Keystone's Trading Week in Review and Path Ahead for Markets 6/29/13

On Friday, 6/21/13, today is the first day of summer in the northern hemisphere.  The Indian rupee falls. Global markets are crushed over the last couple days especially emerging markets. Asia markets are all lower except the Nikkei printing a gain closing at 13.2K. China intervenes to support its failing banking system which sends U.S. futures higher and points to a relief bounce (easy money always pumps markets). China banks are starting to miss overnight interbank lending obligations. Singapore smog reaches hazardous levels with the pollution creating a thick fog and airplanes are having trouble landing in the haze. Brazil’s one million man march starts peacefully but ends tragically with riots, violence and the first death. European bond yields are creeping higher. Greece becomes a bigger worry each day as its 10-year yield moves above 11%. Greece needs further funding by the end of July. The 10-year yield for Italy is 4.54%, Spain 4.83%, Germany 1.68% and U.S. 2.40%.  The Fed pulling back on QE is rekindling the European turmoil.  Fed’s Bullard goes rogue disagreeing with Chairman Bernanke’s path forward, calling it “inappropriately timed,” something you never hear among the FOMC members. Perhaps there is trouble in paradise. CME raises gold margin requirements which may lead to lower gold prices as traders scramble to raise cash with commodities collapsing.  Today is OpEx Quadruple Witching day so there is heavy volume at the open. The markets bounce at the opening bell and then leak lower to print the lows for the day at lunch time. The SPX sells off but bounces off its 100-day MA at 1577. The broad indexes float higher into the close ending near flat on the day with the Nasdaq ending negative.  For the week, the SPX drops 34 points, -2.1%, to 1592.  The Dow is down 271 points, -1.8%, to 14799. The Nasdaq loses 66 points, -1.9%, to 3357. The RUT is down 17 points, -1.8%, to 964.  From the late Tuesday intraday high to the Friday intraday low, the Dow drops from 15340 to 14688, a huge 652 points, in only about 15 total hours of trading. The Trannies (Transportation Index; a bellwether of economic activity) lose -3.2% this week! The 10-year Treasury note yield hits 2.53%, the highest close since August 2011. The 30-year bond yield hit 3.59% and the 5-year yield prints 1.41%. Gold drops -7% this week and silver dorps -9%. Home builders, REIT’s, telecom and utilities are bludgeoned this week due to the up in yields. After the close, FB said a bug in its system causes user personal information to become available on the internet.  In the evening, the U.S. government charges Snowden, the NSA whistleblower who informed America that everyone’s cell phones, email and Internet usage is being spied upon in violation of the Constitution, with espionage.  Hundreds of Southwest Airlines flights are delayed due to a computer glitch. Shamed ex-Enron CEO Skilling, continuing to serve prison time, has his sentence reduced.

On Saturday, 6/22/13, Hong Kong says the Snowden situation will be handled as the law dictates but does not comment on any potential Snowden extradition. Snowden’s location is unknown since 6/10/13 when he checked out of a Hong Kong hotel. The Whitehouse scandals are distracting politicians that must resolve budget and government funding issues within the next 12 weeks. Markets are becoming nervous over the political inaction reminiscent of the summer of 2011.

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On Sunday, 6/23/13, concern continues that a banking crisis may occur in China. Snowden is on a flight from Hong Kong to Moscow with a potential stop in Cuba next, then Venezuela, then Ecuador where he plans to seek asylum. Wiki Leaks is assisting Snowden. Nelson Mandela is in critical condition fighting for his life. The South Africa ETF is EZA. Obamacare is negatively impacting the U.S. economy with 20% of companies reducing employees to limit the affects of the legislation. Only 9% of companies think Obamacare will be ‘good for businesses’.  The other 91% expect the new law will either have a ‘negative effect’ on business or at best ‘no impact’. Companies have the budget to pay employees but do not have the budget to pay the increased costs of Obamacare, thus, they reduce staff or reduce hours, which only worsens the ongoing structural employment problem.

On Monday, 6/24/13, China says the current liquidity rates are ‘reasonable’ and the PBOC maintains a tight stance not providing liquidity relief for banks. China is attempting to reduce shadow lending.  The banks sell off as much as 10% or more. Oil and commodities are crushed on a slowing China economy.  Copper is at a 20-month low. Asia markets are punished. The Shanghai Index loses -5.3%, the worst day in about 4 years. The negativity cascades to Europe where all indexes are selling off and S&P and Dow futures are down -12 and -110, respectively. European indexes are down about -7% in June. The Spanish 10-year yield hits 5%. The EFSF (European Financial Stability facility) extends the loan maturities to seven years for Ireland and Portugal. U.S. Treasury yields keep climbing with the 10-year yield now over 2.60%. The dollar/yen drops under 98 to 97.82. At 6 AM EST, the S&P futures are -12, Dow -102 and Nasdaq -15.  The BIS (Bank for International Settlements), known as the central bank of central banks, says the uber loose monetary policies are hurting the global economy.  “Central banks cannot do more without compounding the risks they have already created.” The BIS wants to see governments encourage job growth.  Markets drop like a stone at the opening bell with the SPX down over -30 handles and the Dow down almost -250 points.  AAPL drops under 400.  Coals are slammed due to more unfriendly coal talk from lawmakers.  Semiconductors tumble lower taking the broad indexes lower. Berlesconi (Italy) is sentenced to 7 years in jail and banned from holding public office although he can appeal the ruling. This may create political instability in Europe.  European markets end their session down from one to 3%. Fed’s Fisher and Kocherlakota, both typically on the hawkish side, talk dovishly and cause the equity markets to recover.  Volatility spikes but then drifts lower as the day moves along helping the markets to recover. The 10-year yield hits 2.67% before backing off to 2.52%. Crude oil drops under 94 today but recovers to 95. At the closing bell, the SPX is down 19 points, -1.2%, to 1573. The Dow drops 140 points, -1.0%, to 14660.

On Tuesday, 6/25/13, the China overnight bank lending rates leap to an obscene 15%. The Shanghai Index is collapsing but then a bottom is placed as the PBOC says “liquidity risk is controllable.” China steps in to save the day since they are on the verge of a major banking collapse a la the U.S. in late 2008. The China liquidity crunch eases and markets calm with futures up sharply. S&P says the China situation is not a doomsday incident and is not a ‘Lehman-moment’. EU Finance Ministers are finding it difficult to agree on the basis for a banking union. The Snowden situation turns into a diplomatic incident as U.S. requests help but Russia is not assisting.  Fed’s Fisher says the big money is like ‘feral hogs’ that chase weakness in the markets. The Fed heads are trying to downplay the perceived hawkishness from Chairman Bernanke’s statements since the equity markets have been selling off strongly. LEN earnings are better than expected helping the home builders. The economic data including Case-Shiller, Richmond Fed and Durable Goods Orders are all better than expected.  Consumer Confidence prints at 81.4, a bullish number not seen since January 2008, five years ago.  Markets leap higher at the opening bell and travel flat the remainder of the day. The SPX is up 15 points, +1.0%, to 1588.  The Dow is up 101 points, +0.7%, to 14760. The Dow is logging day after day of triple digit moves up and down.  The Nasdaq gains +0.8% and RUT +1.1% so tech and small caps show slight leadership which is bull-friendly. An American boss is held against his will at a China factory for several days as workers are worried they will be cheated out of wages if the plant is closed.       

On Wednesday, 6/26/13, commodities are sold off on negative news from Anglo American.  ECB’s Draghi says he “is ready to take action as needed” but “there are limits to what monetary policy can do.” Draghi’s words pump the futures higher with the S&P’s +5 at 5 AM EST. Final GDP for Q1 is 1.8% below expectations but trader’s view the poorer number in a positive light, bad is good in these central banker controlled markets.  Weaker data means Chairman Bernanke will keep the QE money spigots on full stream. With China stepping in to save their markets to prevent a Lehman-moment yesterday, and Draghi touting QE this morning, and now weaker data that hints at more Fed easing, along with Fed heads pumping the QE talk, the equities markets leap higher on this central banker trifecta of joy.  The SPX prints above 1600. Gold and silver drop to 3-year lows. Gold is the big story in the media as trader’s run for their lives (typically a sign of a bottom in gold). The Treasury auctions this week show less interest in notes and perhaps more of a preference to place money into equities instead. The EOQ2 window dressing creates market lift. The financial, retail and utility sectors push equities higher.  Commodities are bludgeoned across the board. At the close, the SPX is up 15 points, +1.0%, to 1603, back above the psychological 1600 level. The Dow bounces 150 points, 1.0%, to 14.9K.  The Nasdaq is up +0.8% and RUT is only up +0.3% so tech and small caps are not leading higher. The volume is light. The central banker trifecta described above saved the markets. Equities are hooked on the central banker crack cocaine. The weak GDP data seals the deal today that more money printing will likely occur by the Fed. Traders do not care about fundamentals since the daily market direction is determined by ongoing Fed QE comments and news.

On Thursday, 6/27/13, China sales are down seven days in a row. The American boss held against his will at a China factory is released after a deal is reached with workers. The drama is a blow to the pseudo-capitalism business climate in China. Emerging markets are concerned over increasing note and bond yields since all global yields move higher if the U.S. Treasury yields move higher.  Spain retail sales are down every month for the last three years.  France confidence data drops. European chemical companies, which should be the building blocks of a recovery, are sold off strongly.  U.K. disposable income drops.  The broad indexes run higher at the opening bell as Fed heads continue to say the markets got it wrong with Chairman Bernanke’s comments and the Fed plans to provide QE well into the future. The Dow runs above 15K. The CFTC files suit against MF Global and Jon Corzine for failure to properly supervise the collapse of the company. The suit seeks to bar Corzine from trading ever again. Gold and silver tries to recover today but reverses and prints lower lows. Gold falls through the 1200 level not seen since mid-summer 2010 three years ago.  The equity markets remain elevated all day long with the SPX gaining 10 points to 1613. The SPX was rejected at its 20-day and 50-day MA’s at 1620-ish. The Dow gains 114 points to 15024. Small caps receive a strong bid today with the RUT up +1.7% over double the other major indexes, which is encouraging for bulls, but the volume is light. After the bell, NKE earnings are a blow-out to the upside although China sales fall for three consecutive months. The wealthy, benefiting from the Fed’s push to create a higher stock market, continue to spend money on high-priced sneakers and other luxury and high-end products. In Brazil, 5K protestors clash with police at a soccer match since the stadiums represent where the money is going instead of to hospitals, schools and infrastructure. The police use tear gas as protestors keep taking to the streets in the thousands.  The Brazil central bank slashes the GDP forecast and raises the inflation outlook. The Snowden NSA drama continues with President Obama stating “I will not be scrambling jets to go after a 29-year old hacker.” The president is downplaying the incident since Russia and China view the U.S. as weak and they are not providing help to return Snowden to the States. Leader Pelosi is shouted down during a speech as American citizens are up in arms over the breach of the Constitution being treated so flip and cavalier by the Whitehouse.

On Friday, 6/28/13, EOM, EOQ2, EOH1. The dollar/yen moves up through 99 overnight which pumps the Nikkei Index up +3.5%. China is cracking down on the wealth management products and other shady investment schemes, which many hold gold, creating part of the recent gold selloff as positions are liquidated. China’s PBOC says a variety of tools will be used to adjust market volatility. In other words, they will step in to save their markets, as evidenced this week, just like the Fed, ECB and BOJ. The central banker action and news controls the equity markets. Beijing citizens stay indoors today since the air pollution is at hazardous levels. Egypt protestors are ongoing with increased turmoil expected on the weekend.  German retail sales are better than expected.  Gold logs the worst quarterly decline in 90 years hovering around the 1200 level. Equities run higher after the opening bell. BBRY is bludgeoned dropping near 30% since the Blackberry sales are not meeting expectations. PC shipments drop on lower sales.  Chicago PMI is worse than expected indicating a weak economy. Consumer Sentiment is in line with the consensus. The broad indexes move sideways.  The Fed’s heads are out in force again today continuing to pump the pro-QE talk and keep markets buoyant. Fed’s Williams says it is best to ‘wait a bit’ to taper QE.   The SPX drifts through 1609-1616 all day long and then in the final one-half hour of trading, due to the Russell rebalancing, drops from 1616 to end at 1606.  The SPX 20-day and 50-day MA’s at 1620 serve as a resistance ceiling for price. For the week, the SPX is up +0.9%, the Dow is up +0.7%, the Nasdaq up +1.4% and RUT up +1.4% so tech and small caps lead the way higher with a recovery week appearing after extended selling from the 5/22/13 market top. “Sell in May and go away,” is working, so far. For the month, the SPX, Dow and Nasdaq finally log a negative month after seven up months. S&P rating agency downgrades the Cyprus credit rating and the U.S. remains at AA-. Fitch and Moody’s ratings remain at AAA for the U.S. The Egypt turmoil continues as an American is murdered as he takes pictures of the protests.

On Saturday, 6/29/13, the ECB says Cyprus’s bonds are ineligible as collateral now that both S&P and Fitch have cut the credit rating. Europe remains in a quagmire. Cyprus will be broke again by the end of the year; the country is bankrupt. Greece is in bad shape and getting worse each day. Retail sales are weak. Greece needs another injection of money to stay afloat.  France has raised taxes to 75% and is burdened by a huge social system and excessively-large government employment and has driven companies out of the country. France’s debt-to-GDP ratio is particularly worrisome. Student loan interest rates in the U.S. will increase on Monday since Congress did not pass legislation to prevent the jump from 3.4% to 6.8%. Congress will discuss the matter 7/10/13 and perhaps tie the rate hikes to the Fed rate and make any decision retroactive. Student loans are another debacle dragging the country lower since young folks are tens of thousands of dollars in debt from attaining an education that does not result in a job. The U.S. is hit with excessive heat in the southwestern States and storms and floods in the middle and northeastern States.

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On Sunday, 6/30/13, the Egypt protests increase as…….

On Monday, 7/1/13, China and Asia PMI’s.  Europe PMI’s. Construction Spending. ISM Mfg Index.

On Tuesday, 7/2/13, Factory Orders. Fed’s Dudley and Powell speak to pump the markets.

On Wednesday, 7/3/13, ADP Job Report. International Trade. ISM Non-Mfg Index. Natty Gas Inventories. Oil Inventories. Markets Close Early at 1 PM EST for Holiday.

On Thursday, 7/4/13, ECB Rate Decision and Press Conference. U.S. Markets are Closed in Observance of July 4^th Independence Day.

On Friday, 7/5/13, Jobless Claims. Monthly Jobs Report.

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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 are distracting 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.