Weekly Market Update – 16 July 2018 BMO

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WEEK IN REVIEW – 09 to 13 July 2018 :
Entering Earnings Season on a Positive Note

Wall Street advanced for the second week in a row, with the Nasdaq (+1.8%) touching a new record and the S&P 500 (+1.5%) hitting its best level since the big drop in early February. The Dow Jones Industrial Average (+2.3%) outperformed its peers, returning to positive territory for the year, but the small-cap Russell 2000 (-0.4%) struggled.

Stocks started the week on a positive note, rallying on Monday and Tuesday, but sold off on Wednesday after the White House escalated its ongoing trade dispute with Beijing, publishing a new list of tariffs. This round of duties is the largest yet, calling for a 10% tariff on $200 billion worth of Chinese goods, but it won’t be official for at least two months. As it did with earlier tariffs, China promised to retaliate.

Meanwhile, NATO leaders held a two-day summit in Brussels this week. President Trump dominated the headlines, criticizing Germany for approving a major gas deal with Russia and taking a hard stance on increased military spending. Member states recommitted to a military spending target of 2% of GDP by 2024, prompting Mr. Trump to verbally confirm his commitment to the alliance.

The U.S. president then jetted to the UK for a meeting with Prime Minister Theresa May. Before the meeting, Mr. Trump suggested that Ms. May’s Brexit plan may prevent the U.S. from entering a bilateral trade deal with the UK, but he walked back those comments in a latter press conference, reaffirming the leaders’ “special relationship.”

Back on the home front, West Texas Intermediate crude futures tumbled from a three-and-a-half year high on Wednesday, plunging 5.0% in their worst daily performance in over a year. Investors shrugged off a bullish inventory report – which showed a huge drop of 12.6 million barrels for the week ended July 6 – and instead focused on resurgent Libyan supply and increased June output for Saudi Arabia.

The energy sector, which is sensitive to crude prices, finished behind the broader market, but still added 0.8%. Eight of eleven spaces finished the week in the green, with information technology (+2.3%), consumer discretionary (+2.1%), and industrials (+2.2%) being the top performers. Utilities (-1.2%), telecom services (-1.6%), and real estate (-0.8%) were the three decliners.

In corporate news, big banks JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) unofficially kicked off the second quarter earnings season on Friday with mixed results; JPMorgan and Citigroup beat earnings estimates, but Wells Fargo missed. The financial sector lost 0.5% on Friday, but still finished the week with a gain of 1.1%.

Elsewhere, 21st Century Fox (FOXA) lost 4.0% on Wednesday following reports that Comcast (CMCSA) may forego countering Disney’s (DIS) offer for Fox’s entertainment assets and focus on upping its bid for British media company Sky instead; Broadcom (AVGO) tumbled 13.7% on Thursday after agreeing to acquire software company CA Tech (CA) for approximately $18.9 billion in cash; and AT&T (T) lost 1.7% on Friday after the Department of Justice appealed the company’s acquisition of Time Warner.

In the bond market, U.S. Treasuries moved lower in another curve-flattening trade this week, bringing the 2-10 spread down two basis points to 26 bps – its lowest level in more than a decade. The yield on the benchmark 10-yr note ticked up one basis point to 2.83%, while the yield on the 2-yr note climbed three basis points to 2.57%.

(Excerpts from Briefing.com)

Friday: Stocks Tick Higher Despite Bank Underperformance

Stocks eked out a slim victory on Friday following a range-bound day of trading on lighter-than-usual volume. The S&P 500 (+0.1%) hit some technical resistance at the 2800 level, which it hasn’t been able to conquer since early February. The Dow Jones Industrial Average (+0.4%) did modestly better, and the Nasdaq Composite finished flat.

Big banks, including JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC), unofficially kicked off the Q2 earnings season Friday morning. The results were mixed; JPMorgan and Citi beat profit estimates, but Well Fargo came up short. The three lenders slid between 0.5% and 2.2% in the aftermath, and the influential financial sector declined 0.5%.

The top-weighted technology space also lagged, finishing a tick below its unchanged mark. Within the space, Dow component Cisco Systems (CSCO) dropped 4.1% following news that Amazon (AMZN) is mulling entry into the data switches market; AMZN rallied 0.9%, hitting a new record high.

Meanwhile, telecom services (-0.8%) was the worst performer, led lower by AT&T (T), which lost 1.7% following news that the DOJ has appealed the company’s acquisition of Time Warner.

On the flip side, industrials (+0.6%), energy (+0.6%), and consumer staples (+0.6%) finished at the top of the sector standings. The energy space was helped by a rebound in the price of crude oil, which plunged 5.0% on Wednesday. WTI crude futures advanced 1.1% on Friday to $71.03 per barrel.

President Trump was in the UK on Friday, fielding questions from reports in a joint press conference with Prime Minister Theresa May and stopping for tea with Queen Elizabeth II. Mr. Trump reaffirmed the United States’ “special relationship” with the UK and said the U.S. will pursue a free trade deal with the UK once it leaves the EU.

U.S. Treasuries rallied on Friday, pushing yields lower across the curve; the yield on the benchmark 10-yr Treasury note slipped two basis points to 2.83%. Meanwhile, the U.S. Dollar Index finished slightly lower (-0.1%) at 94.47, and the CBOE Volatility Index declined 2.9% to 12.22.

Reviewing Friday’s economic data, which included June Import/Export Prices and the preliminary reading of the University of Michigan Consumer Sentiment Index for July:

Looking ahead, investors will receive on Monday the Retail Sales report for June, the Empire State Manufacturing Index for July, and the Business Inventories report for May. Bank of America(BAC) and BlackRock (BLK) will report earnings before the open, and Netflix (NFLX) will report after the close.

Market Internals – Friday 13 June

Dollar: Dollar Index Little Changed

The U.S. Dollar Index closed at 94.68, after looking like it was going to finish the week unchanged from last week’s close of 94.83. The greenback saw a continuation of this week’s strength in overnight action, but the Dollar Index could not push above its closing high from late June (95.53). The Index peaked during the European session, spending the past several hours in a steady retreat. 

Bonds: 30-yr Yield Nears Six-Month Low

U.S. Treasuries ended the week on a higher note with the 2-yr note rebounding from its recent show of relative weakness. The Friday affair was not particularly active, as Treasuries spent the day in a range that narrowed as the day progressed. The market saw some volatility in morning trade as opening gains were briefly surrendered, but Treasuries crept back to their morning highs and remained near those levels into the afternoon, when another wave of buying interest lifted all tenors to fresh session highs. The 30-yr yield finished at its lowest level since late January, reflecting relentless outperformance in the long bond. The yield curve ended the day at a slightly steeper level, but flattened when compared to last Friday. The 2s10s spread ended the week four basis points tighter at 26 bps while the 2s30s spread compressed by five basis points to 36 bps.

The yield curve tightened yet again as the 30-year yield fell while the shorter maturities’ yields rose. The spread between the 5s10s tightened to 10bps from 11bps the previous week while the 10s30s tightened to 10bps from 11bps the previous week. 

The Federal Reserve released its semiannual Monetary Policy Report, which showed little concern over recent strength in the U.S. dollar and did not point to discomfort among policymakers about staying on the tightening path. Fed Chairman Jay Powell will appear before the Senate Committee on banking, Housing, and Urban Affairs on Tuesday to deliver the semiannual report and answer questions from lawmakers.

 Commodities 

The Bloomberg Commodity Index settled at 83.83, lower than 86.21 the previous week as energy and metals continue their seasonal weakness. 

WTI oil falls to $71/barrelThe spread between WTI and Brent widened, breaking a seven-week narrowing streak to $4.30 from $3.31 the previous week.

EIA petroleum data for the week ended June 06

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 12.6 million barrels from the previous week. At 405.2 million barrels, U.S. crude oil inventories are about 4% below the five year average for this time of year. Total motor gasoline inventories decreased by 0.7 million barrels last week and are about 6% above the five year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 4.1 million barrels last week and are about 12% below the five year average for this time of year. Propane/propylene inventories increased by 2.4 million barrels last week and are about 10% below the five year average for this time of year. Total commercial petroleum inventories decreased by 7.2 million barrels last week.

Natural gas inventory showed a build of 51 bcf vs a build of 78 bcf in the prior week. Working gas in storage was 2,203 Bcf as of Friday, July 6, 2018, according to EIA estimates. This represents a net increase of 51 Bcf from the previous week. Stocks were 725 Bcf less than last year at this time and 519 Bcf below the five-year average of 2,722 Bcf. At 2,203 Bcf, total working gas is within the five-year historical range.

Baker Hughes total U.S. rig count increased by 2 to 1054 following last week’s increase of 5.

Metals: Gold resumes falling, Silver and Copper continue to seasonal weakness

Agriculture: Wheat bucks the trend

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Week 29 (July 16 to 20) tends to be bullish across our 5, 10 and 15 year seasonal models.

Benchmarks (21 year average) for wk29:

Key Economic Dates

Week 29

In the coming week, the US will publish retail trade, industrial production, building permits and housing starts. Elsewhere, important releases include: China Q2 GDP growth, industrial output, retail sales and fixed asset investment; Japan inflation and foreign trade; UK inflation, wages and unemployment; and Australia employment.

Sun 15 July

Mon 16 July

Tue 17 July

Wed 18 July

Thu 19 July

Fri 20 July

Sat 21 July

Earnings – July 16 to 20

Week 2 of earnings season gets into full swing with at least seven DOW components on the line. Former recent DOW components AA, GE, BAC and HON are also calling out their numbers.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

OBSERVATION

Having dug itself out from beneath the 200DSMA six sessions ago, the DOW closed the week at the critical 25,000 retracement that has been dogging it since February. It has managed five consecutive closes above its 50DSMA. The coming week will be a stern test for the benchmark to break above and close firmly above all its average and that 25,000 retracement with a third candle reversal imminent on Monday.

SUMMARY

The coming week suggests that we’re in for some volatility as earnings season kicks into full gear. Although there is still no economic weakness that could threaten the US economy, some early signs of an economic top appear to be manifesting like a 6-year high on inflation, 9-year high on employment, 18-year low on unemployment, 11-year low on bond yield spreads and then there’s this …

I am going to continue on the safe side of bullish and stay hedged with quick timeframes and tight stops for all my trades.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The Pattern Trader™ Tutorial
is coming back to PENANG, Malaysia in October!!

 

Register here to attend the
Preview to get our Early Bird offer:
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Penang Introductory Session

 

 

Details of the October Batch can be found here:

PTTPG07, OCTOBER 2018 (Penang)

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For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, download our promo slides here: The Pattern Trader™ Tutorial 2018

Send your queries, requests, bookings to:
ptt.finscents@gmail.com

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Find out more about the Pattern Trader Tutorial here:
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Pattern Trader™ Batch PG07 October 2018

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The Pattern Trader™ Tutorial
is coming back to PENANG, Malaysia in October!!

 

Register here to attend the
Preview to get our Early Bird offer:
Pattern Trader™ Tutorial
Penang Introductory Session

 

 

Details of the October Batch can be found here:

PTTPG07, OCTOBER 2018 (Penang)

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Weekly Market Update – 09 July 2018 BMO

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WEEK IN REVIEW – 02 to 06 July 2018 :
Independence Day Bring Gains For The Week

It was an abbreviated week of trading due to the Fourth of July holiday, yet there were plenty of fireworks for the bulls who enjoyed a winning week for the major indices.

The bullish bias was remarkable in that concerns about protectionist trade measures were discussed throughout the week.  Those concerns did not derail the stock market, yet they did not go unnoticed.

Some of this week’s best-performing sectors were the defensive-oriented health care (+3.1%), utilities (+2.4%), and telecom services (+2.2%) sectors. Meanwhile, the yield on the benchmark 10-yr note dropped three basis points to 2.82%, which gave a lift to the real estate sector (+1.8%).

By and large, though, it was a risk-on week in the stock market, which moved up on the back of gains in every sector but the energy sector (-0.3%). 

The latter moved in tandem with oil prices, which dropped 0.5% to $73.77/bbl, pressured by a bearish inventory report from the Department of Energy and assumptions that Saudi Arabia will tap into its spare capacity to maintain stability in the oil market.

The information technology sector (+2.3%), supported by the usual mega-cap suspects, was a standout yet again, bringing its year-to-date gain to 12.7%.  Facebook (FB) for its part increased 4.6% for the week, with the entirety of its gain coming over the last two trading sessions.

Those last two trading sessions were governed by insouciant trading behavior, as the major indices advanced resolutely in the face of the FOMC Minutes highlighting how business contacts in some districts were scaling back, or postponing, capital spending plans as a result of the uncertainty over trade policy and the U.S. and China pressing ahead with the implementation of tariffs on $34 billion worth of imported goods from each other.

There was no uncertainty on Friday following the release of the June employment report.  Market participants seemingly rejoiced in the understanding that the report once again had a Goldilocks hue to it, featuring solid nonfarm payrolls growth (+213,000) and a subdued 2.7% year-over-year gain in average hourly earnings that kept inflation worries, and aggressive rate-hike worries, at bay.

That economic report overshadowed the gloomy trade developments, which also included a contention by President Trump that the U.S. could possibly levy tariffs on more than $500 billion of Chinese goods if necessary.   The stock market made note of the remark, yet it was not unnerved by it.

The US. Dollar Index settled the week 0.7% lower at 94.01 while the CBOE Volatility Index plunged 16.9% to 13.37, underscoring a lack of hedging interest to protect for near-term downside risk.  The entirety of the decline in the CBOE Volatility Index came over the last two trading days of the shortened week.

Not surprisingly, trading volume was on the light side this week as many participants took vacation.

(Excerpts from Briefing.com)

Friday: Market Trades Trade Concerns for Labor Market Relief

Apparently, a trade war started on Friday – or so it was said – yet the stock market acted as if there was a daisy stuck in the barrel of every trade threat.  For the second day in a row, the stock market ignored the trade conflict between the U.S. and China (and other countries for that matter) and rallied around a pleasing employment report for June.

It was clear to see in the futures market this morning how the employment report was the inflection point for a shift in trading sentiment.  Prior to its release at 8:30 a.m. ET, the S&P futures were down as many as seven points and signalling a modestly lower start for the broader market.

Following the release, they turned positive, and although the open to today’s session was a bit tentative, the bulls soon took command of today’s tape, ceding some ground only in a profit-taking retreat in the last 30 minutes of trading.

The catalyst for the upside bias was the recognition that the June employment report had a familiar Goldilocks hue to it.  Specifically, it featured solid nonfarm payrolls growth (+213,000) and a subdued 2.7% year-over-year gain in average hourly earnings that kept inflation worries, and aggressive rate-hike worries, at bay.

The stock market wasn’t the only beneficiary of that fairy-tale theme.  The Treasury market also enjoyed the not-too-hot-not-too-cold narrative.

The 2-yr note yield, which is more sensitive to changes in the fed funds rate, fell three basis points to 2.53% while the 10-yr note yield, which is more sensitive to inflation, slipped one basis point to 2.83%.

Within the stock market, every sector was a winner.

Gains ranged from 0.3% (consumer staples) to 1.4% (health care).  The latter was helped by a huge gain in Biogen (BIIB), which surged after announcing encouraging, and surprising, Phase II trial results for its Alzheimer’s drug.

A 1.2% increase in the information technology sector, which flowed from the outperformance of Apple (AAPL), Facebook (FB), Alphabet (GOOG), and Microsoft (MSFT), solidified the upside bias and drove the outperformance of the Nasdaq Composite (+1.3%).

Trade matters were talked about widely.  The U.S. and China both pressed ahead with tariffs on $34 billion worth of imported goods from each country, which was not a surprise, and President Trump suggested it’s possible tariffs on more than $500 billion of Chinese goods could be levied over time if necessary.

The latter was a surprise, but judging by the stock market’s performance, it was not unnerved by the remark.

Taking a closer look at today’s economic data:

Market Internals – Friday 06 June

Dollar: Pullback Extended

The U.S. Dollar Index closed down 0.46% at 93.96 on Friday, completing its fifth decline out of the past six sessions. The greenback retreated in overnight action, dropping to a fresh session low after the release of a June Employment Situation report, which exceeded headline expectations (213K; consensus 195K), but once again showed sluggish average hourly earnings growth (+0.2%; consensus 0.3%). The Dollar Index hit its low in Friday’s mid-morning trade, pausing just above its 50-day moving average (93.86). With Friday’s decline, the Dollar Index is down 0.6% for the week.

Bonds: Holiday Week Ends with Gains

U.S. Treasuries ended the abbreviated week on a broadly higher note, though intraday action saw a pullback from morning highs. The Treasury market began the day with modest gains, rallying to session highs after the release of an Employment Situation report for June, which stayed true to trend. The report showed a healthy increase in payrolls, but average hourly earnings growth remained subdued. On the whole, the report is unlikely to alter the policy course at the Federal Reserve, which is why the long bond hit its best level in five weeks in morning trade. The 30-yr bond retreated from its high in midday action, but that pullback could not prevent the 30-yr yield from ending the day at its lowest level since the end of January. The slope of the yield curve steepened today, but flattened over the course of the week. The 2s10s spread expanded by two basis points to 30 bps, but tightened by two basis points for the week. For its part, the 2s30s spread widened by two basis points to 41 bps, but tightened by four basis points for the week.

The yield curve tightened for yet another week as longer maturities’ yields fell more than the shorter maturities. The spread between the 5s10s tightened to 11bps from 12bps the previous week while the 10s30s tightened to 11bps from 13bps the previous week. This is the flattest curve since December 2006/January 2007 with the spread between the 2yr and the 30yr at only 41bps.

 Commodities 

The Bloomberg Commodity Index settled at 86.21, lower than 87.41 the previous week as energy and metals weaken.

WTI oil closes below $74/barrel. The spread between WTI and Brent narrowed for the seventh straight week to a more reasonable $3.31 from $5.29 the previous week (from $6.25 the week before).

EIA petroleum data for the week ended June 29

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.2 mln barrels from the previous week. At 417.9 mln barrels, U.S. crude oil inventories are about 2% below the five year average for this time of year. Total motor gasoline inventories decreased by 1.5 mln barrels last week and are about 6% above the five year range. Finished gasoline and blending components inventories both decreased last week. Distillate fuel inventories increased by 0.1 mln barrels last week and are about 13% below the five year average for this time of year. Propane/propylene inventories increased by 2.9 mln barrels last week and are about 10% below the five year average for this time of year. Total commercial petroleum inventories increased by 3.3 mln barrels last week.

Natural gas inventory Natural gas inventory showed a build of 78 bcf vs a build of 66 bcf in the prior week. Working gas in storage was 2,152 Bcf as of Friday, June 29, 2018, according to EIA estimates. This represents a net increase of 78 Bcf from the previous week. Stocks were 717 Bcf less than last year at this time and 493 Bcf below the five-year average of 2,645 Bcf. At 2,152 Bcf, total working gas is within the five-year historical range.

Baker Hughes total U.S. rig count increased by 5 to 1052 following last week’s decrease of 5.

Metals: Gold stops falling, Silver and Copper continue to weaken

Agriculture: Corn stalls, Wheat resumes its weakness, Soy bounces

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THE WEEK AHEAD

Week 28 (July 09 to 13) tends to be bullish across our 5, 10 and 15 year seasonal models.

Benchmarks (21 year average) for wk28:

Key Economic Dates

Week 28

This coming week, the US will publish inflation rate, the preliminary estimate of Michigan consumer sentiment, producer and foreign trade prices. Other key economic data include: UK first publication of monthly GDP; China inflation, producer prices and foreign trade; Japan machinery orders; and Australia business and consumer morale.

Mon 09 July

Tue 10 July

Wed 11 July

Thu 12 July

Fri 13 July

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

OBSERVATION

The DOW Industrials and Transports broke and closed above its 200DSMA after languishing for eight sessions below that critical indicator. However, leadership in the last few sessions have come from the defensive sectors like healthcare, utilities and telecom amidst businesses that were “scaling back, or postponing, capital spending plans as a result of the uncertainty over trade policy“. The last two weeks’ action has also been against lower average volumes and rather divergent market internals.

One would be forgiven for thinking that this is usually the case leading up to the start of Q3’s earnings season. Earnings season for Q2 results begin in the coming week. JPM, WFC and C kicks starts what is usually the year’s most volatile earnings season on Friday 13 July – an ominous sign?

So while on the surface, things look to be back to normal and hunky dory, the undercurrents are starting to look threatening and worrisome again.

SUMMARY

Last week, I wrote; “Keep watching the yield curve – I am guessing that’s where the bulls have been running to.

With the yield curve spreads narrowing to yet another multi-year low, the volatile months (of August and September) ahead may just force this flattening into an inversion. According to historical tradition, this will give the market another six months (to a year) before we see any serious weakness in the economy. Thus, with the Fed’s language still bullish on rates, this market may still have legs to stay up till the end of the year unless August and September bring a difference perspective.

Till then, I remain cautiously bullish

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, download our promo slides here: The Pattern Trader™ Tutorial 2018

Send your queries, requests, bookings to:
ptt.finscents@gmail.com

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The schedule for the November 2018 batch is here:
Pattern Trader™ Tutorial Batch 95 November 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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Comments Off on Weekly Market Update – 02 July 2018 BMO

Weekly Market Update – 02 July 2018 BMO

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WEEK IN REVIEW – 25 to 29 June 2018 :
Trade Tensions Strike Again

U.S. equities declined for the second week in a row as investors continued to focus on U.S.-China trade tensions. The S&P 500 and the Dow Jones Industrial Average dropped 1.3% apiece, while the tech-heavy Nasdaq Composite slid 2.4%. Small caps were hit especially hard, sending the Russell 2000 lower by 2.5%.

Trade war fears weighed at the start of the week due to reports that the White House is looking to bar Chinese companies from investing in U.S. tech firms. The Trump administration first responded to the reports with a mixed message; Treasury Secretary Steven Mnuchin said the White House is targeting all countries, not just China, while President Trump’s top trade adviser, Peter Navarro, said the administration doesn’t have any plans to impose investment restrictions, regardless of country.

However, the administration eventually cleared things up, deciding to defer foreign investment regulation to the Committee on Foreign Investment in the United States (CFIUS). That decision was seen as a positive alternative to direct White House intervention and helped the equity market rebound in the second half of the week.

Separately, the U.S. State Department threatened to impose powerful sanctions on countries that don’t cut oil imports from Iran to “zero” by November 4. That headline, paired with a larger-than-expected draw in U.S. crude inventories (9.9 million barrels), pushed crude prices back to a three-and-a-half year high. WTI crude futures added 8.1% for the week, closing at $74.12 per barrel.

Also out of Washington, Supreme Court Justice Anthony Kennedy announced his retirement, effective July 31. Although he identifies as a conservative, Mr. Kennedy has often sided with his liberal colleagues. His retirement gives President Trump the chance to strengthen the court’s conservative majority.

In corporate news, Amazon (AMZN) made headlines after announcing a deal to acquire online pharmacy start-up PillPack. That news sent shares of drug distributors like CVS Health (CVS) and Walgreens Boots Alliance (WBA) solidly lower. Amazon also announced it is inviting entrepreneurs to form small companies to carry packages over the last leg of the delivery journey.

Elsewhere, General Electric (GE) announced plans to spin off its health care business and to sell its 62.5% stake in oil and gas company Baker Hughes (BHGE); Walt Disney (DIS) won DOJ approval to buy most of Fox’s assets for $71.3 billion, subject to the condition that Disney sells 22 regional sports networks; and Nike (NKE) spiked to a new record on Friday after beating both top and bottom line estimates and announcing a new $15 billion share repurchase program.

As for this week’s S&P sector standings, utilities (+2.3%), telecom services (+1.2%), real estate (+1.1%), and energy (+1.0%) were the top-performing groups, while the heavily-weighted technology (-2.2%), financials (-1.9%), consumer discretionary (-1.9%), and health care (-1.8%) sectors finished at the back of the pack.

(Excerpts from Briefing.com)

Friday Update: Disappointing Finish

Stocks got off to a good start on Friday, but gave back nearly everything during the final hour of trading. The S&P 500 was up 1.0% at its best mark of the day, but ended with a gain of just 0.1%, closing a tick above its 50-day moving average. The Nasdaq also added 0.1%. The Dow climbed 0.2%.

Financials led the market higher out of the gate after the Fed cleared most big banks to increase their dividends and share buybacks. However, the heavily-weighted sector faded as the day went along, entirely retracing a gain of 1.8%, and ended lower by 0.1%.

Despite the disappointing finish, eight of eleven sectors closed Friday in the green. Energy (+0.7%) was the top-performing space as crude prices climbed for a fourth straight session. WTI crude futures advanced 1.0% to $74.12 per barrel, hitting a new three-and-a-half year high and locking in a weekly gain of 8.1%.

In corporate news, Nike (NKE) spiked 11.1%, hitting a new all-time high, after reporting better-than-expected earnings and revenues and announcing a $15 billion share repurchase program. Conversely, General Motors (GM) struggled, losing 2.8%, after warning President Trump that the proposed tariffs on imported vehicles could lead to “a smaller GM”. It’s worth noting that selling in the broader market started picking up around the same time that GM made the announcement, although it’s unlikely that it was the sole cause as financials led the reversal.

In politics, Fox News correspondent Maria Bartiromo reported that President Trump is working on a phase two of his tax plan and is considering cutting the corporate tax rate to 20% from 21%. Separately, European Union leaders reached a deal on a migration, which has been an especially contentious issue since the Syrian refugee crisis.

Reviewing Friday’s economic data, which included Personal Income, Personal Spending, and PCE Prices for May, the Chicago PMI for June, and the final reading of the University of Michigan Consumer Sentiment Index for June:

Market Internals – Friday 29 June

Dollar: Dollar Index Pulls Back

The U.S. Dollar Index closed down at 94.47, returning to levels from Tuesday afternoon. The greenback stumbled against the euro in Thursday’s overnight action, which opened the door to a broader pullback after a quarter that saw the Index gain 6.0% going into Friday’s session. The overnight pullback took place as the euro jumped in response to news from the EU summit in Brussels. Leaders gathered at the summit struggled to reach agreement on a joint statement, which resulted in nine hours of negotiations. The marathon session was concluded with a statement that acknowledged plans for “controlled centers” within the EU to process asylum requests and that Italy would no longer bear sole responsibility for rescues at sea. However, the statement was vague on details, suggesting more work remains to be done. The Dollar Index notched a low in midday trade, narrowing its Q2 gain to 5.2%.

Bonds: First Half Ends With Whimper

U.S. Treasuries ended the first half of 2018 on a generally flat note. Today also marked the final session of the month and the quarter, but intraday action was mostly restrained. The long bond saw a bit more intraday movement, but was pressured back beneath its flat line by the close. That outperformance was consistent with the established trend of relative weakness in shorter tenors and relative strength on the long end. The 30-yr bond hit its session high in midday action, briefly pressuring its yield to 2.954%, which matched the session low from May 29. However, a late-afternoon pullback sent the long bond to a fresh low, lifting its yield back above the 200-day moving average at 2.968%.

The yield curve flattened as longer maturities’ yields fell against the shorter maturities. The spreads between the benchmark yields are now tighter than they’ve ever been since pre-subprime. The spread between the 5s10s tightened to 12 bps from 13bps the previous week while the 10s30s tightened to 13bps from 15bps the previous week. 

 Commodities 

The Bloomberg Commodity Index settled at 87.41, higher than 86.42 the previous week as oil makes great gains.

WTI oil closes above $74/barrel. The spread between WTI and Brent narrowed for the sixth straight week to $5.29 from $6.25 the previous week (from $8.38 the week before).

EIA petroleum data for the week ended June 22

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 9.9 mln barrels from the previous week. At 416.6 mln barrels, U.S. crude oil inventories are about 4% below the five year average for this time of year. Total motor gasoline inventories increased by 1.2 mln barrels last week and are about 6% above the five year range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories remained unchanged last week and are about 14% below the five year average for this time of year. Propane/propylene inventories increased by 4.3 mln barrels last week and are about 12% below the five year average for this time of year. Total commercial petroleum inventories decreased by 4.6 mln barrels last week.

Natural gas inventory showed a build of 66 bcf vs a build of 91 bcf in the prior week- nat gas drops initially. Working gas in storage was 2,074 Bcf as of Friday, June 22, 2018, according to EIA estimates. This represents a net increase of 66 Bcf from the previous week. Stocks were 735 Bcf less than last year at this time and 501 Bcf below the five-year average of 2,575 Bcf. At 2,074 Bcf, total working gas is within the five-year historical range.

Baker Hughes total U.S. rig count decreased by 5 to 1047 following last week’s decrease of 7.

Metals: Weakness persists

Agriculture: Corn, Wheat halt the drop, Soy continues falling

USDA’s annual acreage report and quarterly grains stocks reports

USDA Quarterly Grain Stocks Report:

USDA Annual Acreage Report :

The annual acreage report is one of three annual reports the USDA releases each year that discusses planting expectations. (Not to be confused with the WASDE report, which gives a running estimate each month of what they think inventory levels will be at the end of each given crop year.)

Thus, the third one is the most legit, final report that the USDA releases each year that says how much of what crop was actually planted in the U.S.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Week 27 (July 02 to 06) tends to be bullish across our 5, 10 and 15 year seasonal models.

Benchmarks (21 year average) for wk27:

Key Economic Dates

Week 27

The Fed will be publishing the minutes of its last meeting while the RBA will be deciding on monetary policy. Key economic data include: US jobs report, trade balance, ISM PMIs, ADP employment change and factory orders; UK Markit PMIs; Eurozone unemployment and retail sales; Japan quarterly business survey and household spending; China Caixin PMIs; and Australia trade balance.

Mon 02 July

Tue 03 July

Wed 04 July

Thu 05 July

Fri 06 July

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE MONTH AHEAD

July is the first month of Quarter Three, the “worst” quarter of the financial year with August and September being the most bearish months on record. July is also the start of Q3’s Earnings Season for Q2 results and tends to be rather volatile. July is the start of NASDAQ’s “worst four months” and is the third month in “the worst six months” on the DOW and S&P500.

July 2018 has twenty-one (21) trading sessions including one half-day and one public holiday on the 4th of July in observance of Independence Day. July tends to start out very bullishly but becomes volatile and even bearish in the second half of the month.

July Trivia

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

OBSERVATION

The Dow Jones Industrial Average fell below its critical 200DSMA on Monday, putting it in technically bearish territory. The last time it closed below that key average was two years ago on 27 June 2016. 

Following on the heels of the Industrials, the Transports have also fallen below its 200DSMA for the first time since end-August 2017.

Both the Industrials and Transports are negative year-to-date.

SUMMARY

It is becoming increasing nervous in the markets as the yield curve accelerates its flattening and the DOW indices become technically bearish (below the 200DSMA) and drop into negative for the year yet again. On the economic front, there is very little to suggest that the US is anywhere near an economic slow down. This could suggest that the current volatility is probably just seasonal weakness as is usually the case between June and September.

So on we go into the worst quarter of the year to be a bull. I suspect we’re in for a really bumpy ride with lots of bearish surprises ahead. The bulls have not been in the game since January this year and are not likely to want to venture into risk at this point of time. Keep watching the yield curve – I am guessing that’s where the bulls have been running to.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, download our promo slides here: The Pattern Trader™ Tutorial 2018

Send your queries, requests, bookings to:
ptt.finscents@gmail.com

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The schedule for the November 2018 batch is here:
Pattern Trader™ Tutorial Batch 95 November 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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Comments Off on Weekly Market Update – 25 June 2018 BMO

Weekly Market Update – 25 June 2018 BMO

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WEEK IN REVIEW – 18 to 22 June 2018 :
Trade Tensions Weigh

Stocks fell this week as trade tensions helped to keep buyers at bay. The benchmark S&P 500 index ended the week lower by 0.9%. The tech-heavy Nasdaq lost 0.7%, but did notch a new all-time high on Wednesday, and the Dow Jones Industrial Average tumbled 2.0%.

At the start of the week, investors were still weighing the prospect of a trade war between the U.S. and China after President Trump confirmed last Friday that he has approved a 25% tariff on $50 billion worth of Chinese goods. Beijing responded swiftly to that news, vowing to implement equivalent duties on U.S. goods.

The story added a new chapter on Monday evening when President Trump asked his administration to identify an additional $200 billion worth of Chinese goods that he says will be hit with a 10% tariff should China follow through on its promise to retaliate. In addition, if China retaliates against the new $200 billion list, Mr. Trump said he will place tariffs on yet another $200 billion worth of Chinese goods.

The industrial sector, which is viewed as being in the crosshairs of protectionist trade actions, was the worst-performing S&P 500 group this week, losing 3.4%. Similarly, chipmakers, which derive a large chunk of their revenue from shipments to China, were also under pressure, sending the Philadelphia Semiconductor Index lower by 3.6%.

President Trump issued another tariff threat on Friday, this time targeting the European Union. The president said the U.S. will be imposing a 20% tariff on all automobiles imported from EU countries if the EU fails to remove duties on imports of U.S. automobiles. On a related note, as of Friday, the European Union has officially implemented tariffs on $3.2 billion worth of U.S. goods in retaliation to U.S. tariffs on imports of steel and aluminum that went into effect earlier this month.

Elsewhere, the Organization of Petroleum Exporting Countries (OPEC) met in Vienna this week to discuss easing production caps that have been in place for more than 18 months. The meeting was reportedly contentious, but the countries eventually agreed to boost oil output by a less-than-expected 600,000 barrels per day. WTI crude futures rallied to a four-week high on Friday following the news, and the energy sector reclaimed losses registered earlier in the week, finishing with a weekly gain of 1.5%.

In U.S. corporate news, Walgreens Boots Alliance (WBA) will be joining the Dow Jones Industrial Average on June 26, taking the spot of General Electric (GE), which was one of the original Dow components and has been a continuous part of the average for more than a century. The decision follows a disastrous 18-month stretch for GE shares, which have dropped around 60% since the end of 2016.

Separately, media names returned to the spotlight on Wednesday when Walt Disney (DIS) increased its offer for 21st Century Fox’s (FOXA) entertainment assets. Disney is now offering $38 per share, up from its previous offer of $28 per share and better than last week’s offer from Comcast (CMCSA) of $35 per share.

E-commerce companies, including Amazon (AMZN), eBay (EBAY), Wayfair (W), Overstock.com (OSTK), and Etsy (ETSY), sold off on Thursday after the U.S. Supreme Court ruled that states can require online retailers to collect sales tax, overturning a 1992 precedent.

Also of note, Intel’s (INTC) chief executive, Brian Krzanich, resigned after breaking the company’s non-fraternization policy, Oracle (ORCL) shares dropped to a 15-month low after the company’s quarterly update provided less insight than usual into its growing cloud business, and Starbucks (SBUX) shares hit a three-year low after the company announced it will be scaling back store growth.

U.S. Treasuries ended the week on a modestly higher note, pushing the benchmark 10-yr yield lower by two basis points to 2.90%.

(Excerpts from Briefing.com)

Friday Update: Down Week Ends on High Note

The S&P 500 ended the week on a positive note by advancing 0.2% on Friday. Energy shares led the broad-based rally thanks to a spike in oil prices, which surged to a four-week high as OPEC wrapped up its latest summit in Vienna. However, financials, technology, and consumer discretionary stocks lagged, keeping gains in check. For the week, the S&P 500 lost 0.9%.

Friday’s session was range-bound to say the least. The S&P 500 held a gain between 0.2% and 0.5% throughout the entire session, sticking to a 12-point range. Trading volume was extremely high due to the annual re-balancing of the Russell 1000 and Russell 2000 indices. Roughly 2.2 million shares changed hands at the New York Stock Exchange.

The OPEC summit was the biggest event of the day, as it ended on a somewhat unexpected note. Following a contentious two-day meeting, the oil-producing countries agreed to increase total output by roughly 600,000 barrels per day – far less than the top end of estimates, which were calling for an increase of up to 1.5 million barrels per day.

West Texas Intermediate crude futures rallied 4.5% to $68.59 per barrel in reaction, helping the energy sector (+2.2%) finish unchallenged atop the sector standings; the next best-performing group – materials – added 1.4%. In total, eight of the eleven sectors finished in the green, with financials (-0.5%), technology (-0.4%), and consumer discretionary (-0.1%) being the three laggards. Unfortunately for the bulls, those three groups are heavily-weighted, representing around 50% of the broader market combined.

The financials and consumer discretionary sectors were holding up alright until the afternoon when they dropped to fresh session lows, while technology was weak throughout the session. Within the tech space, software company Red Hat (RHT) tumbled 14.2% after disappointing guidance for its fiscal second quarter overshadowed its better-than-expected Q1 results.

In Washington, President Trump announced a new tariff threat via Twitter on Friday, vowing to slap a 20% tariff on automobiles produced in EU countries if the European Union fails to remove duties on imports of U.S. autos. The U.S. stock market dropped to new lows following the tweet, but didn’t stay there for long.

U.S. Treasuries finished Friday on a flattish note, although shorter-dated issues showed relative weakness. The yield on the benchmark 10-yr Treasury note finished unchanged at 2.90%, while the yield on the 2-yr Treasury note climbed two basis points to 2.55%. The U.S. Dollar Index declined 0.4%, slipping from an 11-month high.

Market Internals – Friday 22 June

Dollar: Dollar Index Inches Lower

The U.S. Dollar Index was down 0.2% at 94.54, surrendering 0.3% for the week. The Dollar Index faced selling pressure since the overnight session Thursday, but the pace of the decline slowed, as the greenback refused to back down against select currencies. The greenback spiked against the Canadian dollar in Friday morning action after Canada reported cooler than expected inflation data for May, coupled with weak retail sales figures for April. The loonie reclaimed its loss against the greenback in midday action, but the U.S. dollar remains slightly higher against the yen and a few emerging market currencies that do not factor into the Dollar Index.

Bonds: Quiet Week Ends on Flat Note

U.S. Treasuries ended the week on a modestly lower note after enduring another quiet session. The Treasury market saw some volatility in morning trade, as Treasuries retreated during the first hour of action, but bounced near yesterday’s session lows. The rebound briefly lifted all tenors into positive territory, but the slim gains faded in late-morning action. Afternoon trade was even more subdued as Treasuries hovered just above their opening levels until the end of the session. The slope of the yield curve flattened a bit when compared to last Friday’s close, as the 2s10s spread narrowed to 35 bps from 37 bps while the 2s30s spread remained at 50 bps.

The yield curve flattened as the belly of the curve fell while the 2yr and 30yr maturities remained unchanged for the week. The spread between the 5s10s widened to 13 bps from 12bps the previous week while the 10s30s widened to 15bps from 13bps the previous week. 

 Commodities 

The Bloomberg Commodity Index settled at 86.42, lower than 89.22 the previous week as Crude spikes but Metals and Grains continue to fall for a third straight week.

Crude: WTI oil gains 5% following OPEC meeting in Vienna after OPEC agrees to raise output by 600,000 barrels per day — far less than Russia’s suggested 1.5 million barrels per day

The spread between WTI and Brent narrowed to $6.25 from $8.38 the previous week.

EIA petroleum data for the week ended June 15

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.9 mln barrels from the previous week. At 426.5 mln barrels, U.S. crude oil inventories are about 2% below the five year average for this time of year. Total motor gasoline inventories increased by 3.3 mln barrels last week and are about 6% above the five year range. Finished gasoline and blending components inventories both increased last week. Distillate fuel inventories increased by 2.7 mln barrels last week and are about 14% below the five year average for this time of year. Propane/propylene inventories increased by 3.2 mln barrels last week and are about 15% below the five year average for this time of year. Total commercial petroleum inventories increased by 0.2 mln barrels last week.

Natural gas inventory showed a build of 91 bcf vs a build of 96 bcf in the prior week- nat gas drops. Working gas in storage was 2,004 Bcf as of Friday, June 15, 2018, according to EIA estimates. This represents a net increase of 91 Bcf from the previous week. Stocks were 757 Bcf less than last year at this time and 499 Bcf below the five-year average of 2,503 Bcf. At 2,004 Bcf, total working gas is within the five-year historical range.

Baker Hughes total U.S. rig count decreased by 7 to 1052 following last week’s decrease of 3.

Metals: Downtrend continues

Agriculture: Seasonal weakness persists

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Week 26 (June 25 to 29) tends to bearish at the start, becomes bullish midweek and ends bearish.

Benchmarks (21 year average) for wk26:

Key Economic Dates

Week 26

This week, important releases for the US include final GDP growth; personal income, spending and PCE prices; new and pending home sales; durable goods orders; and the CB consumer confidence. Elsewhere: UK final GDP growth estimates; Euro Area flash inflation; Germany Ifo business climate; China official PMIs; and Japan industrial production, unemployment and retail sales.

Mon 25 June

Tue 26 June

Wed 27 June

Thu 28 June

Fri 29 June

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

OBSERVATION

The DOW tested the 50DSMA on Tuesday and eventually closed below it on Thursday. The benchmarks are still on higher highs and higher lows unless this correction breaks below 24,360 in the coming weeks.

Bitcoin also marked a new low after dipping to 5,785 on Saturday and Sunday. This followed its new low close of 6,072 on Friday below its previous low of 6,252 on Wed 13 June the week before.

SUMMARY

Over the weekend, the current Tutorial participants went through the exercise of updating our Economic and Sector Rotation models to find out where in the economic and market cycles we were in now and where we were likely to be heading.

In short, my current stance of being cautiously bullish is affirmed. There are too many conditions in favour of the bull now that it would be unwise to speculate on any bearish circumstance for now. At the same time, we’re so close to the end of this bull cycle that it would be unwise to go gung-ho cowboy without knowing how much longer it can last.

Seasonally, we’re about to start the first month of the year’s worst and most volatile quarter, July of quarter three. In two weeks’ time, we begin Quarter 3’s Earnings Season for Q2’s results. This is typically volatile and is often the most unpredictable earnings season of the year.

I reckon the market is going to become more jittery and twitchy in the coming weeks. I’ll be watching volumes and divergences very closely while always keeping a keen eye on the VIX.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, download our promo slides here: The Pattern Trader™ Tutorial 2018

Send your queries, requests, bookings to:
ptt.finscents@gmail.com

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The schedule for the November 2018 batch is here:
Pattern Trader™ Tutorial Batch 95 November 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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Comments Off on Weekly Market Update – 18 June 2018 BMO

Weekly Market Update – 18 June 2018 BMO

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WEEK IN REVIEW – 11 to 15 June 2018 :
Little Changed Following Headline-Heavy Week

There was a steady stream of noteworthy news this week, but none of the headlines moved the S&P 500 in a significant way. The benchmark index ended the week almost exactly flat, adding less than one point. The tech-heavy Nasdaq outperformed, adding 1.3%, while the Dow lagged, losing 0.9%.

This week’s story really began over the weekend when the annual Group of Seven meeting, which was held in Quebec, ended on an uncharacteristically contentious note. President Trump was prepared to sign the customary joint statement, but changed his mind following what the White House deemed as “inappropriate” comments from Canadian Prime Minister Justin Trudeau.

The world then turned its attention to Singapore, where President Trump met with North Korean leader Kim Jong Un on Tuesday in a historic summit that marked the first ever meeting between a sitting U.S. president and a North Korean leader. The meeting ended with a joint statement in which North Korea reaffirmed its commitment to completely denuclearize and the U.S. promised “security guarantees” – including the suspension of military exercises on the Korean Peninsula. The two nations will engage in follow-up negations to work out the specific details.

Monetary policy took center stage midweek when the U.S. Federal Reserve released its latest policy directive. The Fed decided to raise interest rates for the second time this year, increasing the fed funds target range by a quarter point to 1.75% to 2.00%, and upped its interest-rate forecast to include a total of four rate increases this year – up from three in March. The market had expected the rate hike, but the updated forecast took some by surprise.

Overseas, the European Central Bank released its latest policy directive on Thursday. As expected, the ECB left its key policy rate unchanged and announced a plan to end its asset purchase program. The ECB in September will cut its monthly purchases in half, from EUR30 billion to EUR15 billion, and then end purchases altogether three months later – although it will continue to reinvest the principal from maturing securities. As for interest rates, the ECB said they will remain at their present levels “at least through the summer of 2019.” That statement was credited with sending the euro down more than 1.0% against the U.S. dollar.

The Bank of Japan also conducted a policy meeting this week, but made no changes to its key interest rate. However, the BoJ did downgrade its view on inflation, further highlighting the difference between the BoJ, which is struggling to end its crisis-era stimulus, and the Fed, which continues to progress on a path to normalization.

Back in the States, media names were in focus after a federal judge on Tuesday ruled in favor of AT&T (T) in its drawn-out legal battle with the Justice Department. The ruling allowed AT&T to move forward with its acquisition of Time Warner (TWX), which it closed on Thursday, and set the stage for more merger activity in the future. Comcast (CMCSA), for instance, outdid Disney’s(DIS) all-stock bid for the bulk of 21st Century Fox’s (FOXA) assets following the ruling, offering $65 billion in cash.

In politics, trade war fears were reignited on Friday after President Trump confirmed that he’s approved a 25% tariff on $50 billion worth of Chinese goods. China responded swiftly, announcing that it’ll impose a 25% tariff on $34 billion worth of U.S. goods on July 6, the same day the U.S. tariffs are scheduled to take effect.

(Excerpts from Briefing.com)

Friday Update: Trade War Fears Re-Enter the Mix

Trade war fears weighed at the start of Friday’s session, but stocks rebounded intraday, leaving the major averages just modestly lower. The S&P 500 was down as much as 0.7%, but ended with a loss of just 0.1%. The Nasdaq slipped 0.2%, retreating from Thursday’s record high, while the Dow lost 0.3%.

President Trump confirmed before the open that he’s approved a 25% tariff on $50 billion worth of Chinese goods and warned of additional tariffs should China retaliate. Unfazed by the threat, Beijing announced that it will impose a 25% tariff on $34 billion worth of U.S. goods starting on July 6, which is when the U.S. plans to impose its tariffs. Beijing also noted that a tariff on another $16 billion worth of U.S. goods could be imposed at a later date and said any previously negotiated agreements, including China’s offer to buy nearly $70 billion of U.S. goods, will be invalid.

The S&P 500 sectors ended Friday pretty evenly split between green and red. Five groups advanced, led by the countercyclical consumer staples (+1.3%), utilities (+0.7%), and telecom services (+1.2%) spaces, while six groups declined. The energy space (-2.1%) finished at the back of the pack by a wide margin as crude prices tumbled.

West Texas Intermediate crude futures dropped 2.7% to $65.06 per barrel, their worst close since hitting a two-month low on June 6. Crude traders have their eyes on next week’s OPEC/non-OPEC meeting where oil producers are expected to raise their production targets in order to combat falling output from Venezuela and Iran.

In addition to energy, the top-weighted technology sector (-0.5%) also underperformed, with mega caps Apple (AAPL) and Microsoft (MSFT) dropping 1.0% and 1.3%, respectively. Adobe Systems (ADBE) also struggled, losing 2.4%, despite beating quarterly earnings estimates.

Elsewhere, AT&T (T) completed its acquisition of Time Warner after the Department of Justice decided against applying for a delay of Tuesday’s ruling, and shares of General Motors (GM) spiked intraday following a Bloomberg report that the company is having early discussions with banks about strategic options for its self-driving car unit Cruise Automation.

U.S. Treasuries were fairly volatile on Friday, with the yield on the 10-yr Treasury note drifting between 2.89% and 2.94%. The benchmark yield eventually settled two basis points below its Thursday close at 2.92%, while the yield on the 2-yr Treasury note lost three basis points, dropping to 2.55%.

Overseas, the Bank of Japan kept its key interest rate unchanged, as expected, but downgraded its view on inflation.

Reviewing Friday’s economic data, which included the Industrial Production and Capacity Utilization report for May, the preliminary reading of the University of Michigan Consumer Sentiment Index for June, and the Empire Manufacturing report for June:

Market Internals – Friday 15 June

Dollar: Dollar Index Holds its Ground

The U.S. Dollar Index was little changed at 94.80 after spending Friday inside a narrow range. The Dollar Index capped a daylong climb with its best settlement of the year while the session had been a lot more mixed, leaving the Index on track to gain 1.3% for the week. The greenback has retreated modestly against the euro and the pound, but it has continued rising against the Australian dollar and the Canadian dollar. The dollar’s performance against emerging market currencies has been mixed, but it is worth noting that the Argentine peso has slid to a fresh record low after surrendering a short-lived gain that was forged after former Wall Street trader Luis Caputo replaced Governor Federico Sturzenegger at the Central Bank of Argentina.

Bonds: Busy Week Capped With Gains

U.S. Treasuries finished a jam-packed week with gains across the curve. The trading day began amid reports that President Trump would call for the imposition of a 25.0% tariff on $50 billion worth of goods imported from China. This was met with a swift response, as Chinese officials called for a 25.0% tariff on $34 billion worth of imports from the United States to be imposed on July 6th while a tariff on another $16 billion worth of goods could be imposed at a later time.

Treasuries built on their opening gains through the first two hours of Friday’s session, but the advance found resistance near last week’s high. The market backtracked in midday action, but the selling abated once Treasuries approached their opening levels. The yield curve faced intraday pressure, but the 2s10s spread returned to unchanged at 37 bps by day’s end while the 2s30s spread expanded by a basis point to 50 bps.

The yield curve flattened as the 2 and 5 year yields advanced while the 10 and 30 year yields retreated for the week. The spread between the 5s10s narrowed to only 12 bps from 16bps the previous week while the 10s30s narrowed to 13bps from 14bps the previous week. 

 Commodities 

The Bloomberg Commodity Index settled at 89.22, lower than 90.98 the previous week as Metals, Energy and Grains continued their slides for another week.

Crude: Energy gets hit, WTI settles at $65.06/barrel, Brent $73.44/barrel

The spread between WTI and Brent narrowed to $8.38 from $10.70 the previous week.

EIA petroleum data for the week ended June 8

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.1 mln barrels from the previous week. At 432.4 mln barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year. Total motor gasoline inventories decreased by 2.3 mln barrels last week and are in the upper half of the average range. Both finished gasoline and blending components inventories decreased last week. Distillate fuel inventories decreased by 2.1 mln barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories increased by 3.7 mln barrels last week and are in the lower half of the average range. Total commercial petroleum inventories decreased by 1.8 mln barrels last week.

Natural gas inventory showed a build of 96 bcf vs a build of 92 bcf in the prior week. Working gas in storage was 1,913 Bcf as of Friday, June 8, 2018, according to EIA estimates. This represents a net increase of 96 Bcf from the previous week. Stocks were 785 Bcf less than last year at this time and 507 Bcf below the five-year average of 2,420 Bcf. At 1,913 Bcf, total working gas is within the five-year historical range.

Baker Hughes total U.S. rig count decreased by 3 to 1059 following last week’s increase of 2.

Metals: Fall Back

Agriculture: Grains lower for another week

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Week 25 tends to start a little bullish but becomes bearish midweek and ends very bearish over our 10 and 15 year models. The 5-year average has been mildly bullish.

Benchmarks (21 year average) for wk25:

Key Economic Dates

Week 25

The US will publish existing home sales, building permits and housing starts, and flash Markit PMIs. Elsewhere, the BoE will decide on monetary policy. Other important releases include: UK CBI factory orders; Eurozone flash Markit PMIs; and Japan inflation, trade balance and Nikkei Manufacturing PMI.

Mon 18 June

Tue 19 June

Wed 20 June

Thu 21 June

Fri 22 June

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SUMMARY

Is that a new high on the benchmarks with the possibility of a new low? If it is, this is a nice gradient for an uptrend that breaks the parabolic nature of the last two years. If this persists through the next month, I might be inclined to think that we’ve begun the next leg up.

One glaring observation for the past week is the divergence between the benchmarks especially between the DJIA and the Dow Transports;

I’ll be watching for more of these price-to-price divergences in the coming sessions especially when the variances have been as wild as the past week.

In the meantime, the hikes keep coming and will continue to keep coming in spite of earlier speculations. This usually gives the market more upside legs.

To learn more about the relationship between the 10yr Yield, the FFR and the Market, read this article: Riding the Rate (The Fed Funds Rate, The Market & 2016

The Fed’s projections for the coming years also hint at more market upside as rates are expected to hit more than 3% by 2020.

Trade Wars aside, I reckon the rest of the month will be seeing higher highs. I am still cautious but less so. However, there isn’t a lot to choose from during this period to be reliably long.

As the end of June closes in, don’t forget the habitual (and illegal) Portfolio Pumping that could happen – given the year so far hasn’t been hugely profitable for the funds – as well as the Index Addition changes amongst the mid and small caps as the Russels swop around their components.

Guess I’ll stick with the indices and oil for now.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, download our promo slides here: The Pattern Trader™ Tutorial 2018

Send your queries, requests, bookings to:
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Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

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The schedule for the November 2018 batch is here:
Pattern Trader™ Tutorial Batch 95 November 2018

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Weekly Market Update – 11 June 2018 BMO

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WEEK IN REVIEW – 04 to 08 June 2018 : Third Straight Weekly Advance

The U.S. equity market advanced for the third week in a row, with the benchmark S&P 500 index adding 1.6%. The Dow Jones Industrial Average was particularly strong, adding 2.8%, while the Nasdaq Composite and the Russell 2000 touched new record highs, finishing the week with respective gains of 1.2% and 1.5%.

There were several notable corporate headlines this week, starting on Monday when the executive chairman and former CEO of Starbucks (SBUX), Howard Schultz, announced that he will be stepping down. In talking about his future plans, Mr. Schultz failed to rule out a run for the White House, prompting speculation that he’ll challenge President Trump in 2020.

Elsewhere in the consumer discretionary space, Tesla (TSLA) shares spiked on Wednesday after CEO Elon Musk said it’s “quite likely” that Tesla will hit its target for producing 5,000 Model 3 electric vehicles per week by the end of June. Retailers soared this week, sending the SPDR S&P Retail ETF (XRT) higher by 6.3%, following comments from Evercore ISI Research, which suggested that fears about Amazon’s (AMZN) ever-growing footprint may be overblown. Some short-covering activity also likely helped push retail shares higher.

Meanwhile, in the tech space, Facebook (FB) came under scrutiny once again following news that the social media company has data-sharing partnerships with at least four Chinese electronics companies, including one flagged as a national security threat by American intelligence officials. Separately, Apple (AAPL) shares dropped on Friday following reports that the company has asked its supply chain to prepare around 20% fewer components for iPhones debuting in the second half of 2018.

In Washington, Commerce Secretary Wilbur Ross said the U.S. has struck a deal to end crippling sanctions against Chinese telecom giant ZTE that includes a $1 billion penalty and the implementation of a U.S.-chosen compliance team to monitor the company going forward. ZTE will also be required to change its board of directors and its executive team. On a related note, China is reportedly ready to approve Qualcomm’s (QCOM) proposed acquisition of NXP Semi (NXPI).

Leaders from the Group of Seven (G7) kicked off their annual summit on Friday in the small Canadian resort town of La Malbaie. This year’s meeting is expected to be more contentious than usual due to President Trump’s decision to impose tariffs on imports of steel and aluminium. French President Emmanuel Macron has threatened to exclude the U.S. from the annual joint statement, symbolizing the strained relationship between the U.S. and its allies.

In Europe, the ECB’s Chief Economist, Peter Praet, said the European Central Bank will discuss how to wind down its asset purchase program at next week’s policy meeting after officials agreed that inflation is moving towards the central bank’s target of 2.0%. The euro responded by rallying against the U.S. dollar, adding nearly 1.0% for the week.

The Fed will also be meeting next week, and it’s all but certain that officials will hike interest rates for the second time this year. The question is whether the updated interest-rate projections, which will be released alongside the rate-hike decision on Wednesday, will call for one or two more hikes this year.

(Excerpts from Briefing.com)

Friday Update: Stocks Tick Higher, Extend Weekly Gains

The major averages ticked up between 0.1% and 0.3% on Friday, extending their weekly gains to 1.2%-2.8%. Stocks opened modestly lower as technology shares weighed, but the consumer staples and health care sectors helped turn things around later in the session. The day was pretty quiet in terms of headlines, although the Group of Seven (G7) did kick of its annual summit in Quebec.

President Trump is expected to be on the outside looking in at this year’s G7 summit after his decision to impose tariffs on steel and aluminum imports was met with resistance from U.S. allies. The president further stirred the pot on Friday by saying the G7 — which used to be the G8 before Russia got thrown out in 2014 for its annexation of Crimea — should let Russia back into the group. Investors weren’t spooked by the tension though, nor were they fazed by reports that Chinese government hackers stole massive amounts of highly sensitive data from a U.S. Navy contractor.

Nearly all S&P 500 sectors advanced on Friday, but gains were modest for the most part. The consumer staples sector was an exception though, adding 1.3%. Monster Beverage (MNST) was the top-performing consumer staples component, rallying 5.0%, following its annual shareholder meeting. The health care sector also showed relative strength, climbing 0.7% in a broad-based rally.

The energy (-0.2%) and utilities (unch) sectors were the only groups to finish Friday in the red, but the top-weighted information technology group also lagged, closing just a tick above its unchanged mark. Within the tech space, Apple (AAPL) lost 0.9% following reports that it has asked its supply chain to prepare around 20% fewer components for iPhones debuting in the second half of 2018, and Broadcom (AVGO) dropped 2.5% despite reporting better-than-expected quarterly results on Thursday evening.

Elsewhere, U.S. Treasuries finished Friday on a flattish note, with the yield on the benchmark 10-yr note ticking up one basis point to 2.94%. Meanwhile, West Texas Intermediate crude futures slid 0.3% to $65.76 per barrel, and the U.S. Dollar Index climbed 0.1% to 93.56 to end a four-session losing streak.

Market Internals – Friday 08 June

Dollar: Skid Snapped

The U.S. Dollar Index remains higher by 0.2% at 93.55 after being up 0.4% at its best level on Friday. The Dollar Index is looked to snap a four-day skid, but maintaining Friday’s gain was been a struggle. Overnight dollar strength helped the Index climb to its opening level from Tuesday, but selling pressure appeared as the focus turned to the Wall Street session. The Index spent Friday morning action in a steady retreat, pausing near the middle of today’s range. The dollar has had a mixed showing against emerging market currencies, but the market has heard from yet another central banker. The Brazilian real surged by nearly 5.0% against the greenback after Central Bank of Brazil President Ilan Goldfajn pledged to defend the real through currency swaps and other instruments, if needed.

Bonds: Treasuries Pause Ahead of Fed Week

U.S. Treasuries ended the week on a flat note after spending the Friday session inside a very narrow range. Treasury futures advanced in overnight action, but returned to little changed by the start of the cash session. Intraday action saw very limited movement in longer tenors, as 10s and 30s hovered near their flat lines until the close while the 2-yr note outperformed. The slope of the yield curve steepened a touch this week, as the 2s10s spread expanded to 46 bps from 42 bps while the 2s30s spread widened to 60 bps from 57 bps. Next week will be busy on the central bank front, considering the Federal Reserve is expected to announce a 25-bps rate hike on Wednesday while the European Central Bank could provide some guidance about the end of its asset purchases on Thursday morning.

The yield curve steepened last week with the belly of the curve rising 4bps while the 2-year remained unchanged for a third week. The spread between the 5s10s remained unchanged at 16bps from the previous week while the 10s30s narrowed to 14bps from 15bps the previous week. 

 Commodities 

The Bloomberg Commodity Index closed at 89.98, lower than 90.72 the previous week as Energy and Grains continue losses.

Crude: WTI finds support at $65

The spread between WTI and Brent remained wide at $10.70 from $11.00 the previous week.

EIA petroleum data for the week ended June 1:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.1 mln barrels from the previous week. At 436.6 mln barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year. Total motor gasoline inventories increased by 4.6 mln barrels last week, and are in the upper half of the average range. Both Finished gasoline and blending components inventories increased last week. Distillate fuel inventories increased by 2.2 mln barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories increased by 4.0 mln barrels last week, and are in the lower half of the average range. Total commercial petroleum inventories increased by 15.8 mln barrels last week.

Natural gas inventory showed a build of 92 bcf vs a build of 96 bcf in the prior week. Working gas in storage was 1,817 Bcf as of Friday, June 1, 2018, according to EIA estimates. This represents a net increase of 92 Bcf from the previous week. Stocks were 799 Bcf less than last year at this time and 512 Bcf below the five-year average of 2,329 Bcf. At 1,817 Bcf, total working gas is within the five-year historical range.

Baker Hughes total U.S. rig count increased by 2 to 1062 following last week’s increase of 1.

Metals: Precious Bounce, Copper Strenghtens

Agriculture: Grains All Lower

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Week 24 is June Triple Witching Week (wk24 – 11 to 15 June 2018). In Singapore, Malaysia and Indonesia, Friday 15 June is a public holiday in observance of Hari Raya Puasa – Markets will be closed.

Benchmarks (21 year average) for wk24:

Key Economic Dates

Week 24

Next week the Fed, the ECB and the BoJ will decide on monetary policy. Key economic releases include: US inflation, retail trade, industrial output and Michigan consumer sentiment; UK inflation, wages, unemployment, industrial production, retail sales and trade balance; Japan machinery orders; and China industrial production, retail sales and fixed asset investment.

Mon 11 June

Tue 12 June

Wed 13 June

Thu 14 June

Fri 15 June

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SUMMARY

Seems like the  markets want to get out of this four month funk. But every time it does, something or other pulls it back into its sideways range. This week, monetary policy from the U.S., Eurozone and Japan could be the reason we continue this consolidation. The bulls seems reluctant to back any bull-run as seen by the drop in volumes every time the market makes a run.

I’m sticking to caution. I like the run, no doubt … but I am not going to get complacent now.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

We’re having our last Introductory Session for the Pattern Trader™ Tutorial June 2018 Batch on Tuesday, June 12th.

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider attending the Pattern Trader™ Tutorial Introductory Session first by registering here: Pattern Trader™ Tutorial Introductory Session.

If you want to know more about the Tutorial, read here: The Pattern Trader™ Tutorial 2018

Click here now to make a huge difference in your life:
Pattern Trader™ Tutorial Introductory Session

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Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

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The schedule for the June batch is here:
Pattern Trader™ Tutorial Batch 94 June 2018

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PATTERN TRADER™ TUTORIAL (SG) INTRODUCTORY SESSION

We’re having our last Introductory Session to the Pattern Trader™ Tutorial June 2018 Batch on Tuesday, June 12th.

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider attending the Pattern Trader™ Tutorial Introductory Session first by registering here: Pattern Trader™ Tutorial Introductory Session.

If you want to know more about the Tutorial, read here: The Pattern Trader™ Tutorial 2018

PTTadBannerGold

Click here now to make a huge difference in your life:
Pattern Trader™ Tutorial Introductory Session

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Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The schedule for the June batch is here:
Pattern Trader™ Tutorial Batch 94 June 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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Weekly Market Update – 04 June 2018 BMO

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WEEK IN REVIEW – 28 May to 01 June 2018 : Divergent Week

The stock market finished the week on a mostly higher note as investors digested an easing of the political crisis in Italy, fresh tariff-related developments, and the Employment Situation report for May. The S&P 500 (+0.5%), the Nasdaq Composite (+1.6%), and the Russell 2000 (+1.3%) advanced, while the Dow Jones Industrial Average (-0.5%) finished a step lower.

U.S. markets opened the week on Tuesday following a three-day Memorial Day weekend. Sellers dominated that Tuesday session after Italian President Sergio Mattarella blocked the formation of a euro-skeptic government, vetoing the economic minister nominee of an anti-establishment coalition that was aiming to come to power. Italian bond yields surged in reaction as some feared the veto would prompt a snap election that could turn into a de facto referendum on Italy’s membership in the European Union. The Italian political crisis calmed down on Thursday evening, when President Mattarella approved the formation of a ruling coalition between Italy’s anti-establishment Five Star Movement and right-wing League party, effectively silencing the prospect of a snap election later this year.

Elsewhere in Europe, Spain endured some political drama of its own this week as Prime Minister Mariano Rajoy was ousted on Friday in a no-confidence vote following a corruption scandal involving 29 individuals with ties to his People’s Party. Pedro Sanchez, the leader of the Socialist Party, will succeed Mr. Rajoy as prime minister. Separately, German financial giant Deutsche Bank hit a 16-month low on Thursday after The Wall Street Journal reported that it’s on the Federal Reserve’s list of troubled banks.

Back in the U.S., the stock market rebounded from its Tuesday slide on Wednesday with energy shares leading the charge following reports that OPEC and Russia will keep production cuts in place until at least the end of the year. West Texas Intermediate crude futures rallied on Wednesday in reaction, but still finished the week lower by 3.0%.

Stocks stumbled for a second time on Thursday when the Trump administration announced that it will let steel and aluminum tariff exemptions expire for the EU, Canada, and Mexico. The White House’s decision, which elicited retaliatory responses from the EU, Canada, and Mexico as expected, will result in duties of 25% on steel imports and duties of 10% on imports of aluminum, effective June 1.

Wall Street bounced back on Friday, bolstered by an easing of the political tension in Europe, news that the June 12 summit with North Korea is back on, and the release of the Employment Situation report for May, which featured a better-than-expected increase in nonfarm payrolls (+223K actual vs +190K consensus) and a lower-than-expected unemployment rate (3.8% actual vs 3.9% consensus). The average hourly earnings figure came in as expected, showing a month-over-month increase of 0.3%.

The key takeaway from the employment report is that it still had a Goldilocks hue to it, having been accented with strong job growth and only moderate wage inflation.  Furthermore, the strong job growth and low unemployment rate created some good feelings about the potential for a pickup in consumer spending that should aid the second quarter growth outlook.

Six of eleven S&P sectors declined this week, with financials (-1.3%), telecom services (-0.9%), and industrials (-0.7%) being the weakest performers. Conversely, energy (+2.5%), technology (+2.0%), and real estate (+1.7%) were the top-performing groups.

Retailers dominated the earnings front once again, with Costco (COST), Dollar General (DG), Dollar Tree (DLTR), lululemon (LULU), Ulta Beauty (ULTA), Dick’s Sporting Goods (DKS), and others reporting their quarterly results, which came in mixed. The SPDR S&P Retail ETF (XRT) settled roughly flat for the week.

U.S. Treasuries were volatile this week, eventually finishing with modest gains. The benchmark 10-yr yield, which moves inversely to the price of the 10-yr Treasury note, finished the week lower by three basis points at 2.90%. Meanwhile, the U.S. Dollar Index eked out a fractional gain, settling the week at 94.22.

(Excerpts from Briefing.com)

Friday Update: June Starts with a Bang

The month of May might have ended with a whimper, but the month of June started with a bang.  Driven by an easing of the political tension in Europe and another employment report out of the U.S. that produced strong job growth, modest wage growth, and the lowest unemployment rate since April 2000, the major indices put together a winning session that was punctuated by leadership from economically-sensitive sectors.

The gains for the major indices ranged from 0.9% for the Russell 2000 to 1.5% for the Nasdaq Composite.  Sellers were an outnumbered bunch on Friday, evidenced by an advance-decline line at the NYSE and Nasdaq that favored advancing issues by a more than 2-to-1 margin.

Leading the advance, which had a risk-on demeanor before the opening bell, was the information technology sector (+1.9%).  It kept good company, however.

Following in its footsteps were the materials (+1.5%), industrials (+1.2%), and financial (+1.1%) sectors.  The countercyclical health care sector (+1.2%) offered an added measure of support that made it challenging to knock the indices back to any considerable degree during Friday’s trading.

The bulk of today’s gains were logged within the first hour of trading.  They were solidified as the day went on by better than expected construction spending and ISM manufacturing data, as well as the news from the White House that the June 12 summit with North Korea in Singapore is back on in what it is apt to be a multi-step negotiating process for denuclearization of the Korean Peninsula.

Interestingly, the protectionist trade concerns that drove the market lower on Thursday were placed on the back burner on Friday.

Traders instead embraced the report out of Europe that Italy’s president gave a mandate to the anti-establishment 5-Star Movement and right-wing League Party to form a government, thereby avoiding the need for a snap election that some thought could end up being a referendum on Italy’s membership in the European Union.

That news triggered a risk-on tone in European markets that carried over to the U.S.  The reassuring employment report simply accentuated the positive bias that persisted throughout the trading day.

Reflecting the upbeat tone, 27 out of 30 Dow components registered a gain on Friday while only two of the 11 S&P sectors – utilities (-1.5%) and consumer staples (-0.03%) – ended with a loss.

The energy sector (+0.5%) for its part kept its head above water even though oil prices ($65.83, -$1.14, -1.7%) fell sharply in a technically-driven sell-off.

Treasuries were also weak on Friday as some of the safe-haven premium tied to European politics was unwound along with the notion that the Federal Reserve won’t raise the fed funds rate at least three times this year.  The 2-yr note yield increased seven basis points to 2.48% while the 10-yr note yield jumped eight basis points to 2.90%.

Reviewing Friday’s economic data:

Market Internals – Friday 01 JUNE

Dollar: Dollar Index Ticks Higher

The U.S. Dollar Index was up 0.3% at 94.23, turning slightly positive for the week. The greenback started the week on a higher note, looking to extend its recent rally, but a midweek slump returned action to levels from last Friday. The Index dipped in Thursday’s overnight action, but rallied back on Friday to unchanged in the early morning, rallying to a fresh session high after the release of a stronger than expected Employment Situation report for May (actual 223K; consensus 190K). Friday’s dollar strength was not widespread, as the British pound and select emerging market currencies advanced against the dollar.

Bonds: 10-Yr Yield Settles Near 50-Day Average

U.S. Treasuries ended the week on a lower note, but intraday action was limited, as Treasuries spent the day near their opening levels. Treasury futures retreated in overnight trade once it became clear that early elections would be avoided in Italy and Spain. Italy’s President Sergio Mattarella approved the formation of a M5S-Lega government while Spain’s Prime Minister Mariano Rajoy was forced out through a no-confidence vote, but acting Prime Minister Pedro Sanchez did not call for a fresh election just yet. Spanish and Italian debt climbed during the European session, and the improvement in risk tolerance weighed on Treasuries.

The Treasury complex dipped to fresh lows in response to a better than expected Employment Situation report for May, but spent the day in a slow climb off the opening lows. The Friday intraday rally pressured the 10-yr yield back below its 50-day moving average (2.908%) while the slope of the yield curve remained near its flattest level of the cycle. The 2s10s spread ended the day at 42 bps, down three basis points for the week, while the 2s30s spread compressed four basis points for the week to 57 bps.

The yield curve flattened last week with the longer maturities falling more while the 2-year remained unchanged. The spread between the 5s10s narrowed to 16bps from 17bps the previous week while the 10s30s narrowed to 15bps from 16bps the previous week. 

 Commodities 

The most significant occurrence this week is the $11 spread between WTI and Brent from $7 less than two weeks ago. The Bloomberg Commodity Index closed at 90.72, lower than 91.51 the previous week as a result of drops in Grains, Precious and Energy.

Crude: WTI crude oil slides lower, settles below $66/barrel  

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.2 mln barrels from the previous week. At 434.5 mln barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year. Total motor gasoline inventories increased by 0.5 mln barrels last week, and are in the upper half of the average range. Finished gasoline inventories increased, but blending components inventories decreased last week. Distillate fuel inventories increased by 0.6 mln barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories increased by 2.0 mln barrels last week, and are in the lower half of the average range. Total commercial petroleum inventories increased by 1.8 mln barrels last week.

Natural gas inventory showed a build of 96 bcf vs a build of 91 bcf in the prior week: Working gas in storage was 1,725 Bcf as of Friday, May 25, 2018, according to EIA estimates. This represents a net increase of 96 Bcf from the previous week. Stocks were 788 Bcf less than last year at this time and 500 Bcf below the five-year average of 2,225 Bcf. At 1,725 Bcf, total working gas is within the five-year historical range.

Baker Hughes total U.S. rig count increased by 1 to 1060 following last week’s increase of 13.

Metals: Precious Falls, Copper Gains

Agriculture: Grains All Lower

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Historically, over the last 5 to 15 years, the second week (wk23 – 04 to 08 June 2018) has been mildly bullish. However, over the last 21 years, the twenty-third week has been divergent and volatile.

Benchmarks (21 year average) for wk23:

Key Economic Dates

Week 23

The US will publish trade balance, ISM non-manufacturing PMI, factory orders and JOLTs job openings. Elsewhere, the RBA and the RBI will decide on monetary policy. Other important economic releases include: China trade balance, inflation and Caixin Services PMI; UK Markit construction and services PMIs; and Australia Q1 GDP growth.

Mon 04 June

Tue 05 June

Wed 06 June

Thu 07 June

Fri 08 June

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SUMMARY

2018 has so far proven to be a troublesome year, as predicted (by not selling off in May 2017). We already had a heads-up when the statistic for the Second Presidential Year showed up a bearish stat more often than not. Since February this year, the market has not been its usual self and once again, May did not sell off, triggering the possibility that 2019 will be more troublesome than 2018.

Now we face the unpredictability of June with the 50 and 200DSMA still looming ever closer to the benchmarks. The economic numbers still suggest that the US economy is still chugging along well, albeit with some softening that could become worrisome in the coming months of July, August and September.

Till then, I remain cautiously bullish and hedged, keeping my positions quick and sticking to tight stops.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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