Keystone's Trading Week in Review and Path Ahead for Markets 6/8/13

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.” One-half to two-thirds of all young people in Greece, Spain and Italy are jobless.  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. Jeremy Siegel, Wharton’s economics professor, repeats his bullish Dow 17K call for this year.

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). Anti-government protests in Turkey fight the construction at an Istanbul Park (Gezi Park across from Taksim Square). A shopping mall is slated for the property but the park has long been a meeting place for demonstrations. Thousands are arrested and detained by government authorities as the protestors reoccupy the park. The Middle East becomes more destabilized each day.

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On Sunday, 6/2/13, BOE’s King says the public has “every right to be angry” at banks. The Blockupy protests in Frankfurt must be creating concern across Europe since politicians are waxing sympathy. Three more people die of the deadly MERS virus sweeping across the Middle East and Europe. The BIS, Bank of International Settlements, that represents the world’s largest central banks says the markets are “under the spell of monetary easing.” Brent oil drops under 100 as global oil stockpiles grow and OPEC did not cut production. Brent is now down four consecutive months. China HSBC, which reflects small companies, is weaker than expected and under 50 showing contraction, contradictory to the official China PMI released yesterday.

On Monday, 6/3/13, Japan’s Nikkei tumbles over 500 points lower, -3.8%, to 13262. The yen is stronger with the dollar/yen down towards the psychological 100 level. European PMI’s are better than expected but all remain below 50 showing a continued contraction in manufacturing. Italy and Spain show two years of continual contraction. France PMI is the worst at 46.4. ECB’s Draghi says the economy is stabilizing in a challenging environment and Europe is on track for a ‘very gradual’ recovery. Copper and oil move higher on the slightly better PMI data.  Fed’s Yellen says stronger capital controls are needed on banks. WFC responds saying the Fed is sending mixed messages to markets.  The markets are weak to begin the day and worsen after a weak ISM Mfg report printing under 50 showing contraction. The dollar/yen drops under 100 then drops briefly under 99. The SPX drops into the 1620’s.  Utilities are weak and volatility jumps higher.  The broad indexes rally in the afternoon into the close with the Dow up triple digits to 15254 and SPX up 10 closing at 1640. Fed’s Williams says the Fed remains committed to QE. The Fed always saves the day with easy money. Turkey protests grow ugly with one protestor killed and buildings set ablaze. Nouriel Roubini, an economist known for his typically bearish calls, capitulates, and says the markets may remain strong for as much as two more years. Bearish analysts capitulating to the bull side is indicative of markets topping.

On Tuesday, 6/4/13, the dollar/yen recovers to 100.31 (weaker yen) and the Nikkei is up 2% taking a rest from the recent beatings. RBA (Australia) hints at further rate cuts coming. Spain unemployment claims are much lower than expected which elevates European markets. The dollar/yen drops under 100 but then recovers back above so the S&P futures move in sync on each side of the flat line as well. Markets drift sideways with a downward bias until after lunch when Fed’s Esther George’s speech is released in support of tapering QE.  The broad indexes drop on the news. The 20-day winning streak for Tuesday’s ends today. The day ends with the SPX down -9 points to 1631.  The Dow drops 77 points to 15178. The social unrest in Turkey continues with a less violent day since the government troop’s use less tear gas and other strong-arm tactics. Pipelines move lots of oil through Turkey.  Syria’s civil war continues.  10% of the people now in Jordan are refugees from Syria. Europe places tariffs on China solar panels so China retaliates and places tariffs on European (French) wine. The ‘protectionism’ wars begin.

On Wednesday, 6/5/13, Abe pledges to tackle structural reform, the so-called third arrow in his arsenal of handling fiscal, monetary and structural problems with Japan’s economy.  The fancy words did not impress anyone.  Abe did not provide details on how to stimulate growth and the time line appears long. The dollar/yen drops under 100. The Nikkei commits hari-kari overnight dropping -3.8% to 13K, now down -18.5% in ten days time.  Europe is weak and U.S. futures are lower. Sweden’s economy is shrinking.  Finland enters recession.   ADP Employment Report is weaker than expected setting a negative tone. Productivity and Cost data show a sharp drop in unit labor costs as companies continue to squeeze out more profit with less people; great for company earnings but not so much for average folks hoping to find a job. The markets drop at the open and trail lower into the afternoon. Keystone’s SPX 60-minute chart indicator shows the SPX dropping under the 200 EMA signaling bearish markets for the hours ahead. All sectors are weak across the board with the dip-buyers missing-in-action. Dollar/yen drops to a low of 98.86 but recovers back above 99.  Beige Book says economic growth is “modest to moderate” which fails to encourage any traders.  The broad indexes sell off further into the closing bell. The SPX is down -22 points, -1.4%, to 1609 now about 80 points off the top. The Dow loses -217 points, -1.4%, to 14961, losing the 15K level.  The Nasdaq loses -44 points, -1.3%, to 3401. The small cap RUT loses -14 points, -1.4%, to 968. The carnage shows a broad market selloff with all Dow stocks down as well as all the S&P sectors. Traders are cashing in the gains on the long side this year and perhaps taking the summer off. The U.S. government is, and has been, tracking the phone records of all Verizon (VZ) customers, and likely other carriers, for years; Big Brother is in our lives forever forward.

On Thursday, 6/6/13, the Australian dollar breaks through key support signaling continued weakness in commodities due to a slowing global economy. The Nikkei dumps another 0.9% closing under 13K at 12.9K.  China markets are down over -1%. Copper is weak.  The Euronext exchange delays the opening of the major European indexes for one hour due to a software glitch. Greek unemployment rate ticks up to near 27%; a country mired in depression. IMF admits to mistakes in handling the Greek bailouts and says faster debt relief will likely be required.  France’s Hollande says he will miss his employment targets for this year.  BOE’s Mervyn King conducts his last meeting as the U.K.’s head central banker leaving rates unchanged.  The euro is 1.3122 ahead of the ECB Rate Decision and Press Conference.  Draghi leaves rates unchanged saying inflation is contained and lowers the 2013 growth forecast. The euro jumps towards 1.32 so the dollar drops.  The broad indexes sell off and at noon the dollar/yen collapses through 98, then 97, then to 96.29, a remarkable move for currencies.  The broad indexes tumble lower with the SPX and Dow violating their 50-day MA’s. VIX moves above 18. By 1 PM, the dollar/yen recovers back above 97 so the markets recover. Utilities move higher pushing the markets higher into the closing bell. The SPX runs higher from the 1598 low to close at the highs at 1623, a 25-point recovery in three hours time. The Dow closes back above 15K. The higher volatility creates larger and larger intraday and day-to-day point swings in the broad indexes. Traders are waiting for the Monthly Jobs Report in the morning since it will likely commit markets either to a recovery rally, or, a collapse.

On Friday, 6/7/13, the dollar/yen is under 97 in the 96.45-96.70 range. Japan’s pension funds are now diversifying into buying stocks which helps the Nikkei stabilize.  The 10-year yield is 2.06% well under last week’s high at 2.23%. Japan’s Abe and France’s Hollande sign a nuclear and defense technology agreement. The Turkey violence continues and is starting to worry the financial markets. German industrial production is better than expected But the Bundesbank lowers Germany’s growth forecast. The dollar/yen falls through 96 and sends S&P futures to -3.  The Monthly Jobs Report is in-line with estimates at 175K jobs and 7.6% unemployment rate. The prior month job numbers were revised lower. There is no change in hourly earnings or wages. The S&P futures jump higher to +8 and the Dow is +50.  President Obama and China President Xi meet in California where it is difficult for the president to complain about China computer hacking when it now found out that the U.S. has been spying on all American citizens for the last several years. President Obama justifies the spying on all American citizens via emails and cell phone records saying it is necessary for national security. Big Brother arrives on the scene this week in a big and alarming way.  The broad indexes explode higher as the opening bell rings. The utilities sector recovers from recent lows and volatility drops. Keystone’s SPX 60-minute charts shows price moving above the 200 EMA signaling bullish markets for the hours ahead. Keystone’s SPX 30-minute chart shows the 8 MA moving above the 34 MA signaling bullish markets for the hours ahead. Keystone’s trading algorithm, Keybot the Quant, flips to the long side at SPX 1633. The SPX ends the day up 21 points, +1.3%, to 1643. The Dow jumps 208 points, +1.4%, to 15248.  The Nasdaq is up 45 points, +1.3%, to 3469. The RUT is up 8 points, +0.8%, to 988. Note how tech and small caps lag the broad market bounce today, and, along with lackluster volume, show an uninspiring market rally. For the week, the SPX is +0.8%, Dow +0.9%, Nasdaq +0.4% and RUT +0.3%.  Again, note that tech and small caps lag (they should lead for a robust market rally).

On Saturday, 6/8/13, France’s Hollande’s approval rating falls to an all-time low. Youth unemployment in the U.S. is at the highest and longest sustained stretch of joblessness since WW II, 70 years ago. China’s import and export data show a continuing economic slowdown in Asia and globally. The Turkey demonstrations are in the ninth day where thousands have been wounded and two are dead. Turkey is key to the oil industry and oil rises 5% last week due to the turmoil.

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On Monday, 6/10/13, Fed’s Bullard speaks.

On Tuesday, 6/11/13, Wholesale Trade. 3-Year Note Auction.

On Wednesday, 6/12/13, Oil Inventories. 10-Year Note Auction.

On Thursday, 6/13/13, Jobless Claims. Import and Export Prices. Retail Sales. Business Inventories. Natty Gas Inventories. 30-Year Bond Auction.

On Friday, 6/14/13, PPI (Producer Price Index). Industrial Production. Consumer Sentiment.

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On Monday, 6/17/13, Empire State Mfg Survey. TIC data.

On Tuesday, 6/18/13, FOMC Meeting begins.  CPI (Consumer Price Index). Housing Starts.

On Wednesday, 6/19/13, FOMC Meeting Announcement, Forecasts and Chairman Bernanke’s Press Conference. Oil Inventories.

On Thursday, 6/20/13, Jobless Claims. Asia Flash PMI’s. Europe Flash PMI’s. Existing Home Sales. Leading Indicators. Philly Fed Survey. Natty Gas Inventories. 30-Year TIPS Auction.

On Friday, 6/21/13, OpEx Quadruple Witching.

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On Monday, 6/24/13, Chicago Fed National Activity Index. Dallas Fed Mfg Index.

On Tuesday, 6/25/13, Durable Goods Orders. New Home Sales. Consumer Confidence. Richmond Fed Mfg Index. 2-Year Note Auction.

On Wednesday, 6/26/13, GDP. Oil Inventories. 5-Year Note Auction.

On Thursday, 6/27/13, Jobless Claims. Personal Income and Outlays. Natty Gas Inventories. Kansas City Mfg Index. 7-Year Note Auction. Farm Prices 3 PM.

On Friday, 6/28/13, EOM.  Chicago PMI. Consumer Sentiment.

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

On Tuesday, 7/2/13, Factory Orders.

On Wednesday, 7/3/13, ECB Rate Decision and Press Conference. ADP Job Report. International Trade. ISM Non-Mfg Index. Natty Gas Inventories. Oil Inventories. Markets Close Early for Holiday.

On Thursday, 7/4/13, 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 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.