sequester cuts. Futures recover. Markets place a low in the 10 AM time frame, as usual each day, and then the Fed pump carries markets higher into the closing bell.  Dollar/yen drops under 101 but recovers. Volatility remains elevated and copper is weak. Volume is at the lowest level since the Christmas and New Year’s holidays so the markets throw off mixed signals. Both the SPX and VIX move lower today. The CPC put/call jumps to 1.26, the highest level since the May 2012 sell off, indicating that traders are buying downside protection.  This fear may create a market bounce next week.  The NYMO prints a low number also hinting that a recovery bounce may be on tap next week.  Markets are typically buoyant In front of the three-day holiday weekend and full moon which plays out as expected.  A lunar eclipse occurs. The SPX finishes at the highs at the important 1649-1650 S/R level. For the week, the SPX is down -1.1%, the Dow -0.3%, Nasdaq -1.1% and RUT -1.2%, so tech and small caps lead the way lower with the SPX. The down week breaks the 4-week parabolic up streak for the indexes. Bidders such as YHOO are tripping over themselves to buy Hulu, the popular video service. The week-long riots in Sweden intensify as the mostly-young protestors, complaining about lack of jobs and discrimination, set fires in multiple cities; Stockholm burns.

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On Monday, 5/27/13, U.S. Markets are Closed in Observance of Memorial Day. China’s Xi and Li say they will tolerate slower growth to improve pollution and the environment. Oil drops on the news with WTIC crude at 93.58.  Asian markets sell off. Nikkei drops -3.2% (down as much as -4%) on large volume. The broader Topix drops -3.2%. Kuroda backs the Japan bulls and says the economy can cope with a rise in JGB rates. Other BOJ board members appear far more worried. Surprisingly, the Asian negativity has no affect on Europe with stocks rising. U.K. is closed today like the U.S. U.K. house prices rise the most in six years. At about 5:30 AM EST, the dollar/yen drops under 101 to 100.79, the strongest yen recently, and U.S. equity futures drop with S&P’s down about four. Lower dollar/yen = lower equities. The BOJ and Fed are the markets. The Syrian civil war spills into Lebanon where rockets are fired towards Israel. Israel moves tanks and anti-missile batteries to its northern border. In the evening, as Asian markets open for trading, the dollar/yen drops from 101.20 to 101.00 and the Nikkei opens down dropping under 14K creating a market correction in excess of -10% in the last few days. The dollar/yen catapults higher (weaker yen) to 101.50, 101.60, etc.., so the Nikkei quickly recovers and moves higher. The S&P futures jump from flat to +5. BOJ’s Kuroda says ‘trust me’ so the yen weakens further and the dollar/yen jumps over 102 placing the equity bulls in charge.

On Tuesday, 5/28/13, the dollar/yen is 102.20 one full point above the 101.20 last evening so the S&P futures are +12 and Dow +103. The BOJ and Fed are the markets. Copper and oil move higher. The ECB says further easing is likely.  European markets rally on the weaker yen.  Germany and France announce a joint program to help youth unemployment. U.K. banks will have cut 189K jobs by the end of this year. Reducing jobs increases productivity and stock prices. TIF earnings are better than expected due to robust Japan sales. The wealthy continue to spend.  MRK is upgraded. Case-Shiller House Price Index shows prices rising which bounces the home builders. Everything is going the bull’s way today with the markets in a risk-on mood. Dollar/yen remains above 102. S&P futures are +14. Dow +116. The 10-year yield is up to 2.05%.  U.S. markets are open for trading after the holiday and catapult higher. The broad indexes gap-up on the opening bell an amount on par with the first day of the year when the fiscal cliff resolution was announced. The Dow Industrials are up over 200 points printing above 15.5K. The SPX jumps over 1674. Consumer Confidence prints a 76 handle the highest number since early 2008 five years ago. Fed manufacturing data is weak as all manufacturing data is over the last couple months but traders do not care since the BOJ and Fed are pumping the markets every day. Today will print 20 consecutive up Tuesday’s. WTIC crude oil pushes higher towards 96. Keystone’s SPX 30-minute chart shows the 8 MA moving up through the 34 MA signaling bullish markets for the hours ahead. Oddly, copper and volatility price moves are muted, not verifying the strong opening move. At about 11 AM, the dollar/yen drops to 102.10 after printing near 102.50, so the broad indexes leak lower.  Utilities are weak with EXC tumbling -7%.  The day finishes with the Dow up about 100 points and SPX up about 10 points.

On Wednesday, 5/29/13, the USA Today newspaper headline reads “Bull Run Gets Solid Footing.” BOJ’s Karuda says ‘stability is important’ and the markets interpret that to mean a stronger yen, so the dollar/yen drops under 102 down to 101.60-ish, and equity futures drop.  Plain and simple, the central bankers, especially BOJ, are the markets. Worries continue over the rising JGB yields, the 10-year touching 0.95% yesterday; a move above the psychological 1% level will increase concern. Germany unemployment numbers are surprisingly four times higher than expected (overall unemployment rate is 6.9% which remains at a multi-year low). IMF and OECD both downgrade the European economy. The U.S. 10-year Treasury yield hits 2.23% then drops to 2.15%, then back up to 2.17%, all over the map. A Chinese company offers to buy Smithfield Foods which would be the largest U.S. takeover in history if approved. The broad indexes sell off to begin the day and remain weak into lunch time when Fed’s Rosengren comments are interpreted to be QE-friendly so the markets recover. The dollar/yen loses the 101 level creating the equity market weakness. The VIX (volatility) moves above 15. Keystone’s SPX 30-minute chart shows the 8 MA stabbing down through the 34 MA signaling bearish markets for the hours ahead. The Fed always lingers in the background standing ready to yell ‘QE!’ when any market pull back occurs. The interest rate sensitive stocks such as utilities, REIT’s and telecom are slammed hard today. The utilities sector enters a correction phase now -10% off the top three weeks ago. All the retirees that bot the perceived safe haven dividend stocks one month ago, based on the television hype, have now lost 10% of their money. Late day selling occurs and the broad indexes are down about -0.7% on the day with the RUT leading the way lower down -1.0%. The indexes reverse yesterday’s gains. Crude oil closes under 94 at a four-week low. Copper is weak. PIMCO’s Gross says a new market phase begins where stocks and bonds rise together and says ‘Bernanke has lost a little control’.  AAPL is up in the down tape.

On Thursday, 5/30/13, the Nikkei crashes down -5.2% to 13589. The broader Topix is down -3.8%. The Nikkei is now in correction mode down more than -10% off the recent top. The dollar/yen drops to 100.50 so the stronger yen creates the sell off.  The weakness in Asia, however, does not cascade to Europe.  At about 6 AM, the dollar/yen reverses and moves up through 101 to 101.50 (weaker yen) taking the S&P futures to the positive side at +7.  The central bankers dictate market direction.      Jobless Claims are higher than expected.  GDP is in line with the consensus at 2.4%. The dollar/yen moves from 101.50 to 101.32 so the S&P futures are now +3. JOY, a global bellwether, disappoints on earnings and lowers guidance due to weaker commodities.  The broad indexes remain elevated all day on lower volatility but drift lower into the close as volatility rises. Keystone’s SPX 30-minute chart shows the 8 MA moving up through the 34 MA signaling bullish markets for the hours ahead. The markets are very unstable and erratic. The SPX ends the day at 1654 and Dow at 15325.

On Friday, 5/31/13, EOM. Japan’s economic data improves due to the BOJ weakening the yen although overall the economy remains affected by deflation. The dollar/yen is down to 100.39 overnight which means stronger yen and lower U.S. equity futures. The S&P’s are -10 at 5 AM EST. OPEC meets in Vienna to discuss oil production quotas. The U.S. shale oil, especially oil production in North Dakota and Texas, as well as the Canadian oil sands, are changing the global oil game, and creating concern for OPEC.  A delicate balance must occur with OPEC cutting production to maintain price but not cutting production too greatly since the North American oil will simply come in to fill the production void and further cut into OPEC’s pie. OPEC decides to not cut production obviously worried that the U.S. production will simply fill the gap. Oil price drops with WTIC falling under 92. The U.S. energy revolution is underway despite the politicians getting in the way.  The Saudi’s, Middle East, France and Europe are concerned over an airborne MERS virus (Middle East Respiratory Syndrome), a SARS-type coronavirus, that has a 50% fatality rate. Oil and copper are weak today with gold and silver flat. Tensions increase between France and Germany as Hollande is pressured to take action to revive the France economy.  ECB’s Visco (Bank of Italy) says reforms have slackened last year.  He says the ECB stands ready to intervene on rates.  He also appears to back the concept of Eurobonds. Euro zone jobless rate climbs to a fresh high at 12.2%. The euro/dollar drops under 1.30.  European markets are down over 1% across the board. Blockupy protestors cut off access to the ECB and Deutshe Bank buildings in Frankfurt. The Blockupy movement is expanding as average citizen’s riot over the growing prosperity of wealthy folks, who created all the ongoing financial problems, while they suffer through low employment and a difficult life. Protestors carry signs that read “Humanity Before Profit” and “War Starts Here.”  S&P’s drop to -11. Dow -95. The U.S. 10-year Treasury yield drops to 2.07% down from the 2.23% high this week reflecting a continued demand for safe haven bonds.  Personal Income and Spending data is weaker than expected.  Chicago PMI is far better than expected and Consumer Sentiment is 84.5 the highest level since July 2007.  The broad indexes recover the early losses after the opening bell and turn positive as the dollar/yen moves above 101. Banzai!! The BOJ comes to the rescue with the weaker yen once again. The central bankers are the markets. At 1 PM EST, the markets take on a negative posture and Keystone’s SPX 30-minute chart shows the 8 MA stabbing down through the 34 MA signaling bearish markets for the hours ahead. In the final hour of trading, an MSCI rebalancing occurs which increases volume. The broad indexes collapse into the closing bell. Volatility leaps higher with the VIX jumping above 16. The SPX finishes down 24 points, -1.4%, to 1631. The Dow is down 209, -1.4%, to 15115. The Nasdaq is down -1.0% to 3456 and the RUT is down -1.0% to 984. For the week, the Dow gives up -1.2%, the SPX drops -1.1% and Nasdaq and RUT flat. For the month of May ending today, the SPX is up+2%, the Dow +1.9%, Nasdaq +3.8% and RUT +3.9%, so tech and small caps led which is encouraging for bulls. The ‘sell in May and go away’ adage is coming into play to end the month.  The stock market typically provides flat or low returns from May through October each year. The dollar/yen drops to 100.40 in the final hour of equity trading dragging the broad indexes lower. Tornado’s continue to ravage the middle States.

On Saturday, 6/1/13, China PMI is 50.8 slightly better than expected which indicates the slowdown may not be as rapid as feared. Hurricane Season officially begins (first day of June).

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On Monday, 6/3/13, HSBC China and Asia PMI’s. European PMI’s. Fed’s Williams speaks. PMI Mfg Index. ISM Mfg Index. Construction Spending.

On Tuesday, 6/4/13, International Trade. Fed’s Raskin, Geoprge and Fisher speak.

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

On Thursday, 6/6/13, BOE Rate Decision-King's last meeting. ECB Rate Decision and Press Conference. Jobless Claims. Fed’s Raskin and Plosser speak.

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

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In September, the Debt Ceiling limit is reached along with the CR resolution to fund the U.S. government.  Can the politicians reach an agreement this summer to set the U.S. on the correct fiscal path forward to avoid these deadlines? The summer showdown is similar to the set-up in the summer of 2011 which did not end happily for markets. The Whitehouse scandals may distract the politicians from properly addressing the countries financial problems.

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.