Why The Pattern Trader™ Still Rocks After 13 Years

Date: 20th Dec 2018, Thursday
Time: 07:00PM to 10:00PM
(Registration starts at 06:30PM)

…..

For more than 13 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.

This is what graduates have to say …

“Conrad has a way of teaching that makes it fun and easy to understand. Through his passionate and interactive teaching style, he has successfully set up a very conducive learning environment. The course is very comprehensive as it covers everything from the introduction to the stock market, to macroeconomics, fundamental analysis, right down to the individual stock and options trading strategies.

Not only that! He also covers psychological and financial management which is always taken for granted. A community platform is also created for all the students to post questions and share their learning journey.”

Ting See Hung

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“The Pattern Trader Tutorial is very comprehensive as it covers everything from the bigger picture such as macroeconomics to individual trading strategies, right down to the art of writing a detailed trading plan that we can put into action

I really enjoyed Conrad’s extensive sharing of his life’s experiences. Many interesting concepts were taught in a way that is easy to understand. This program also includes well-thought out assignments that helps us reduce our learning curve.

Apart from the knowledge imparted, I have made friends with people sharing the same goals as me, which is beneficial to my learning journey and growth as a trader in the future. I am now more confident in pursuing my goal to be a competent trader.

All in all, I would say that the Pattern Trader Tutorial™ is definitely value for money.”

Jessica Ng

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“I really enjoyed Conrad’s Pattern Trader Tutorial™ because not only did he share lots of trading techniques, but he also shared with the class the rich history, culture and stories behind many trading terms & jargon. In addition, Conrad also provided a lot of explanations to the reasoning behind his strategies and why he does certain things a certain way.

For the amount paid, It is value for money compared to the other courses I have attended, and I am glad that my friend introduced me to the Pattern Trader Tutorial™.

I would highly recommend it to anyone who is interested in trading.”

Kee Joo Yee

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“Even though I am only 22 years old and have not attended courses in Economics in school before, I am still able to understand how the market works and the inter-relationship between the different components of the market and the economy.

Conrad is a very down-to-earth person who will answer all your queries. You will learn everything from macroeconomics to technical analysis, options, and equities, Conrad even posts up motivational posts on Facebook. After the tutorial, homework is given. All the content provided in the course is backed by valid real-world explanations.

Apart from being taught how to trade, we are also taught Financial Management and Psychological Management. Throughout the entire Tutorial, Conrad showed us real-life applications to the content taught in the Tutorial and guided us step-by-step.

Truly, the Pattern Trader Tutorial is really the most holistic syllabus you will find, and this is definitely the only Tutorial you will ever need to attend.”

Allison Yee

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Make a huge difference in your financial life by considering the Pattern Trader™ Tutorial. Learn more about the Tutorial by coming to our three-hour Introductory Session on 20th December at 7pm. It will be the most educational preview you will ever attend.

Register for the Introductory Workshop NOW! Pattern Trader™ Introductory Session

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The schedule for the February 2019 batch is here:
Pattern Trader™ Tutorial – February 2019

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

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

Copyright © Pattern Trader™ by Conrad Alvin Lim. All Rights Reserved 

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Weekly Market Analysis – 10 December 2018 BMO

WEEK IN REVIEW – 03 to 07 DECEMBER 2018
Global Growth Concerns Pull Stocks Lower

The S&P 500 fell 4.6% this week, as global growth concerns were exacerbated by negative developments regarding U.S-China trade negotiations and the continued flattening of the U.S. Treasury yield curve. The Dow Jones Industrial Average lost 4.5%, the Nasdaq Composite lost 4.9%, and the Russell 2000 lost 5.6%.

Investors breathed a fleeting sigh relief that trade relations between the U.S. and China did not worsen over the weekend after the two countries agreed to suspend further tariff actions for 90 days to allow more time for trade discussions. Despite President Trump’s optimism, the market’s optimism quickly waned on the supposition that a March 1 deadline to resolve major trading issues won’t be sufficient time to work out major trade issues that have been in place for years. Furthermore, the specter of increasing the tariff rate to 25% (from 10%) on $200 billion of Chinese goods should an acceptable deal not be reached weighed on investors’ minds.

In addition, the news of the arrest of Huawei Technologies’ CFO Meng Wanzhou heightened these burgeoning trade concerns. Ms. Meng was arrested Dec. 1 in Canada amid allegations that the company violated U.S. trade sanctions on Iran. Her arrest invited worries about trade negotiations going awry in the 90-day window and potential retaliation against U.S. companies doing business in/with China.

Economic growth concerns were cast into the spotlight by a decisive curve-flattening trade in the Treasury market that featured some inversions on the short end. The 2-yr yield (2.70%) and 3-yr yield (2.71%) closed higher than the yield on the 5-yr Treasury note (2.69%) this week.

Also, the difference between the 2-yr and 10-yr yields narrowed to its slimmest margin since 2007. Specifically, the 2-yr yield lost 11 basis points to 2.70%, and the 10-yr yield lost 16 basis points to 2.85%. Those moves were exacerbated by a “pain trade,” as short sellers expecting higher rates were compelled to cover their bearish bets.

In a broader context, concerns over future economic growth drove concerns about future earnings growth. That fueled some of this week’s selling interest, which completely unwound the 4.9% gain for the S&P 500 from the prior week at Friday’s low. 

Notably, that was the case despite there being one less day of trading.  The market was closed Wednesday in recognition of the national day of mourning for President George H.W. Bush.

The worst-performing sectors this week were the financials (-7.1%), industrials (-6.3%), materials (-5.2%), information technology (-5.1%), and health care (-4.6%) sectors.  The only two sectors that escaped the week with a gain were the utilities (+1.3%) and real estate (+0.3%) sectors.

The rate-sensitive financial sector was undermined by the flattening yield curve, which raised concerns about a compression in net interest margins. Regional banks were notable laggards as worries about lower mortgage loan demand stemmed from home builder Toll Brothers (TOL) acknowledging that it saw a moderation in demand in its fiscal fourth quarter ended Oct. 31 and that it saw the market soften further in November. The SPDR S&P Regional Bank ETF (KRE) fell 7.2% this week.

Transport stocks, in particular, weighed on the trade-sensitive industrial sector. The Dow Jones Transportation Average dropped 8.0% this week. American Airlines (AAL) struggled with a steep 16.4% loss this week.

Apple (AAPL) conceded more losses this week, as it dragged on the tech space. Apple has retreated over 20.0% since releasing its quarterly report in October and has remained a signpost of the ongoing effort to liquidate/reduce exposure to this widely-owned sector, which is still the market’s most heavily-weighted sector.

The energy sector (-3.1%) was down for the week, yet it outperformed the broader market, helped by a 3.1% bump in oil prices to $52.52 per barrel.

Energy stocks pared gains on Friday after OPEC+ producers agreed to a production cut of 1.2 million barrels per day to address weakening oil prices. Russia was a party to the proposed production cuts; meanwhile, Iran will reportedly be exempt from the production cut requirements.

On a related note, Qatar, in a surprise move, announced plans to withdraw from OPEC to focus on gas production. Qatar has been a member of OPEC since 1961.

Separately, Atlanta Fed President Bostic (FOMC voter) said he thinks the fed funds rate is within shouting distance of neutral, which followed previous remarks from Dallas Fed President Kaplan (non-FOMC voter) who also suggested the fed funds rate is a little bit below neutral. A Wall Street Journal report also suggested that the Federal Reserve might be more cautious-minded about raising interest rates following its December FOMC meeting.

The November Employment Situation Report on Friday seemingly helped substantiate that view. It showed nonfarm payrolls increasing a weaker than expected 155,000 and average hourly earnings increasing 0.2%, which left them up 3.1% year-over-year, unchanged from October.  In other words, the wage growth acceleration the Federal Reserve has been bracing for was missing.

Overseas, global markets finished the week with large losses as well. Germany’s DAX (-4.2%) led the European retreat and Japan’s Nikkei (-3.0%) led the decline in Asia.

U.S. ECONOMIC UPDATE
(Economic Excerpts from Briefing.com)

Monday 03 December:

ISM Manufacturing Index Steps Up in November 

The ISM Manufacturing Index for November checked in at 59.3% (consensus 57.2%) versus 57.7% for October, led by strength in the New Orders Index.

The key takeaway from the report is that it reflects an acceleration in national manufacturing activity at a time when concerns have been picking up about a general growth slowdown.  Accordingly, it can help mitigate some of the slowdown concerns and potentially foster an improved outlook for Q4 GDP growth.

Construction Spending Slips Again in October 

Total construction spending declined 0.1% in October (consensus +0.3%) following a downwardly revised 0.1% decline (from 0.0%) in September.

The key takeaway from the report is that the weakness was driven by a decline in new single-family construction, providing further evidence of the softening in housing market activity.

Tuesday 04 December:

Fed Beige Book Meeting

Thursday 06 December:

Trade Deficit Continues to Widen in October

The U.S. trade deficit was $55.5 billion in October (consensus -$54.7 billion) versus a downwardly revised $54.6 billion (from -$54.0 billion) in September.

The key takeaway from the report is that it doesn’t reflect any improvement in the U.S trade deficit despite the tariff actions. The goods and services deficit has increased by $51.3 billion year-to-date, or 11.4%, from the same period in 2017.

Initial Claims Down, but Turn in Down Cycle Emerging

Initial jobless claims for the week ending December 1 decreased by 4,000 to 231,000 (consensus 225,000). Continuing claims for the week ending Nov. 24 decreased by 74,000 to 1.631 million.

The key takeaway from the report is that initial claims, while down in the latest week, are starting to pick up in a move that suggests the low for this cycle has been reached.

Third Quarter Productivity Edges Higher with Revision

Nonfarm business sector labor productivity for the third quarter was revised to 2.3% (consensus 2.2%) from 2.2%. Unit labor cost growth was revised to 0.9% (Briefing.com consensus 1.2%) from 1.2%.

The key takeaway from the report is that it points to fairly subdued labor costs in the third quarter, which could contribute to a willingness on the part of the Federal Reserve to be more gradual on its rate-hike path.

ISM Non-Manufacturing Index Pushes Higher in November

The ISM Non-Manufacturing Index rose to 60.7% in November (consensus 59.0%) from 60.3% in October.  The November reading was the second-highest reading this year.

The key takeaway from the report is that the services-providing sector, which accounts for a much larger slice of economic activity than the manufacturing sector does, remains in a healthy and fairly vibrant state.

Factory Orders Slump in October; Business Investment Flat

Factory orders declined 2.1% in October (consensus -2.0%) following a downwardly revised 0.2% increase (from 0.7%) in September. Excluding transportation, orders were up 0.3%.

The key takeaway from the report is that it shows a surprising lack of business investment in the face of business-friendly fiscal stimulus measures.

Friday 07 December:

November Employment Report Soothes Some Rate-Hike Concerns 

November nonfarm payroll growth was a little light of expectations, but key for the market was the recognition that average hourly earnings were up 0.2% month-over-month. The latter resulted in a year-over-year increase of 3.1%, which was unchanged for the 12-month period ending in October.

The key takeaway from the report is that the wage acceleration the Federal Reserve has been bracing for was missing. That won’t likely keep the Federal Reserve from raising the target range for the fed funds rate at its December FOMC meeting, yet it’s the type of data point that could lead the Federal Reserve to be more cautious-minded about raising rates after that.

Consumer Sentiment Unchanged — and Still High

The preliminary University of Michigan Index of Consumer Sentiment for December checked in at 97.5 (consensus 96.8), unchanged from the final reading for November and in-line with the two-year average from January 2017 to December 2018.

The key takeaway from the report is the observation that consumer attitudes around job and wage prospects are key to the consumer spending outlook and that some caution on that front may now be warranted as consumers recognize the goal of raising interest rates is to slow the pace of economic growth.

Wholesale Inventories Up Again in October; Sales Dip 

Wholesale inventories increased 0.8% in October (consensus 0.7%) on top of  an upwardly revised 0.7% increase (from 0.4%) in September. Wholesale sales were down  0.2% following a downwardly revised 0.1% increase (from 0.2%) in September.

The key takeaway from the report is that inventory growth exceeded sales growth, which is a dynamic that could give way to lower pricing.

Consumer Credit Expansion Ramps Up in October

Total outstanding consumer credit increased by $25.4 billion in October after increasing an upwardly revised $11.6 billion (from $11.0 billion) in September.

The key takeaway from the report is that the healthy expansion in consumer credit is a good portent for consumer spending activity.

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International Key Economic Data

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Friday 07 December
Stocks End Losing Week on Downbeat Note

The S&P 500 lost 2.3% on Friday to close a losing week (-4.6%) on a sour note. The major averages fumbled an early morning rally effort and steadily retreated throughout the day to finish near session lows.

The Dow Jones Industrial Average lost 2.2%, the Nasdaq Composite lost 3.1%, and the Russell 2000 lost 2.0%. For the week, those indices lost 4.5%, 4.9%, and 5.6%, respectively.

The inability to sustain an early rally effort following Thursday’s strong rebound, and a generally supportive employment report, raised some concern that the week’s down leg had yet to run its course. Volatile price action also undercut investor sentiment and tempered confidence in buy-the-dip efforts.

Within the S&P 500, the information technology (-3.5%), consumer discretionary (-3.1%), and industrial (-2.6%) sectors underperformed the broader market.

Apple’s (AAPL) poor performance within the tech space was reflective of the ongoing effort to liquidate/reduce exposure to the market’s most heavily-weighted group. The sector’s non-response to Broadcom’s (AVGO) upbeat earnings report was also indicative of the negative sentiment hanging over the sector. The tech sector lost 5.1% this week and is now down 14.6% this quarter.

Chip stocks also struggled with the Philadelphia Semiconductor Index losing 3.7%. NVIDIA (NVDA) underperformed with a notable loss of 6.8%.

Within the industrial sector, transport stocks were one of the most-heavily hit groups on Friday with the Dow Jones Transportation Average losing 3.9%, as growth concerns and an uptick in oil prices fed selling efforts. American Airlines (AAL) and FedEx (FDX) were notable laggards with steep losses of 9.1% and 6.1%, respectively.

On the other hand, the utilities (+0.4%) group was the only sector to finish in positive territory on Friday. The energy sector (-0.6%) also showed relative strength.

Looking at energy, OPEC+ producers agreed to a production cut of 1.2 million barrels per day to address weakening oil prices. Russia was a party to the proposed production cuts, yet Iran is reportedly exempt from the production cut requirements. WTI crude rose 2.0% to $52.60/bbl, although it gave up a good chunk of its gains.

In earnings, lululemon athletica (LULU) and Ulta Beauty (ULTA) fell 13.4% and 13.1%, respectively, after releasing their earnings reports. Lululemon sold-off despite beating top and bottom line estimates.  Ulta tumbled after the company issued Q4 guidance below consensus.

U.S. Treasuries extended their recent climb, pushing yields lower, amid the equity sell-off. Friday’s gains were led by the front end, which responded favorably to the November employment report and a contention from St. Louis Fed President Bullard (a 2019 FOMC voter) that the Fed could consider delaying a rate hike at the December FOMC meeting due to the narrowed yield curve.

Specifically, the 2-yr yield fell seven basis points to 2.70%, and the 10-yr yield fell two basis points to 2.85%. For the week, the 2-yr yield dropped 11 basis points, and the 10-yr yield dropped 16 basis points. Meanwhile, the U.S. Dollar Index decreased 0.2% to 96.92 on Friday.

Separately, the CBOE Volatility Index (VIX), which is often referred to as Wall Street’s “fear gauge,” rose 9.6% to 23.23. For the week, the VIX climbed nearly 30.0%.

Market Internals – Friday 07 December 2018

Dollar: Slump Continues

The U.S. Dollar decreased 0.0475 or 0.05% to 96.71 on Friday December 7 from 96.7957 in the previous trading session.

Bonds: Shorter Maturities Invert

U.S. Treasuries wrapped up a winning week with more gains as the stock market continued to flounder, trade concerns continued to fester, and expectations for an overly aggressive Federal Reserve in 2019 continued to fall by the wayside.  Today’s gains were led by the front end, which responded favorably to the November employment report and a contention from St. Louis Fed President Bullard (a 2019 FOMC voter) that the Fed could consider delaying a rate hike at the December FOMC meeting due to the narrowed yield curve.  The 10-2 spread widened five basis points today to 15 basis points while 2-yr and 3-yr yields continued to trade above the 5-yr yield.  The S&P 500 was down 2.6% as of this post while the Nasdaq Composite was down 3.3%.  The weakness there continued to drive a flight-to-safety in the Treasury market.  Yields for securities ranging from the 2-yr note to the 30-yr bond dropped between 11 and 17 basis points this week.

The yield curve inverted on the shorter maturities for the first time since 2006 as longer maturities’ yields fell against the 2-year yield. The spread between the 2s5s inverted to -1bp from 3bps the previous week. The spread between the 5s10s tightened to 16bps from 17bps the previous week while the 10s30s narrowed to 29bps from 30bps the previous week.

The spread that investors monitor for a true inversion of the yield curve, the 2-10 spread, has narrowed to 15bps from 23bps a week ago.

The next warning sign that this market is ready for a more significant downside will be the convergence of the 10yr yield against the Fed Funds Rate. You can read all about it in an older article here: The Fed Fund Rate, The Market & 2016 (Original article titled “Riding The Rate” was published in the Business Times in 2007 and republished in BTInvest in the Business Times on April 2015 .)

Commodities 

The Bloomberg Commodity Index settled at 83.49, higher than 82.56 the previous week as Energy, Precious and Grains gained.

WTI oil closed at 52.61, higher than the week before at $50.93 after OPEC+ producers agreed to a production cut of 1.2 million barrels per day to address weakening oil prices. The spread between WTI and Brent widened to $9.06 from $7.78 the previous week as Brent settled at $61.67 p/b.

EIA petroleum data for the week ended November 30

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 7.3 mln barrels from the previous week. At 443.2 mln barrels, U.S. crude oil inventories are about 6% above the five year average for this time of year. Total motor gasoline inventories increased by 1.7 mln barrels last week and are about 4% above the five year average for this time of year. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 3.8 mln barrels last week and are about 5% below the five year average for this time of year. Propane/propylene inventories decreased by 1.3 mln barrels last week and are about 3% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 8.3 mln barrels last week.

Natural gas inventory showed a draw of 63 bcf vs a draw of 59 bcf in the prior week. Working gas in storage was 2,991 Bcf as of Friday, November 30, 2018, according to EIA estimates. This represents a net decrease of 63 Bcf from the previous week. Stocks were 704 Bcf less than last year at this time and 725 Bcf below the five-year average of 3,716 Bcf. At 2,991 Bcf, total working gas is below the five-year historical range

Baker Hughes total U.S. rig count decreased by -1 to 1075 following last week’s decrease of -3.

Metals: Precious Recovers, Copper Consolidates

Agriculture: Grains Gain Again

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THE WEEK AHEAD
Week 50 (December 10 to 14)

According to our 5, 10 and 15 year seasonal models;

Benchmarks Indices (21 year average) for wk50:

Week 50 Key Economic Dates

In the coming week …

Sun 09 December

Mon 10 December

Tue 11 December

Wed 12 December

Thu 13 December

Fri 14 December

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COMMENTARY

The big news last week was the inversion of the shorter end (2yr, 3yr and 5yr) of the yield curve. If that rocked the DOW by 800 points (3%), imagine what will happen when the key benchmark 10yr yield inverts against the 2yr.

As of Friday’s close, the S&P500 and Russel1000 closed below their 200/50DSMA Death Crosses to join the NASDAQ and Russel2000 that crossed below their own Death Crosses a week earlier and the Transports that crossed below two Friday’s ago. 

The DOW (Industrials) has yet to get its Death Cross but remains below its 200DSMA above its 24,200 support. At this rate, it is likely to happen before December Expiration Friday (21 December) or even by this coming week if it breaches the 24,200 support.

All the benchmarks are negative for the year including the Transports and Russels.

Happy Hunting!

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

PATTERN TRADER™ TUTORIAL 
INTRODUCTORY WORKSHOP

Date: 20th Dec 2018, Thursday
Time: 07:00PM to 10:00PM
(Registration starts at 06:30PM)

…..

For more than 13 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 environment 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 and get the most value our of your education investment, there’s no better choice than the time-tested and well reputed Pattern Trader™ Tutorial.

Register for the Introductory Workshop NOW!

Download our promo slides here:
The Pattern Trader™ Tutorial 2019

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The schedule for the FEBRUARY 2019 Batch is here:
Pattern Trader™ Tutorial – February 2019

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

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Comments Off on Weekly Market Analysis – 03 December 2018 BMO

Weekly Market Analysis – 03 December 2018 BMO

WEEK IN REVIEW – 26 to 30 NOVEMBER 2018 :
Stock Market Rallies with Optimism Surrounding
Fed and U.S.-China Trade Relations

The S&P 500 rallied 4.9% this week, helped by the Fed softening its policy stance and by hope that U.S-China trade tensions would be meaningfully eased at the G-20 Leaders Summit. For the month, the benchmark index rose 1.8%.

Meanwhile, the Dow Jones Industrial Average gained 5.2%, the Nasdaq Composite gained 5.6%, and the Russell 2000 gained 3.0%. For the month, the respective indices gained 1.7%, 0.3%, and 1.5%.

The stock market had one of its best days of the year on Wednesday when Federal Reserve Chair Jerome Powell said he sees current interest rates “just below” neutral. That proved to be a rally point because the language Mr. Powell used in early October indicated a view that the fed funds rate was “a long way from neutral.”

Mr. Powell added that there is no preset policy path, and the Fed will be data-dependent in its decision making, which pleased investors. By highlighting risks, though, that included previous rate increases, trade disputes, and Brexit/EU political uncertainty, the market chose to read between the lines that the Fed chair isn’t wedded to three rate hikes in 2019.

On a related note, the FOMC’s minutes from its November 7-8 meeting, which were released on Thursday, did nothing to upset the notion that the Fed will be hiking rates next month; the CME FedWatch Tool puts the chances at 82.7%.

Regarding U.S.-China trade, President Trump and President Xi are to take the G-20’s main stage when they discuss trade matters over dinner on Saturday. U.S. Trade Representative Lighthizer said that he would be surprised if the dinner meeting was not a success. Perhaps causing some jitters, though, is the fact that notable China trade hawk Larry Kudlow is reportedly expected to attend the dinner meeting, along with other staff on hand.

Wall Street Journal report published Thursday is probably as good a preview of what an eventual best-case outcome would be from the G-20 meeting between the two Presidents. The Wall Street Journal noted that (unnamed) officials on both sides have been floating the idea of forestalling any further tariffs through the spring to set the stage for a new round of talks to address changes in China’s economic policy.

In addition to the trade speculation and dovish rhetoric from the Fed, there was a positive bias in the market this week due to the belief that the prior week’s sell-off resulted in short-term oversold conditions. Efforts to pick up oversold issues, and some chasing behavior, helped fuel this week’s gains, which ultimately turned November from a negative month into a positive month for the major indices.

This week, all S&P sectors finished higher with the consumer discretionary (+6.4%), information technology (+6.1%), health care (+5.9%), and communication services (+5.5%) sectors outperforming.

The rally began with the consumer discretionary group rising on the back of continued strength from the U.S. consumer. Reports of record online Black Friday sales and encouraging forecasts for Cyber Monday sales helped lift investor sentiment. The SPDR Retail ETF (XRT) rose 5.1% this week, and Amazon (AMZN) climbed 12.5%.

Conversely, the defensive-oriented real estate (+2.7%), consumer staples (+2.9%), and utility (+2.7%) sectors underperformed the broader market, though still finished with respectable gains.

In corporate news, General Motors (GM) announced additional restructuring plans that will result in a 15% reduction of its salaried staff and the closure of five of its North American plants. President Trump tweeted his disappointment in GM and is looking to cut all of its government subsidies. Separately, United Tech (UTX) announced its intention to split into three independent companies after the Dow component acquired Rockwell Collins earlier this month.

On the earnings front, Salesforce (CRM), Burlington Stores (BURL), Dollar Tree (DLTR), VMware (VMW), HP (HPQ), and Workday (WDAY) released upbeat reports, while Tiffany & Co (TIF), GameStop (GME), and J.M. Smucker (SJM) disappointed investors.

Looking at other markets, the Treasury yield curve saw some flattening with the 2-yr yield losing one basis point to 2.81%, and the 10-yr yield losing four basis points to 3.01%. The U.S. Dollar Index increased by 0.3% to 97.20, and WTI crude added 0.1% to $50.67/bbl, though lost over 20.0% this month.

Overseas, equity indices in the Asia-Pacific region closed the week on a modestly positive note with Japan’s Nikkei (+3.3%) showing relative strength. In Europe, the major indices closed the week slightly higher with Italy’s MIB (+2.5%) showing relative strength.

(Economic Excerpts from Briefing.com)

U.S. ECONOMIC UPDATE

Tuesday 27 November:

Consumer Confidence Edges Lower in November

The Conference Board’s Consumer Confidence Index dipped to 135.7 in November (consensus 135.5) from 137.9 in October, which was the highest reading since September 2000.

The key takeaway from the report is that consumer confidence remains at historically strong levels due in large part to positive views on the labor market.

Wednesday 28 November:

Second Estimate Holds the Line on Q3 Real GDP Growth 

The second estimate for Q3 real GDP showed output increasing at an annualized rate of 3.5% (consensus 3.6%), unchanged from the advance estimate as downward revisions to personal spending and state and local government spending offset upward revisions to nonresidential fixed investment and private inventory investment. The GDP Price Deflator was also unchanged at 1.7% (consensus 1.4%).

The key takeaway from the report is that real final sales, which exclude the change in inventories, were up just 1.2%, which was the weakest growth rate since the fourth quarter of 2016.

Federal Reserve releases Financial Stability Report : Financial Stability Report

Fed Chair Powell sees current interest rates ‘just below’ neutral : Report (This report spiked the DOW up 617 points on Wednesday because the language Fed Chair Powell used early last month indicated a view that the fed funds rate was a “a long way from neutral.”)

New Home Sales Slide in October with Declines in All Regions 

New home sales declined 8.9% month-over-month in October to a seasonally adjusted annual rate of 544,000 (consensus 575,000).  September was revised up to 597,000 from 553,000.

Regardless of the upward revision to September, the key takeaway from the report is that the pace of new home sales is weak across all regions and reflects the affordability constraints fueled by rising mortgage rates.  The October sales pace is the slowest since March 2016.

Thursday 29 November:

Initial and Continuing Claims Trends at Bottom for Cycle?

Initial claims for the week ending November 24 increased by 10,000 to 234,000 (consensus 218,000) while continuing claims for the week ending November 17 increased by 50,000 to 1.710 million.

The key takeaway from the report is that it is apt to contribute to assertions that the bottom for the trend in initial and continuing claims may have been reached in this cycle.

Personal Income and Spending Up in October; Inflation Held in Check

Personal income increased 0.5% in October (consensus +0.4%) while personal spending jumped 0.6% (consensus +0.4%). Real PCE, which is the component that factors into Q4 GDP forecasts, was up a solid 0.4%.

The PCE Price Index was up 0.2% and the core PCE Price Index, which exclude food and energy, was up 0.1% (consensus +0.2%).

The tame inflation readings are the key takeaway from the report since they are supportive of the Federal Reserve taking a more deliberate approach to raising the fed funds rate.

Friday 30 November:

Chicago PMI Surges to 11-Month High in November

The MNI Chicago Business Barometer, popularly referred to as the Chicago PMI, surged to 66.4 in November (consensus 58.0) from 58.4 in October.  The November reading is an 11-month high.

The key takeaway from the report is that it was fueled by a big uptick in the New Orders Index, which hit its highest level since May 2014.  The strength in new orders is an encouraging sign of robust manufacturing demand for the Chicago Fed region.

International Key Economic Data

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Friday 26 November
Stocks Climb Ahead of G-20 Meeting Between Trump, Xi

The S&P 500 finished strong with a gain of 0.8% on Friday to conclude one of its best weeks of the year. Investors turned their attention to the highly-anticipated G-20 Leaders Summit in Argentina, where U.S. President Trump and China President Xi are expected to take the main stage at a dinner meeting on Saturday.

The Dow Jones Industrial Average gained 0.8%, the Nasdaq Composite gained 0.8%, and the Russell 2000 gained 0.5%.

The major indices hovered near their flat lines in afternoon trading before a Reuters report indicated a Chinese official saying that there are points of consensus between the U.S. and China on trade. Though, some disagreements remain. With that in mind, there seems to be a consensus building around the idea that the best one can hope for is a mutual agreement to forestall further tariff actions for several months so that further talks can be conducted to address trade policy issues.

U.S. Trade Representative Lighthizer spurred some optimism Friday morning when he said he would be surprised if the dinner meeting was not a success. He added it is entirely up to the two Presidents if a deal will be made, though.

10 of the 11 S&P sectors finished in the green on Friday with the utilities (+1.5%), health care (+1.1%), and information technology (+1.1%) sectors outperforming the broader market. 

Chip stocks also outperformed, evidenced by the Philadelphia Semiconductor Index rising 1.5%, to help lift the heavily-weighted information technology sector. NVIDIA (NVDA) led chip stocks higher, though Apple (AAPL) was unable to gain traction, eventually losing its status as the S&P 500’s largest company by market cap to Microsoft (MSFT).

Some positive earnings reports from tech companies HP (HPQ), VMware (VMW), and Workday (WDAY) also contributed to the sector’s advance. Workday and VMware beat both top and bottom line estimates, and HP beat revenue estimates. Workday also raised its fiscal 2019 subscription revenue outlook.

Transport stocks had a great day with the Dow Jones Transportation Average rising 1.3%. With oil and its derivatives factoring heavily in their cost of operations, transport issues reacted favorably to the decline in oil prices and were a leadership area in November. The average finished with a monthly gain of 6.2%.

On the other hand, the energy (-0.2%), materials (+0.4%), and communication services (+0.4%) sectors underperformed the broader market.

In other corporate news, General Electric (GE) and Marriott (MAR) lost 5.5% and 5.6%, respectively, amid some negative occurrences. A WSJ report indicated that General Electric ignored insurance risks, according to some former employees. Deutsche Bank also lowered its GE price target to $7. Separately, Marriott announced a data breach involving its guest reservation database for its Starwood-branded hotels.

Separately, the U.S. Treasury yield curve saw some flattening with the 2-yr yield adding one basis point to 2.81%, and the 10-yr yield losing three basis points to 3.01%. Also, the U.S. Dollar Index rose 0.4% to 97.20, and WTI crude lost 1.6% to $50.65/bbl, weighing on the oil-sensitive energy group.

Market Internals – Friday 26 November 2018

Dollar: Strength Prevails

The U.S. Dollar strengthened on Friday, recovering from days marked by weakness on the back of dovish remarks from the Federal Reserve, as currency traders readied themselves for a potentially headline-heavy weekend from the G-20 summit kicking off in Buenos Aires.

The ICE U.S. Dollar Index DXY was up 0.5% at 97.262, looking at a modest 0.4% bump on the week. It closed out the session at 97.20, higher than last week’s close of 96.94. For the month, the index gained 0.1%.

A highly anticipated meeting between President Donald Trump and Chinese President Xi Jinping on Saturday could help resolve the U.S.-China trade spat. Saudi Arabia and Russia are also expected to talk about the oil price.

Bonds:

It was a mixed Friday of trading action in the Treasury market as gains at the back end drove a curve-flattening trade.  The 10-2 spread compressed four basis points to 20 basis points in a lopsided trade that saw longer-dated securities garner modest buying interest and shorter-dated securities garner modest selling interest. 

Most of the price deck was dealt in overnight action as there was little change throughout the cash session, which featured some volatility in oil prices, additional gains for the equity market, and a saturation of coverage of the G20 Summit and the uncertainty hanging over the Saturday dinner meeting between President Trump and President Xi to discuss trade matters.

The yield curve flattened as the belly of the curve fell against the 2-year yield. The spread between the 2s5s narrowed to only 3bps from 6bps the previous week and looks set to invert in the coming weekThe spread between the 5s10s remained unchanged at 17bps from 17bps the previous week while the 10s30s widened to 30bps from 26bps the previous week. The 2-30 spread has widened to 50bps from 49bps a week ago.

Commodities 

The Bloomberg Commodity Index settled at 82.56, higher than 81.84 the previous week as Energy and Grains gained.

WTI oil held above its critical $50.00 support but still posted a drop of 22% in November for its biggest monthly loss in a decade, settling the week at $50.93. The spread between WTI and Brent narrowed to $7.78 from $8.38 the previous week as Brent settled at $58.71 p/b.

EIA petroleum data for the week ended November 23

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.6 million barrels from the previous week. At 450.5 million barrels, U.S. crude oil inventories are about 7% above the five year average for this time of year. Total motor gasoline inventories decreased by 0.8 million barrels last week and are about 5% above the five year average for this time of year. Finished gasoline and blending components inventories both decreased last week. Distillate fuel inventories increased by 2.6 million barrels last week and are about 6% below the five year average for this time of year. Propane/propylene inventories decreased by 0.6 million barrels last week and are about 3% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 2.4 million barrels last week.

Natural gas inventory showed a draw of 134 bcf in the prior week. Working gas in storage was 3,054 Bcf as of Friday, November 23, 2018, according to EIA estimates. This represents a net decrease of 59 Bcf from the previous week. Stocks were 644 Bcf less than last year at this time and 720 Bcf below the five-year average of 3,774 Bcf. At 3,054 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count decreased by -3 to 1076 following last week’s decrease of -3.

Metals: Precious falls, Copper rises

Agriculture: Grains Gain 

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

THE MONTH AHEAD
December 2019

December 2018 has 19 trading sessions, one half-day and one public holidays. December is the final month of Q4 and the year and is the second month of the DOW’s and S&P’s “Best Six Months” (from November to April). 

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

THE WEEK AHEAD
Week 49 (December 03 to 07)

According to our 5, 10 and 15 year seasonal models;

Benchmarks Indices (21 year average) for wk49:

Week 49 Key Economic Dates

In the coming week, important releases include US jobs report, trade balance, ISM PMIs, factory orders and the preliminary reading of Michigan consumer sentiment; interest rate decisions from the BoC, RBA and RBI; UK Markit PMIs; China trade balance, inflation and Caixin PMIs; and Australia Q3 GDP growth. Investors will also react to next week’s OPEC meeting.

Sun 02 December

Mon 03 December

Tue 04 December

Wed 05 December

Thu 06 December

Fri 07 December

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

COMMENTARY

Just like that and we’re into the final month of trading. 20 sessions remaining and already, the year has proven to be “troublesome” as I said it would be at the start of the year. On four occasions in the year, the DOW closed below its 200 DSMA and spent no less than 19 weeks in negative territory. 

The Transports fared worse with no less than 23 weeks in the red and becoming the first of the major indices to experience the 50/200 Death Cross last week (26/11). The NASDAQ followed with its own Death Cross a day later (27/11). Now the S&P500 looks to join the crowd in the coming week if the relief rally has no legs. Retail and Technology stocks have already fallen below their Death Crosses. 

The Death Cross on S&P is going to create some violent gyrations if it happens. We haven’t had a Death Cross on the S&P500 since August 2015 and January 2016. On both occasions, the S&P made huge downside gyrations. It won’t help the bulls’ cause with the yield curve close to inverting as the 2yr and 5yr yields narrowed to only 3bps.

Another unhealthy sign for the bulls is that the best performing sector in November was Health Care (Pharma), the most defensive sector in the market. 

For now, there is some respite in that DOW closed above its 200DSMA on Friday. The other benchmarks still remain entrenched below theirs.

Happy Hunting!

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Weekly Market Analysis – 26 Nov 2018 BMO

WEEK IN REVIEW – 19 to 23 NOVEMBER 2018 :
Energy, Tech Stocks Crushed as S&P 500 Loses Yearly Gains

The S&P 500 fell 3.8% on this holiday-shortened trading week, erasing its gain for the year. The Dow Jones Industrial Average lost 4.4%, the Nasdaq Composite lost 4.3%, and the Russell 2000 lost 2.6%.

There was palpable sense of real angst about the market’s prospects with market commentary beginning to emphasize the growing risk of a bear market. Factors contributing to that outlook have included rising recession risk; widening credit spreads; the message being sent by the sharp losses in cyclical sectors and former leadership stocks/sectors; lack of buy-the-dip success in November, calling into question the prospects of a seasonal rally; and burgeoning calls to bolster defensive positioning in investment portfolios.

Energy and tech stocks took the brunt of the damage with the energy (-5.1%) and information technology (-6.1%) sectors posting heavy losses this week. The consumer discretionary (-4.3%), communication services (-4.0%), materials (-3.5%), and industrial (-3.2%) sectors also had poor performances.

WTI crude, which has been pressured by ongoing supply concerns and decreasing demand, dropped 9.2% to $51.28/bbl this week and extended its decline to 33.3% from last month’s four-year high. Oil prices were pressured on Tuesday after some speculation that Saudi Arabia might not force an oil production cut after U.S. President Donald Trump defended the United States’ relationship with Saudi Arabia in the wake of the killing of Jamal Khashoggi. U.S. crude stockpiles also rose for the ninth consecutive week, according to the U.S. Energy Information Administration’s weekly crude inventory report.

The tech sector, in particular, has been prone to liquidation efforts that have aimed to reduce exposure to a crowded sector running into concerns about a cyclical slowdown, valuations, and increased regulatory scrutiny. In addition, a lack of leadership and the continued inclination to sell into strength have translated into a lack of buying interest.

Apple (AAPL) shares took a hit after a Wall Street Journal report indicated the company cut its production orders for all three new iPhones it launched in September. Regarding the iPhone XR, Apple reportedly slashed its production plan by up to a third of the approximately 70 million units it had asked some suppliers to produce between September and February. Apple has fallen 21.3% since providing a disappointing outlook for the holiday quarter on November 1.

Facebook (FB) shares continued to struggle, losing 5.6% this week, amid ongoing negative publicity surrounding the social network. CEO Mark Zuckerberg was reportedly not happy with COO Sheryl Sandberg over the handling of the Cambridge Analytical scandal, according to a WSJ report. Also in the report, Mr. Zuckerberg’s newly-adopted, aggressive leadership style has not fared well with key executives, some of whom have resigned.

Conversely, the real estate (-1.5%) and utility (-1.4%) sectors were the only groups to finish with weekly losses under 2.0%.

This week featured a list of earnings reports from notable retailers. Reports from Lowe’s (LOW), Target (TGT), Kohl’s (KSS), L Brands (LB), and Ross Stores (ROST) reflected ongoing concerns over gross margin pressures, elevated inventory levels, disappointing same-store sales, and included some cautious guidance. On the other hand, retailers Urban Outfitters (URBN), Best Buy (BBY), Foot Locker (FL), and Gap (GAP) released more positive reports. Separately, Deere (DE) missed top and bottom line estimates.

In other corporate news, a U.S. appeals court refused to stop generic versions of Johnson & Johnson‘s (JNJ) prostate-cancer drug Zytiga from entering the market, according to Bloomberg. Also, Chinese authorities approved United Tech‘s (UTX) acquisition of Rockwell Collins (COL) for $140/share in cash and stock.

U.S. Treasuries ended the week on a mixed note. The 2-yr yield added three basis points to 2.83%, and the 10-yr yield decreased two basis points to 3.05%. Meanwhile, the U.S. Dollar Index increased 0.4% to 96.94

Overseas, the Asia-Pacific Communications Summit concluded on Sunday without the release of a joint communique due to the ongoing trade disagreement between United States and China. On a related note, U.S. Trade Representative Robert Lighthizer released a report on China’s intellectual property practices, alleging that China has not altered its “unfair, unreasonable, and market-distorting practices” that led to the imposition of tariffs. China’s Shanghai Composite lost 3.7% this week.

(Economic Excerpts from Briefing.com)

U.S. ECONOMIC UPDATE

Tuesday 20 November:

Single-Unit Strength Missing from October Housing Starts and Building Permits Report 

Housing starts increased 1.5% month-over-month in October to a seasonally adjusted annual rate of 1.228 million units (consensus 1.230 million) from an upwardly revised 1.210 million (from 1.201 million) in September. Building permits slipped 0.6% to a seasonally adjusted annual rate of 1.263 million (consensus 1.260 million) from an upwardly revised 1.270 million (from 1.241 million) in September.

The key takeaway from the report, however, is that there wasn’t any strength in single-unit permits or starts, which were down 0.6% and 1.8%, respectively, month-over-month and down 0.6% and 2.6%, respectively, year-over-year.

Wednesday 21 November:

Leading Indicators Growth Slows in October 

The Conference Board’s Leading Economic Index increased 0.1% in October (consensus 0.1%) after increasing a revised 0.6% (from 0.5%) in September.

The key takeaway from the report is that the Conference Board believes that while the Leading Index still points to robust growth in early 2019, the rapid pace of growth may have already peaked. The Conference Board expects longer-term growth to moderate around 2.5%.

Lower Aircraft Orders Weigh on October Durable Orders Report 

Durable Goods orders for October decreased 4.4% (consensus -2.6%) after decreasing a revised 0.1% (from +0.8%) in September. Excluding transportation, durable goods orders increased 0.1% (consensus +0.4%) after a revised 0.6% decrease (from +0.1%) in September.

The key takeaway from the report is that the headline decline was driven by a drop in aircraft orders while motor vehicle and parts orders increased modestly.

Initial Claims Miss Expectations 

Initial claims for the week ending November 17 increased by 3,000 from last week’s revised rate of 221,000 (from 216,000) to 224,000 (consensus 215,000). Continuing claims for the week ending November 10 decreased by 2,000 from last week’s revised level of 1.670 million (from 1.676 million) to 1.668 million.

The key takeaway from the report is that even with the upward revision to last week’s reading, claims remain not far above multi-decade lows. This week’s miss is likely the result of economists basing their estimates on last week’s unrevised reading.

Existing Home Sales Snap Six-Month Skid in October 

Existing home sales increased 1.4% month-over-month in October to a seasonally adjusted annual rate of 5.22 million (consensus 5.20 million). The October reading represented the first month-over-month increase in seven months. Total sales were 5.1% lower than the same period a year ago.

The key takeaway from the report is that even with the October increase, the level of sales remains at levels from late 2016 as higher mortgage rates and a limited supply of lower-priced homes weigh.

Consumer Sentiment Index Dips in Final November Reading 

The final reading of the University of Michigan Index of Consumer Sentiment for November ticked down to 97.5 (consensus 98.3) from 98.3 in the preliminary reading.

The key takeaway from the report is that the modest downtick was due to changes in sentiment among different income earners. Those in the bottom third of the income distribution reported an increase in sentiment while those in the top third of the income distribution reported a decrease in sentiment. There was no change in sentiment among Democrats and Republicans after the midterm election.

Friday 23 November:

U.S. Markit Manufacturing PMI- Prelim 55.4, October 55.7; Services PMI- Prelim 54.4, October 54.8

Initial read on Black Friday 2018: Traffic okay, online strong, discounts similar to last year

Overall, Black Friday doesn’t have the sense of urgency as in the past and feels more like a busy regular weekend day in many of the stores. Like last year, they are not too concerned and don’t believe too much weight should be given to the slow Black Friday traffic, given many of the promotions were available for the past couple of weeks.

Early in-store traffic seemed best at Best Buy (BBY), Kohl’s (KSS), Macy’s (M), Target (TGT) and Walmart (WMT). As expected, electronics and toys seem to be winning categories. The colder weather in the Northeast appears to be boosting sales of cold weather gear, such as coats, scarves, gloves, sweaters and boots.

Other International Events of Interest

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

Friday 23 November
Energy Stocks Drag on Broader Market amid Falling Oil Prices

The S&P 500 lost 0.7% on Friday in what was a shortened, low-volume trading day on Wall Street. Friday’s volatile session extended the benchmark index’s weekly losses to 3.8%.

Meanwhile, the Dow Jones Industrial Average lost 0.7%, the Nasdaq Composite lost 0.5%, and the Russell 2000 finished flat on Friday.

The oil-sensitive energy sector greatly underperformed the broader market with a loss of 3.3%, as oil prices continued to fall. WTI crude fell 6.1% to $51.28/bbl, extending its decline to 33.3% from its October 3 high. A Wall Street Journal report indicated that Saudi Arabia and OPEC are considering a disguised production cut to satisfy President Donald Trump. Specifically, the cartel would retain current output targets, first set in 2016, which would imply a production pullback because Saudi Arabia is allegedly overproducing by nearly 1 million barrels a day.

FANG stocks also struggled on Friday with Facebook (FB) and Apple (AAPL) leading the retreat. Apple reportedly resumed production of its 2017 iPhone X amid shrinking demand for its 2018 iPhone X Max model, according to IBN; and has also reportedly lowered the price of its iPhone XR in Japan to increase sales, according to the WSJ. Facebook and Apple shares dropped over 5.0% and 10.0%, respectively, this week.

On the other hand, the consumer staples (+0.3%), health care (+0.1%), and utility (+0.1%) sectors closed on a higher note.

Also, many companies within the consumer discretionary sector (-0.4%) were on display as consumers flocked to retailers for the sales-driven Black Friday shopping event. Though financial media commented on consumer traffic trends, the small sample size should not be used to draw final conclusions about the strength of holiday sales across the country.

In the bond market, the 2-yr yield added one basis point to 2.83%, while the 10-yr yield shed one basis point to 3.05%. The bond market will officially close at 2:00 PM ET. Also, the U.S. Dollar Index, which tracks the dollar’s performance against six major currencies, rose 0.2% to 96.94.

Overseas, global equities closed Friday on a mixed note. China’s Shanghai Composite led Asian markets lower with a loss of 2.5%, while Italy’s MIB led the European advance with a gain of 0.6%.

Market Internals – Friday 23 November 2018

Dollar: Holiday Week Ends on Upbeat Note

The U.S. Dollar Index closed up 0.2% at 96.94, reclaiming the remainder of its loss from last week. The Dollar Index faced some selling on Thursday, but that decline was erased in early Friday morning trade. The greenback maintained an upward bias during a quiet U.S. session, while the euro was been pressured by another reminder of weakening economic data in the eurozone. Meanwhile, the pound has been pressured by misgivings ahead of this weekend’s EU leader summit where British Prime Minister Theresa May is expected to present a final version of Brexit deal.

Bonds: Quiet Session Produces Slight Gains

U.S. Treasuries ended the abbreviated week with modest gains. Treasuries started the cash session on a higher note, as the market responded to a shaky outing from markets in China (-2.5%) and Hong Kong (-0.4%) and a weak start in U.S. equities. Treasuries built on their gains during the first hour of the session, but mid-morning action saw 2s, 5s, and 10s return to their opening levels in a move that coincided with a rebound in stocks. For its part, the long bond continued backtracking until reaching its flat line. Treasuries remained near their intraday lows during midday action, which saw the stock market dip back toward its opening low. Unsurprisingly, today’s participation was on the light side with trading volume drying up into the afternoon.

The yield curve flattened as longer maturities’ yields fell against the 2-year yield. The spread between the 5s10s narrowed to 17bps from 18bps the previous week while the 10s30s remained unchanged at 26bps from 26bps the previous week. The 2-30 spread has narrowed to 49bps from 53bps a week ago.

Commodities 

The Bloomberg Commodity Index settled at 81.84, lower than 83.91 the previous week as energy and grains fell.

WTI oil continued falling off that proverbial cliff, settling the week at $50.42. The spread between WTI and Brent narrowed to $8.38 from $10.30 the previous week as Brent settled at $58.80 p/b.

EIA petroleum data for the week ended November 16

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.9 mln barrels from the previous week. At 446.9 mln barrels, U.S. crude oil inventories are about 6% above the five year average for this time of year. Total motor gasoline inventories decreased by 1.3 mln 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 decreased by 0.1 mln barrels last week and are about 7% below the five year average for this time of year. Propane/propylene inventories decreased by 2.0 mln barrels last week and are about 3% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 0.2 mln barrels last week.

Natural gas inventory showed a draw of 134 bcf vs a build of 39 bcf in the prior week. Working gas in storage was 3,113 Bcf as of Friday, November 16, 2018, according to EIA estimates. This represents a net decrease of 134 Bcf from the previous week. Stocks were 620 Bcf less than last year at this time and 710 Bcf below the five-year average of 3,823 Bcf. At 3,113 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count decreased by -3 to 1079 following last week’s increase of +1.

Metals: Gold rises, Silver and Copper fall

Agriculture: Grains Decline

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

THE WEEK AHEAD
Week 48 (November 26 to 30)

According to our 5, 10 and 15 year seasonal models;

Benchmarks Indices (21 year average) for wk48:

Week 48 Key Economic Dates

In the coming week, the FOMC minutes will be keenly watched, alongside US second estimate of Q3 GDP growth, personal spending and PCE prices; UK consumer confidence and monetary indicators; Eurozone business survey, inflation and jobless rate; Japan consumer confidence, unemployment and flash Nikkei manufacturing PMI; China NBS PMIs; and Q3 GDP estimates for India, Canada and Brazil.

Sun 25 November

Mon 26 November

Tue 27 November

Wed 28 November

Thu 29 November

Fri 30 November

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

COMMENTARY

It is amusing to read a lot of the headlines this past week, making the last couple of weeks sound like a bloodbath when in fact, the benchmarks are not even in correction territory (a Correction is -10% from the previous high) let alone bear market territory (a Bear market is a correction of more than -20% from the previous high). Fact is, the benchmarks are only down by 6% to 7%, they are all negative for the year and all under their respective 200DSMAs … again.

The drop is February was way worse but the headlines today are screaming like its 2008 all over again. Okay, maybe it is the start of another 2008 but I am not a fortune-teller and I see things for what they are. And right now, I see a healthy American economy that is no where near recessionary levels.

All I see is a normal market correction – one that is way overdue and not likely to be sustainable – that could be the start/continuation of a longer period of  volatility or the start of another 2008 or the bottom of this volatility that could start an upswing into Christmas.

Who the hell knows? I don’t know where these experts buy their crystal balls from but I sure would like to have one.

RememberKISS” …

If you don’t want to lose your trade, book your profits early. No one ever lost a trade by booking profits.

Happy Hunting!

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Weekly Market Analysis – 19 November 2018 BMO

WEEK IN REVIEW – 12 to 16 NOVEMBER 2018 :
Stocks Lose Ground Over Continuing Growth Concerns

Wall Street tumbled this week, with consumer discretionary and information technology stocks leading the retreat.

Concerns over peak earnings growth continued to linger, and a further breakdown in oil prices also weighed on investor sentiment. Brexit reentered the mix this week, and, as always, U.S.-China trade headlines were plentiful. The S&P 500 lost 1.6%, the Dow lost 2.2%, the Nasdaq lost 2.2%, and the Russell 200 lost 1.4%.

Within the tech space (-2.5%), Apple (AAPL) got off to a rough start after two more suppliers, Lumentum (LITE) and Qorvo (QRVO), cut their guidance. Disappointing guidance from chipmakers NVIDIA (NVDA) and Applied Materials (AMAT) also weighed on the sector, with NVIDIA plunging nearly 20% on Friday.

Meanwhile, a host of retailers reported earnings this week, including Walmart (WMT), Macy’s (M), Home Depot (HD), and Nordstrom (JWN) to name a few. The reports generally showed better-than-expected profits, but shares sold off in response nonetheless. The SPDR S&P Retail ETF (XRT) lost 4.5%, while the consumer discretionary sector lost 3.8%.

The oil-sensitive energy space (-2.1%) fell in tandem with WTI crude, which dropped 6.1% to $56.52/bbl and extended its losing streak to 12 sessions before bouncing back.

Saudi Arabia announced it would reduce its oil exports in December by 500,000 barrels a day due to a seasonal slowdown in demand, but President Trump rebuked that decision on Twitter. There were also reports that OPEC and non-OPEC allies could be entertaining a plan to cut production by 1.4 million barrels per day in 2019. However, OPEC cut its 2019 oil demand forecast for the fourth consecutive month.

In Washington, Congresswoman Maxine Waters, who is set to take over the House Financial Services Committee this January, vowed that the days of weakening bank regulations will be coming to an end. Ms. Waters’ comments should not have been seen as a surprise as it was understood this would likely be the case following the midterm election results. However, a knee-jerk sell off in the financial space, which finished the week lower by 1.3%, suggested otherwise.

Conversely, outperforming the broader market were the lightly-weighted real estate (+0.8%), materials (+0.4%), and the heavily-weighted health care (-1.1%) spaces.

Elsewhere, U.S. Treasuries saw heightened demand amid market turbulence and a softer-sounding perspective from Fed Vice Chair Richard Clarida. Mr. Clarida conceded on Friday that he thinks the Fed is getting closer to a neutral rate, which is a dovish stance compared to Fed Chair Jerome Powell’s “long way from neutral” comments from last month. The 2-yr yield lost 13 basis points to close at 2.80%, and the 10-yr yield lost 12 basis points to close at 3.07%.

This week saw the market bounce on any U.S.-China trade development no matter if the news was new or repetitive.

A Financial Times report suggested China and the U.S. are trying to reach a trade truce ahead of the G-20 meeting at the end of the month, but clarification from the U.S. Trade Representative’s office said that the next round of tariffs for China are not on hold. President Donald Trump chimed in that China is open to a trade deal, though a list of concessions reportedly presented from China before did not mention structural reforms that have been demanded by President Donald Trump.

At the very least, National Economic Council Director Larry Kudlow did confirm that the U.S. and China have resumed trade discussions.

Overseas, UK Prime Minister Theresa May received cabinet approval for her draft withdrawal statement for Brexit. However, Brexit secretary Dominic Raab, and several other ministers, resigned after the approval, and reports indicate that the 1922 Committee received 48 letters needed to trigger a vote of no-confidence in Prime Minister Theresa May. The vote could take place next week.

(Economic Excerpts from Briefing.com)

U.S. ECONOMIC UPDATE

Tuesday 13 November:

Fiscal Year Begins with October Treasury Budget Deficit

The Treasury Budget for October showed a deficit of $100.5 billion versus a deficit of $63.2 billion for the same period a year ago. The Treasury Budget data is not seasonally adjusted, so the October deficit cannot be compared to the $119.1 billion surplus for September.

Wednesday 14 November:

October CPI In-Line with Expectations

The all items index for consumer prices increased 0.3% month-over-month in October while the all items index, excluding food and energy, increased 0.2%. Both were in-line with the consensus estimate.

The key takeaway from the report is that it points to a firming in consumer inflation, which fits the Federal Reserve’s inclination to raise rates again in December.

Thursday 15 November:

Retail Sales Bounce Back in October 

Total retail sales increased 0.8% (consensus +0.5%) following a downwardly revised 0.1% decline (from +0.1%) in September. Excluding autos, retail sales jumped 0.7% (consensus +0.5%) following an unrevised 0.1% decline in September.

The key takeaway from the report is that it reflects healthy consumer spending activity that will provide a positive input for Q4 GDP forecasts. Core retail sales, which exclude auto, gas station, building equipment and materials, and food services sales, jumped 0.3%.

Initial and Continuing Claims Increase in Latest Week, but Healthy Low Claims Trend Intact

Initial claims for the week ending November 10 increased by 2,000 to 216,000 (consensus 214,000). Continuing claims for the week ending November 3 increased by 46,00 to 1.676 million.

The key takeaway from the report is that the weekly increases did very little to alter trends in the four-week moving average for both series, which remain near historic lows and indicative of a tight labor market.

Import and Export Prices Push Up in October 

Import prices increased 0.5% in October. Excluding fuel, they were up 0.2%. Export prices increased 0.4%. Excluding agricultural exports, they were up 0.5%.

The key takeaway from the report is that nonfuel import prices remain tame, up just 0.7% year-over-year, versus 1.4% for the 12-months ending October 2017.

Empire Manufacturing Survey Reflects Pickup in Activity in November 

The Empire Manufacturing Survey for November increased to 23.3 (consensus 20.0) from 21.1 in October, bolstered by an increase in the index for shipments, inventories, the number of employees, and prices paid.

The key takeaway from the report, which uses 0.0 as the dividing line between expansion and contraction, is that manufacturing activity in the New York Fed region continues to run at a good pace.

Philadelphia Fed Index Points to Slower Activity in November 

The Philadelphia Fed Index for November fell to 12.9 (consensus 20.5) from 22.2 in October, as most component indexes fell back from stronger levels.

The key takeaway from the report is that manufacturing growth slowed in the Philadelphia Fed region in November, yet it still remains in an expansion mode with a reading above 0.0.

Business Inventories Match September Expectations 

Total business inventories increased 0.3% in September, in-line with the consensus estimate, after increasing 0.5% in August. Total business sales increased 0.4% after increasing 0.5% in August.

The key takeaway from the report is that business sales continued to outpace inventory growth year-over-year, which is a favorable trend that carries the potential to lead to a better pricing environment for businesses.

Friday 16 November:

Manufacturing Output Props Up Industrial Production in October 

Industrial production increased 0.1% in October (consensus +0.3%) following a downwardly revised 0.2% increase (from +0.3%) in September.  The capacity utilization rate dipped to 78.4% from an upwardly revised 78.5% (from 78.1%) in September, which was the highest rate since January 2015.

The key takeaway from the report is that manufacturing output increased for the fifth straight month despite a big drop in motor vehicle assemblies, which underscores solid activity otherwise for the manufacturing base.

Other International Events of Interest

EARNINGS – S&P 500 Aggregate Estimates and Revisions; 2018 Q3

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

Friday 16 November
Broader Market Gets Lift from More Trade Chatter; Chip Stocks Weigh

The S&P 500 chipped in a 0.2% gain on Friday after President Donald Trump again signaled China’s desire to make a deal on trade. Disappointing guidance from chipmakers, however, kept gains in check. The Dow Jones Industrial Average gained 0.5%, the Nasdaq Composite lost 0.2%, and the Russell 2000 gained 0.2%. For the week, the S&P 500 declined 1.6%.

Speaking from the White House, President Trump reiterated his claim that China wants to make a trade deal. He said that China sent a “large” list of things they’re willing to do, but the list is not yet in-line with the President’s standards. Nevertheless, the market, desperate for a positive solution on trade, reacted positively to the comments.

Also, a dovish perspective from Fed Vice Chair Richard Clarida on Friday helped ease some early angst.

Mr. Clarida thinks the Fed is getting closer to a neutral rate, which is a somewhat contrasting view from Fed Chair Jerome Powell in October who said the Fed is still a “long way from neutral.” The Fed-sensitive 2-yr yield subsequently dropped six basis points to 2.80%, and the benchmark 10-yr yield lost four basis points to 3.07%. The U.S. Dollar lost 0.5% to 96.46.

Proving strong support for the broader market were the real estate (+1.4%), utilities (+1.3%), energy (+1.1%), materials (+1.0%), and health care (+1.0%) sectors, which combine for roughly 30% of the S&P 500’s market capitalization.

Conversely, the top-weighted information technology sector shed 0.1%, though recouped most of its losses largely due to resiliency from Apple (AAPL). Discouraging guidance from NVIDIA (NVDA) and Applied Materials (AMAT) weighed on the sector early. Weaker-than-expected chip demand, which left NVIDIA with excess inventory, led to fourth quarter revenue and EPS guidance that was well below current consensus estimates. Applied Materials also lowered its top and bottom line guidance below consensus but was able to add some gains. The Philadelphia Semiconductor Index lost 1.2%.

Facebook (FB) weighed on the communication services sector (-0.4%) with a loss of 3.0%. On-going negative publicity surrounding the company has helped pull the stock back to its lowest level since April 2017. Also, Amazon (AMZN) and retail companies dragged on the lagging consumer discretionary sector (-0.5%).

Retail companies continued to struggle after Nordstrom (JWN) and Williams-Sonoma (WSM) released mixed earnings reports. Nordstrom reported a significant one-time charge that knocked EPS lower by $0.28, and its revenue and its full-price comparable sales figures were on the softer side. Williams-Sonoma guided its revenue to the low end of Wall Street estimates. Both companies beat earnings expectations, though. The SPDR S&P Retail ETF (XRT) lost 1.4% today and 4.5% this week.

Separately, WTI crude added 0.1% to $56.52/bbl, extending its rebound effort to its third straight session after snapping a 12-session losing streak.

Overseas, reports from the United Kingdom indicated that the 1922 Committee received 48 letters needed to trigger a vote of no-confidence in Prime Minister Theresa May. UK’s FTSE shed 0.4%, and the British pound rose 0.4% to 1.2830 against the dollar, which is far from a frantic move in the market that should be most impacted by Brexit fears.

Market Internals – Friday 16 November 2018

Dollar: Index Turns Negative for Week

The U.S. Dollar Index closed down 0.5% at 96.43, slipping to levels from last Thursday. The greenback spent the overnight session inside a narrow range, but it slid to lows after Fed Vice Chair Richard Clarida said that policymakers are seeing some evidence of a slowdown in the global economy with a potential impact on the United States. Mr. Clarida also said he believes the Fed is close to a neutral rate range, which was received as a signal that future rate hikes might be limited in number. With Friday’s selling, the Dollar Index is down 0.5% since last Friday, booking its first weekly decline in five weeks.

Bonds: Streak Extended

U.S. Treasuries ended the week on Friday with gains across the curve but lower for the week. The 5-yr note and the 10-yr note outperformed from the start, but the 2-yr note caught up shortly after the open, as the market responded to comments from Fed Vice Chair Richard Clarida, who was interviewed by CNBC. Participants paid particular attention to comments that could be categorized as dovish, but the Fed vice chair did not signal big shifts in policy. Instead, he acknowledged that some evidence of a slowdown in the global economy with a potential impact on the United States is becoming visible. Mr. Clarida added that the central bank should be data-dependent and that the neutral rate is not far away. Separately, Chicago Fed President Charles Evans said that hiking the fed funds rate to “about 3.25%” is reasonable, given the economic outlook. This view implies four more rate hikes. Treasuries continued their advance into the afternoon, finishing near their best levels of the day. Today’s rally helped Treasuries finish the session at or above their closing highs from October with all tenors recording their fifth consecutive advance on a cash basis. Futures on 2s, 5s, 10s, and 30s logged their sixth advance in a row.

The belly of the yield curve fell to steepen the curve. The spread between the 5s10s widened to 18bps from 15bps the previous week while the 10s30s widened to 26bps from 20bps the previous week. The 2-30 spread has widened to 53bps from 46bps a week ago.

Commodities 

The Bloomberg Commodity Index settled at 83.91, higher than 82.89 the previous week even as Crude fell because Nat Gas, Metals and Grains gained.

WTI oil fell off a cliff, settling the week at $56.46. The spread between WTI and Brent widened to $10.30 from $9.99 the previous week as Brent settled at $66.76 p/b.

EIA petroleum data for the week ended November 09

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 10.3 mln barrels from the previous week. At 442.1 mln barrels, U.S. crude oil inventories are about 5% above the five year average for this time of year. Total motor gasoline inventories decreased by 1.4 mln barrels last week and are about 7% above the five year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 3.6 mln barrels last week and are about 8% below the five year average for this time of year. Propane/propylene inventories decreased by 0.8 mln barrels last week and are at the five year average for this time of year. Total commercial petroleum inventories decreased last week by 1.4 mln barrels last week.

Natural gas inventory showed a build of 39 bcf vs a build of 65 bcf in the prior week. Working gas in storage was 3,247 Bcf as of Friday, November 9, 2018, according to EIA estimates. This represents a net increase of 39 Bcf from the previous week. Stocks were 528 Bcf less than last year at this time and 601 Bcf below the five-year average of 3,848 Bcf. At 3,247 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count increased by +1 to 1082 following last week’s increase of +14.

Metals: 

Agriculture: 

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

THE WEEK AHEAD
Week 47 (November 19 to 23)

This is the week that starts the Christmas Sales phenomenon known as Black Friday (23 November) and Cyber Monday Sales (26 November).

According to our 5, 10 and 15 year seasonal models;

Benchmarks Indices (21 year average) for wk47:

Week 47 Key Economic Dates

In the coming week the US will publish building permits and housing starts, existing home sales, durable goods orders and flash Markit PMIs. Other important releases include: ECB and RBA meeting minutes; UK CBI factory orders; Eurozone flash Markit PMIs; and Japan inflation and trade balance.

Mon 19 November

Tue 20 November

Wed 21 November

Thu 22 November

Fri 23 November

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

COMMENTARY

I am expecting to see some semblance of normalcy returning to the market. If it does this week, I am back to the usual seasonal trades starting with the retail sector as earnings season winds down.

Looks like I’m waiting till after Black Friday then. The past two weeks have been nuts. Nuts because I have had to entertain countless (and I mean I really lost count) number of eMails, private (FB) messages, Tweets, WhatsApps, phone calls and everything else in between with regard to margin calls, assignments and troubled accounts. It’s simple: break the rules and you’ll be punished – and its not like I’ve not said it before. Here’s the banner from 2012.

The level of complacency has been phenomenal. Amongst the bunker traders and energy trading desks, the number of margin calls have been higher than that of 2014 (when oil fell from $105 to $45) and 2015 (when oil fell to $27). Within the equity space, assignments went through the roof amongst Options Traders as some got caught in the Bull Trap over the last two weeks and in the Bear Trap at the end of October.

Me? I stopped trading after crude broke down from $76 to failed to find support at $65. Thank goodness for old habits (of not trading between October and Black Friday) because I would have been on the wrong side of the trade if I did.

Sometimes, not trading is the best way to not lose money.

To lose graciously and walk away with your life is better than winning without your life to savour the victory.

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

Now comes the slow bleed to the downside that will have even the most hardcore Crypto believers running. Just like in the Tulip Mania, the few remaining sellers hung on to the belief that the mania would return and hung on to their precious-but-worthless bulbs while their net worth dwindled. So watch for those reports that tout ‘buy’ signals now – they always crawl out of the woodwork when shit happens.

One more leg up, man, one more leg up!

The only thing that will revive this form of currency is a major shift to regulated valuation, liquidity and capital controls that are pegged to some form of capitalisation that will give it a proper and legitimate demand-supply purpose, something that can be monetised for commercial reasons and most of all, a real NEED for such a currency.

But that would defeat the current purpose of this currency, wouldn’t it?

Game over, man, game over.

Happy Hunting!

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

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Weekly Market Analysis – 12 November 2018 BMO

WEEK IN REVIEW – 05 to 09 NOVEMBER 2018 :
Fed Policy Statement Not Enough to Derail U.S. Midterm Gains

The S&P 500 rose 2.1% this week, but had to weather a late week sell-off after the latest policy statement from the Federal Reserve humbled an upbeat reaction to the midterm elections. Neither outcome was a surprise, but they were representative of recent market volatility. The Dow Jones Industrial Average and the Nasdaq Composite also finished the week higher, adding 2.8% and 0.7%, respectively. The Russell 2000 added 0.1%.

The midterm elections produced a split Congress with the Democrats taking control of the House and the Republicans retaining control of the Senate. The prevailing assumption in the market was that a newly divided Congress would preserve market-friendly policies, namely the tax cut and deregulation efforts. In addition, investors took delight in the fact that the stock market has historically done well in years with a Republican president and split Congress.

The Fed released its policy statement on Thursday, in which it decided to leave the fed funds rate unchanged as expected. The central bank noted that it expects further rate hikes that are consistent with sustained economic growth, strong labor market conditions, and inflation near its symmetric 2% target over the medium term, but omitted October’s sell-off and U.S.-China trade developments from its policy statement. Those omissions were a clear, between-the-lines message that the FOMC remains poised to raise rates for a fourth time this year in December.

In the stock market, the health care (+4.0%), real estate (+3.6%), and utility (+3.1%) groups led the way. Of note, health care has surpassed the information technology (+1.4%) and consumer discretionary (+2.0%) sectors for the top spot in the yearly sector standings with a 2018 gain of 12.4%. For comparison, tech is up 10.7%, and consumer discretionary is up 10.9%.

Conversely, the communication services sector was the only group to finish in negative territory with a weekly loss of 0.2%.

In earnings, some notable companies that had upbeat reports included Berkshire Hathaway (BRK.B), CVS (CVS), Eli Lilly (LLY), Humana (HUM), and Walt Disney (DIS). On the other hand, Skyworks Solution (SWKS) led chip stocks lower on Friday after it issued below-consensus Q1 earnings and revenue guidance. Skyworks, which is an Apple (AAPL) supplier, warned of slowing chip demand, continuing a disappointing trend out of the semiconductor industry.

On a related note, Japan’s Nikkei Asian Review reported that Apple decided to cancel a production increase in its newest low-end iPhone XR. However, the Nikkei also said that demand for the older generation iPhone 8 and iPhone 8 Plus has been higher than expected. Nevertheless, the report corroborated fears over the company reaching peak iPhone sales.

In politics, Attorney General Jeff Sessions resigned his post effective immediately per President Trump’s request. Pot stocks initially surged in response to his resignation, as his adamant anti-marijuana stance has been seen as a roadblock to advancing the national discussion for legalization. However, pot stocks pulled back as replacement names currently being floated are against marijuana legalization; acting Attorney General Matthew Whitaker has a mixed record on the issue.

Looking at other markets, U.S. Treasuries had a volatile week, and closed near last week’s levels. This week, the 2-yr yield decreased two basis points to 2.91%, and the 10-yr yield added two basis points to 3.21%.

Also of note, WTI crude lost 4.8% this week, entering bear market territory and extending its decline from last month’s four-year high. U.S. President Donald Trump granted temporary wavers on Monday to eight countries who import oil from Iran after the U.S.’s energy sanctions on the OPEC member were officially reimposed.

(Economic Excerpts from Briefing.com)

U.S. ECONOMIC UPDATE

Monday 05 November:

ISM Non-Manufacturing Index Sees Some Natural Slowing in October

The ISM Non-Manufacturing Index for October checked in at 60.3% (consensus 58.8%).  That was down slightly from 61.6% in September, which was the highest reading for the composite index since its inception in 2008.

The key takeaway from the report is that business activity in the non-manufacturing sector is still strong, as the October deceleration can be interpreted at this juncture as a natural slowing following some solid acceleration since July when the index registered 55.7%.

Wednesday 07 November:

Consumer Credit Expansion Softens in September 

Total outstanding consumer credit increased by $11.0 billion in September after increasing an upwardly revised $22.8 billion (from $20.1 billion) in August.

The key takeaway from the report is that it reflects a deceleration in credit expansion that could contribute to concerns about the U.S. economy hitting/nearing peak growth.

Thursday 08 November:

Initial and Continuing Claims Continue to Garner Fed’s Close Attention

Initial claims for the week ending November 3 decreased by 1,000 to 214,000 (consensus 213,000) while continuing claims for the week ending October 27 decreased by 8,000 to 1.623 million.

The key takeaway from the report is that it is supportive of the Federal Reserve’s rate-hike bias.

Friday 09 November:

October PPI Generates Some Inflation Surprise

The Producer Price Index for final demand jumped 0.6% in October (consensus +0.2%) while the index for final demand, less food and energy, rose 0.5% (consensus +0.2%).

Those increases left the index for final demand up 2.9% year-over-year, versus 2.6% in September, and the index for final demand, less food and energy, up 2.6% year-over-year, versus 2.5% in September.

The key takeaway from the report is that it will stoke concerns about pass-through inflation to the consumer, which have already been stoked by numerous companies during the third quarter earnings-reporting period talking about higher input costs and increasing prices.

Consumer Sentiment Holds at High Level in November

The preliminary University of Michigan Index of Consumer Sentiment for November held quite steady, edging down to 98.3 (consensus 98.0) from the final reading of 98.6 for October.

The key takeaway from the report is that stock market sell-off in October had no real impact on consumer sentiment, which was rooted more in favorable views about income expectations and job growth that are key drivers of consumer spending.

Wholesale Inventories Increase in September 

Wholesale inventories increased 0.4% in September (consensus 0.3%) on top of a downwardly revised 0.9% increase (from 1.0%) in August. Wholesale sales were up 0.2% following a 0.7% increase in August.

The key takeaway from the report is that sales are increasing year-over-year at a faster rate than inventories, which can be a precursor to improved pricing power for wholesalers.

Other International Events of Interest

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

FOMC Monetary Policy Statement
Thursday 08 November
Fed leaves rates unchanged at 2.00-2.25%
Economic activity has been rising at strong rate

Fed Talk: A Policy Directive with a Hitch

The November Federal Open Market Committee (FOMC) meeting went off without a hitch. There was unanimity in the decision to leave the target range for the fed funds rate unchanged at 2.00% to 2.25%.  In turn, there were a lot of similarities in the wording of the November directive with the one issued in September.

The one hitch, if it can be called that, is that the FOMC statement acknowledged business fixed investment has moderated. Even so, the FOMC still expects “further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.”

There was no mention of concerns related to the stock market sell-off in October or the increase in protectionist trade measures. Those omissions were a clear, between-the-lines message that the FOMC remains poised to raise the target range for the fed funds rate again in December.

This directive shouldn’t elicit much of a trading response since it was very much in-line with prevailing expectations ahead of its release. Nevertheless, it serves as a timely reminder that monetary policy is less of a friend to the stock market than it was in the past.

The Federal Reserve says the risks to the economic outlook appear roughly balanced, yet that isn’t the case with monetary policy itself.  The risk with the fed funds rate is tilted to the upside since labor market conditions remain strong and inflation trends are firm.

The latest FOMC meeting may have been conducted without a hitch, yet that doesn’t mean there isn’t a hitch for the stock and bond markets.

The specter of rising rates is plain to see, yet there is ongoing uncertainty over how much further the target range for the fed funds rate will increase. That will be an ongoing source of volatility for both markets.

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

Friday 09 November
S&P500 Pulls Back from Midterm Election Spike

The S&P 500 lost 0.9% on Friday, with the pullback suggesting a natural consequence of an overreaction to this week’s election spike. The Dow Jones Industrial Average lost 0.8%, the Nasdaq Composite lost 1.7%, and the Russell 2000 lost 1.8%. For the week, the S&P 500 advanced 2.1%.

Outperforming the broader market on Friday were the defensive-oriented consumer staples (+0.5%), real estate (+0.1%), and utilities (+0.1%) sectors. Conversely, FANG stocks within the lagging communication services (-1.5%), consumer discretionary (-1.5%), and information technology (-1.7%) sectors underperformed. Netflix led the FANG group lower with a loss of 4.6%. Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), and Facebook (FB) bared losses between 1.5% and 2.4%.

Chip stocks dragged on the lagging tech sector, as key Apple supplier Skyworks Solutions (SWKS) fell 8.1% after it issued below-consensus top and bottom line guidance for its fiscal first quarter. Its guidance has extended a trend within the semiconductor industry that has warned of slowing chip demand. The Philadelphia Semiconductor Index lost 1.9%.

In other corporate news, Walt Disney (DIS) rose after an upbeat earnings report, while General Electric (GE) took a hit after JPMorgan cut its price target on the stock to $6 from $10. In response, the former Dow component responded that it is a “fundamentally strong company with a sound liquidity position,” according to a CNBC report.

Demand for Treasuries increased amid the equity setback, pushing yields lower across the curve. The 2-yr yield lost four basis points to 2.93%, and the 10-yr yield lost five basis points to 3.19%. For the week, the 2-yr yield added two basis points, while the 10-yr yield shed two basis points.

Separately, WTI crude, which is the U.S. benchmark for oil, fell 0.9% to settle at $60.16/bbl. Friday’s loss has extended its decline to 21.8% from its Oct 3 four-year high. On a related note, the oil-sensitive energy sector lost 0.4% on Friday.

In trade news, White House National Trade Council Director Peter Navarro made some combative comments against CEOs for pushing President Trump to make a trade deal with China and stated a trade deal will be on the president’s terms. Separately, President Trump has reportedly been telling associates that he wants to replace Commerce Secretary Wilbur Ross by the end of the year.

Overseas, China reported just a 0.2% rise in its Consumer Price Index on Friday, which was in-line with estimates but significantly below last month’s increase of 0.7%. Its softening inflation has continued to fuel concerns over a slowing Chinese economy.

Market Internals – Friday 09 November 2018

Dollar: October High in Sight

The U.S. Dollar Index closed up 0.2% at 96.90, in its second consecutive advance. The Dollar Index built on Thursday’s rally, but Friday’s uptick was more modest. The dollar saw some pressure in morning trade, but pullbacks have been met with rebounds to fresh highs, putting the Index just below its high from October (97.20). The Dollar Index gained 0.4% for the week after being down 0.9% on Wednesday morning.

Bonds: Belly of the Curve Leads Treasuries Higher

U.S. Treasuries ended the week on a flatter note across the curve. Treasuries started the Friday session on a higher note after Treasury futures rallied during a weak overnight showing from Asian and European equity markets. Treasuries backed down from their opening levels after the release of a hotter than expected PPI report for October (actual 0.6%; consensus 0.2%), but it wasn’t long before the complex reversed again, rising to fresh highs. Treasuries continued advancing into the early afternoon against the backdrop of falling equities and continued weakness in crude oil. Crude oil futures saw their tenth consecutive decline, which pressured price to levels from early March. The nine-day slide makes for a continuation of selling pressure that appeared in October. Crude oil is now down nearly 22.0% from its early-October high, fueling concerns that the recent weakness is a statement about fading global growth. The Treasury yield curve faced notable flattening pressure this week, as the 2s10s spread tightened by four basis points to 26 bps while the 2s30s spread narrowed by eight basis points to 46 bps.

The yield curve flattened across the board. The spread between the 5s10s narrowed to 15bps from 17bps the previous week while the 10s30s narrowed to 20bps from 24bps the previous week. The 2-30 spread has narrowed to 46bps from 54bps a week ago.

Commodities 

The Bloomberg Commodity Index settled at 82.89, lower than 83.88 the previous week as energy and metals took a lot of pressure.

WTI oil fell, settling the week at $60.19. The spread between WTI and Brent widened to $9.99 from $9.69 the previous week as Brent settled at $70.18 p/b.

EIA petroleum data for the week ended November 02

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.8 mln barrels from the previous week. At 431.8 mln barrels, U.S. crude oil inventories are about 3% above the five year average for this time of year. Total motor gasoline inventories increased by 1.9 mln barrels last week and are about 8% above the five year average for this time of year. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 3.5 mln barrels last week and are about 6% below the five year average for this time of year. Propane/propylene inventories increased by 1.5 mln barrels last week and are at the five year average for this time of year. Total commercial petroleum inventories increased last week by 4.8 mln barrels last week. 

Natural gas inventory showed a build of 65 bcf vs a build of 8 bcf in the prior week. Working gas in storage was 3,208 Bcf as of Friday, November 2, 2018, according to EIA estimates. This represents a net increase of 65 Bcf from the previous week. Stocks were 580 Bcf less than last year at this time and 621 Bcf below the five-year average of 3,829 Bcf. At 3,208 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count increased by +14 to 1081 following last week’s decrease of -1.

Metals: Precious Corrrects Further

Agriculture: Grains Falter

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

THE WEEK AHEAD
Week 46 (November 12 to 16)

According to our 5, 10 and 15 year seasonal models;

Benchmarks Indices (21 year average) for wk46:

Week 46 Key Economic Dates

In the coming week the most important releases include US inflation, retail sales and industrial production; UK inflation and employment; Germany and Japan Q3 GDP growth; China industrial output, retail sales and fixed asset investment; India inflation; and Australia employment.

Mon 12 November

Tue 13 November

Wed 14 November

Thu 15 November

Fri 16 November

Earnings 

Third quarter earnings season is wrapping up with 90% of the S&P 500 having reported quarterly results. Third quarter EPS are now expected to grow just over 25% in aggregate with sales up 9.3%. Expectations were for 19% EPS growth with sales up 7% heading into the reporting season. Just over 77% of the S&P 500 beat earnings estimates while 62% beat revenue estimates; 52% traded higher in response.

Fourth quarter EPS are expected to grow 14.3% with sales up 6.7%. Expectations were for 17% EPS growth with revenue up 6.5% one month ago. Estimates for the following quarter normally get pared down a bit based on conservative guidance but higher input costs (raw materials, transportation, wages, etc.) have consistently been cited as a headwind this earnings season.

For 2018 as a whole, S&P 500 EPS are expected to grow 20.6% with sales up 9%, marginally higher than one month ago. In 2019, EPS are expected to grow 9% with sales up 5.5%. But third quarter earnings season isn’t over just yet. Retail earnings season starts kicks off next week and ends Earnings Season on Thursday with WMT’s results.

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

COMMENTARY

“I might start lightening my hedges and prepare for the annual year-end bull run if this market doesn’t fall apart after the FOMC Policy Meeting.”

It’s the last week of earnings season and its back to normal trading without the excessive volatility. I am expecting to see some semblance of normalcy returning to the market. If it does this week, I am back to the usual seasonal trades starting with the retail sector as earnings season winds down.

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 environment 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 and get the most value our of your education investment, there’s no better choice than the time-tested and well reputed Pattern Trader™ Tutorial

Download our promo slides here:
The Pattern Trader™ Tutorial 2019

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

The schedule for the FEBRUARY 2019 Batch is here:
Pattern Trader™ Tutorial – February 2019

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

Screen Shot 2017-10-01 at 1.38.39 PM

Connect with me at LinkedIn

Share
Comments Off on Weekly Market Analysis – 05 November 2018 BMO

Weekly Market Analysis – 05 November 2018 BMO

WEEK IN REVIEW – 29 OCTOBER to 02 NOVEMBER 2018 :
Stocks Stage Rebound Following October Sell-Off

The S&P 500 staged a rebound effort this week, tallying a 2.4% weekly gain. The continued expectation that the market was due for a bounce-back after last month’s sell-off, compounded with mostly upbeat earnings and easing trade tensions underpinned the rally. As for the other major averages, the blue-chip Dow Jones Industrial Average gained 2.4%, the tech-sensitive Nasdaq Composite gained 2.7%, and the small-cap Russell 2000 gained 4.3%.

Cyclical sectors were largely the best-performing groups this week, with the lightly-weighted materials sector (+6.1%) and the heavily-weighted financials (+4.4%) sectors leading the advance. The consumer discretionary sector (+4.0%) also had a notable gain. On the downside, utilities was the only group to settle in the red, losing 0.6%.

U.S.-China trade tensions eased this week, with U.S. President Trump saying that he had a “long and very good conversation” with China’s President Xi, adding that the two leaders will be getting together at the upcoming G-20 summit in Argentina. There were some conflicting reports as to whether Mr. Trump has asked his cabinet to begin drafting a trade deal, but the president did say he thinks a deal will eventually be reached.

On the earnings front, Facebook‘s (FB) third quarter report was “good enough” to temper negativity surrounding the stock, helping to ease growth-related worries. Apple (AAPL), on the other hand, raised some red flags after forecasting softer-than-expected revenue guidance for the holiday quarter and announcing that it will no longer provide unit-sales data for the iPhone, iPad, and Mac.

Other notable companies to report earnings this week included Pfizer (PFE), Coca-Cola (KO), Chevron (CVX), Exxon Mobil (XOM), General Motors (GM), eBay (EBAY), T-Mobile US (TMUS), DowDuPont (DWDP), and Starbucks (SBUX), all of which beat estimates. Conversely, results from General Electric (GE), Kellogg (K), Spotify (SPOT), and Wayfair (W) came in below consensus.

In M&A news, IBM (IBM) acquired Red Hat (RHT) over the weekend for an all-cash offer of $190 per share; that represents a 63% premium over Red Hat’s October 26 closing price.

Highlighting this week’s batch of economic data was the Employment Situation report for October. Nonfarm payrolls increased by 250,000, higher than the Briefing.com consensus of 190,000, while average hourly earnings increased 0.2% as expected. The unemployment rate remained at a nearly 50-year low of 3.7%. The key takeaway from the report is that it is consistent with labor market trends that will keep the Federal Reserve on a tightening path. The U.S. Federal Reserve will be meeting next week, but no rate hike is expected until December.

Overseas, European and Asian stocks rose with Wall Street this week. In Germany, Chancellor Angela Merkel announced that she won’t be seeking re-election as head of the CDU, following disappointing results for her party in a regional election. Her plan, however, is to remain Chancellor until 2021. Meanwhile, the Bank of England and the Bank of Japan released their latest policy decisions, keeping interest rates unchanged.

(Economic Excerpts from Briefing.com)

U.S. ECONOMIC UPDATE

Monday 29 October:

Spending outpaces income in September 

Personal income increased 0.2% in September (consensus +0.4%) while personal spending jumped 0.4% (consensus +0.4%). The PCE Price Index was up 0.1% (consensus +0.1%) while the core PCE Price Index, which excludes food and energy, increased 0.2% (consensus +0.1%).

The key takeaway from the report is the recognition that PCE price inflation decelerated to 2.0% year-over-year from 2.2% in August. Core PCE price inflation held steady at 2.0%. The inflation readings are on par with the Federal Reserve’s longer run target, yet they haven’t moved to such a degree that they are going to alter the Federal Reserve’s current policy stance, which involves an expectation for further gradual rate hikes.

Tuesday 30 October:

Consumer Confidence Picks Up in October; Highest since September 2000

The Conference Board’s Consumer Confidence Index, which revolves heavily around labor market and business conditions, increased to 137.9 in October (consensus 135.8) from a downwardly revised 135.3 (from 138.4) in September.   The October reading is the highest since September 2000.

The key takeaway from the report is that strong employment growth continues to underpin favorable consumer attitudes about present-day conditions and the outlook.

Wednesday 31 October:

Q3 Employment Cost Index Points to Rising Employment Costs

The third quarter employment cost index increased 0.8% (consensus +0.7) versus 0.6% in the second quarter.  Wages and salaries, which comprise about 70% of compensation costs, increased 0.9%, while benefit costs jumped 0.4%.

The key takeaway from the report is that it corroborates a trend of rising compensation costs for civilian workers that have been discussed by employers and which have kept the Federal Reserve on a tightening path.

October ADP above expectations; 227K vs consensus of 180K; September was 230K

Commentary;

Thursday 01 November:

Q3 Productivity shows a move in the right direction

Third quarter productivity increased 2.2% (consensus 2.1%) on the heels of an upwardly revised 3.0% (from 2.9%) in the second quarter. Unit labor costs rose 1.2% (consensus 1.1%) following a downwardly revised 1.1% decline (from -1.0%) in the second quarter.

The key takeaway from the report is that productivity is picking up. The third quarter increase was double the prior 10-quarter average increase of 1.1%. Faster productivity is a springboard for a better standard of living.

Unemployment claims remain on historically low side

Initial claims for the week ending October 27 decreased by 2,000 to 214,000 (consensus 213,000). Continuing claims for the week ending October 20 decreased by 7,000 to 1.631 million, which is the lowest level since July 28, 1973.

The key takeaway from the report is that the low level of initial and continuing claims remains indicative of a tight labor market.

ISM Manufacturing Index points to some deceleration in October

The ISM Manufacturing Index for October checked in at 57.7% (consensus 59.0%) versus 59.8% in September.  It is important to note that the September reading was close to an 18-year high.

The key takeaway from the report is that the pullback is most likely a natural slowing of activity following what has been an impressive acceleration in manufacturing activity on a national level.  That point notwithstanding, the deceleration in what has been one of the hottest sectors will feed into the peak-growth narrative that has been prominent of late.

Construction Spending flat in September

Total construction spending in September was little changed from August (consensus +0.2%) following an upwardly revised 0.8% increase (from +0.1%) in August.

The key takeaway from the report is the recognition that there was no growth in public construction spending in September.

Friday 02 November:

October Employment Report to Keep Fed on Tightening Path

The key takeaway from the October employment report is that it is consistent with labor market trends that will keep the Federal Reserve on a tightening path. Nonfarm payroll growth is strong, the labor force participation rate is increasing, and most importantly, average hourly earnings growth is trending higher at 3.1% year-over-year, its strongest pace since April 2009.

September Trade Deficit Widens, which Is More of the Same 

The Trade Balance Report for September showed a widening in the trade deficit to $54.0 billion (consensus -$53.4B) from a downwardly revised $53.3 billion (from -$53.2 billion) in August.

The key takeaway from the report is the same as last month in that it has yet to confirm the tariff actions are succeeding in cutting the trade deficit with China specifically and in general.

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

Friday 02 November
Apple, Conflicting Trade News Drag Market Lower

Stocks fell on Friday following conflicting U.S.-China trade reports and softer-than-expected sales guidance from Apple (AAPL 207.48). Futures rallied overnight on a Bloomberg report indicating U.S. President Trump asked his cabinet to draft a trade deal, but stocks eventually fell into negative territory after White House officials denied the report.

The S&P 500 lost 0.6%, the Dow Jones Industrial Average lost 0.4%, and the Nasdaq Composite lost 1.0%. Small caps outperformed, with the Russell 2000 adding 0.2%. All four major indices closed solidly higher for the week, adding between 2.4% and 4.3% apiece.

Director of the United States National Economic Council Larry Kudlow confirmed in a CNBC interview that the cabinet was not asked by President Trump to draw up a trade plan for China. Later, as stocks traded at session lows, President Trump reiterated his belief to reporters that the U.S. will reach a trade deal with China. This led stocks to cut their losses in late afternoon trading.

In earnings, Apple raised some red flags after forecasting weaker-than-expected sales for the holiday quarter and announcing it will no longer provide unit-sales data for the iPhone, iPad, and Mac moving forward. The company did beat both top and bottom line estimates though.

On the other hand, energy Dow components Exxon Mobil (XOM) and Chevron (CVX) rose after both reported above-consensus earnings. The energy sector showed relative strength, but still lost 0.1%. On a related note, WTI crude extended its recent downward trend, losing 0.9% to $63.20/bbl and reaching its lowest level since April.

Highlighting Friday’s batch of economic data was the influential Employment Situation report for October, which showed a nonfarm payrolls increase of 250,000, higher than the Briefing.com consensus of 190,000. Also, as expected, average hourly earnings increased 0.2%, and the unemployment rate remained at 3.7%.

In short, the strong jobs report validated labor market trends that will keep the Federal Reserve on a tightening path. The CME FedWatch Tool indicated a 80.7% chance of another Fed rate hike in December, up from a 74.5% chance the previous day. The Fed will meet next week, but no rate hike is expected.

Treasuries sold-off with equities on Friday, pushing yields notably higher across the curve. The Fed-sensitive 2-yr yield and benchmark 10-yr yield spiked seven basis points each to 2.91% and 3.21%, respectively, compared to 2.81% and 3.08% yields last week. Also, the U.S. Dollar Index added 0.2% to 96.48.

Market Internals – Friday 02 November 2018

Dollar: Overnight Loss Erased

The U.S. Dollar Index closed up 0.2% at 96.50 after reclaiming its overnight decline on Friday. The Dollar Index saw a continuation of Thursday’s retreat in overnight trade, as market participants focused on conciliatory-sounding remarks from President Trump and Chinese President Xi Jinping. China’s President Xi said that both he and President Trump want to expand China-US trade cooperation while a separate report indicated that President Trump asked his cabinet to draft a trade deal for the two countries. The Dollar Index hit a session low in Friday’s early-morning trade and rebounded shortly thereafter. The rebound took place after CNBC correspondent Eamon Javers reported that a senior administration official told him that “There is a long way to go” in negotiations. The Index accelerated its rebound after the release of another solid Employment Situation report. It is worth noting that National Economic Council Director Larry Kudlow appeared on CNBC in the early afternoon, saying it is not true that the cabinet was asked to draft a trade deal. The U.S. Dollar Index booked its third consecutive weekly advance, having climbed 0.2% since last Friday.

Bonds: 30-Yr Yield Hits Four-Year High

U.S. Treasuries ended the week on a lower note with the 30-yr yield rising to its highest level since July 2014. The overnight session saw an upbeat showing from equity markets in Asia as participants locked in on positive-sounding comments from the Chinese president and a Bloomberg report, which suggested that President Trump ordered his cabinet to prepare a draft for a trade deal with China. However, it wasn’t long before CNBC’s Washington correspondent Eamon Javers reported that a senior administration official told him that “There is a long way to go” in negotiations with China. That revelation was followed by the release of a solid Employment Situation report for October, which stayed true to the trend observed in recent years. Treasuries spent the session in a steady retreat while the U.S. Dollar Index (96.55, +0.28) rebounded off its overnight low as optimism about an immediate relief to U.S.-China tensions dissipated. The Dollar Index jumped to a fresh high in the afternoon, extending its advance after National Economic Council Director Larry Kudlow told CNBC it is not true that the cabinet was asked to draft a trade deal. Treasuries of all tenors finished the session on their lows.

The yield curve rose across the board. The spread between the 5s10s was unchanged at 17bps from 17bps the previous week while the 10s30s maintained its 24bps spread from 24bps the previous week. 

Commodities 

The Bloomberg Commodity Index settled at 83.88, lower than 85.00 the previous week.

WTI oil fell, settling the week at $63.14. The spread between WTI and Brent narrowed to $9.69 from $10.03 the previous week as Brent settled at $72.83 p/b.

EIA petroleum data for the week ended October 26

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.2 mln barrels from the previous week. At 426.0 mln barrels, U.S. crude oil inventories are about 2% above the five year average for this time of year. Total motor gasoline inventories decreased by 3.2 mln 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 decreased by 4.1 mln barrels last week and are about 5% below the five year average for this time of year. Propane/propylene inventories increased by 1.0 mln barrels last week and are about 3% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 6.4 mln barrels last week.

Natural gas inventory showed a build of 48 bcf vs a build of 58 bcf in the prior week. Working gas in storage was 3,143 Bcf as of Friday, October 26, 2018, according to EIA estimates. This represents a net increase of 48 Bcf from the previous week. Stocks were 623 Bcf less than last year at this time and 638 Bcf below the five-year average of 3,781 Bcf. At 3,143 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count decreased by -1 to 1067 following last week’s increase of 1.

Metals: Gold Drops, Copper Continues Strength

Agriculture: Grains Bounce

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

THE WEEK AHEAD
Week 45 (November 05 to 09)

According to our 5, 10 and 15 year seasonal models;

Benchmarks Indices (21 year average) for wk45:

Week 45 Key Economic Dates

For the coming week, the Fed will decide on monetary policy. Other important releases for the US: ISM Non-Manufacturing PMI, preliminary Michigan consumer sentiment, and producer prices.

Elsewhere: UK Q3 GDP growth; China foreign trade and inflation; and RBA interest rate decision will also be in the spotlight. Investors will also react to the US midterm elections and President Xi Jinping speech.

Mon 05 November

Tue 06 November

Wed 07 November

Thu 08 November

Fri 09 November

Earnings 

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

COMMENTARY

“I remain bearish (but less so now) and heavily hedged on my longs. The coming week is only the second of three of the busiest weeks in earnings season. If you’re thinking of turning Bear now, you might just be a tad late. Stay safe and stay out – never chase the trend.”

That turned out to be pretty sound advice. Now that the major benchmarks are above their respective 200DSMAs, let’s see if they are able to stay above it in the coming two weeks given that the end of this coming week is traditionally quite bearish. I might start lightening my hedges and prepare for the annual year-end bull run if this market doesn’t fall apart after the FOMC Policy Meeting.

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 environment 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 and get the most value our of your education investment, there’s no better choice than the time-tested and well reputed Pattern Trader™ Tutorial

Download our promo slides here:
The Pattern Trader™ Tutorial 2019

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

The schedule for the FEBRUARY 2019 Batch is here:
Pattern Trader™ Tutorial – February 2019

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

Screen Shot 2017-10-01 at 1.38.39 PM

Connect with me at LinkedIn

Share
Comments Off on Weekly Market Analysis – 29 October 2018 BMO

Weekly Market Analysis – 29 October 2018 BMO

WEEK IN REVIEW – 22 to 26 OCTOBER 2018 :
The Bears Have It Good This October

The Bulls are saying that the stock market just had another terrible, horrible, no good, very bad week, filling in some more blanks on what has been a terrible, horrible, no good, very bad month.

Just how bad has it been?  The Russell 2000 is down 12.5% in October; the Nasdaq Composite is down 10.9%; the S&P 500 is down 8.8%; and the Dow Jones Industrial Average is down 6.7%.

The Bears aren’t complaining. In fact, this has been way overdue and the Bulls are paying back just a little bit compared to what they’ve enjoyed from the over-extended season of gains from the last nine years.

The thrust of matters is that the market is worried about growth.  That might sound odd considering it was revealed on Friday that third quarter real GDP increased at an annual rate of 3.5%, yet it is the sobering message that has resonated loud and clear in the stock market’s price action.

The worry isn’t about the growth that was just left behind.  Rather, it is about the growth to come – or perhaps lack thereof.

There are various explanations regarding the causes of the stock market’s correction: the adverse effect of a strong dollar; the slowdown in China and other foreign markets; tariff issues, raw material price increases; political uncertainty; diplomatic uncertainty; price increases for consumers; rising interest rates; and profit margin pressures.

Ultimately, they all feed into the one thing that matters most for the stock market: earnings growth.

The clearest evidence that the stock market is wrapped up in worries that future earnings growth won’t live up to expectations is in the third quarter earnings results.  They have been quite impressive. 

According to FactSet, the blended third quarter earnings growth rate is 22.5%, up from 19.3% on September 30.  What’s more is that the forward 12-month EPS estimate has increased by 0.8% over the same period.

Analysts, then, aren’t marking down their estimates, yet investors are marking down stock prices sharply, believing those estimates are destined for a downward revision in due time as the effects of tariffs, higher interest rates, and higher operating costs kick in just as the initial thrust of the tax cuts gets kicked out and earnings comparisons become more difficult.

The quantitative result is that there has been a compression in the forward twelve-month P/E ratio to 15.5, versus 16.8, at the beginning of the fourth quarter, according to FactSet, as prices have dropped sharply while the earnings estimate has drifted higher.

Even so, there hasn’t been a concerted effort yet to buy into the weakness, which has been unsettling for investors who have grown accustomed to the stock market, and particularly the mega-cap growth stocks, always bouncing back in confident fashion.

The recognition that any strength has been viewed as an opportunity to sell has shaken investor confidence and has contributed to selling efforts on the part of investors trying to secure profits in crowded trades before they disappear altogether. 

That would take some time yet for anyone buying at the start of this bull market.  To wit, the S&P 500 is still up nearly 300% from its low in March 2009; nevertheless, the ugly price action of late in key leadership stocks (i.e. the FAANG stocks), key leadership groups (i.e. information technology, communication services, consumer discretionary, financials, and industrials), and the major indices has upset the balance of confidence in the stock market.

That all came home to roost in the week that just concluded. 

There were some good reports to be sure and some encouraging reactions to those reports.  Microsoft (MSFT), Tesla (TSLA), Twitter (TWTR), Intel (INTC), and Boeing (BA) come to mind. 

However, the stock market wasn’t governed by their good news.  It was governed by the disappointing guidance from the likes of Caterpillar (CAT), 3M (MMM), Texas Instruments (TXN), Amazon.com (AMZN), Alphabet(GOOG), Mohawk Industries (MHK), Colgate-Palmolive (CL), and Western Digital (WDC) to highlight a few examples.

Nothing cured the stock market this week, because none of its bugaboos got cured.

It is sounding like the trade war between the U.S. and China could be a prolonged one; Italy sounds as if it is thumbing its nose at the EU’s request to revise its budget; Saudi Arabia’s explanation for how Washington Post columnist Jamal Khashoggi died had obvious signs of being a cover up; Brexit negotiations have hit another impasse; the U.S. dollar strengthened; and, perhaps most importantly, Federal Reserve officials continued to make their case for why they think further rate hikes are warranted.

The latter is a central component of why the stock market is wrapped up in growth concerns.  It is bothered by the idea that the Federal Reserve is going to raise rates too much, too soon, and choke off the U.S. economy’s growth trajectory at a time when foreign economies, namely China and Europe, are already slowing down.

The translation heard from the lips of many pundits is that there is a fear of the Federal Reserve making a policy mistake.

Again, though, that gets back to earnings growth concerns, which have fueled broad-based de-risking in the stock market.  All 11 sectors in the S&P 500 ended lower in the week just concluded.  The real estate sector fared the best with a 1.0% decline while the energy sector fared the worst with a 7.1% decline.

There was nowhere to hide other than in cash and risk-free Treasuries.  Yields fell across the curve. The 2-yr note came down 11 basis points to 2.81% and the 10-yr yield dropped 12 basis points to 3.08%.

The fact that the stock market found little comfort in the drop in market rates was a telltale sign that it was a terrible, horrible, no good, very bad week for the bulls caught up in a correction driven by earnings growth concerns.

(Economic Excerpts from Briefing.com)

U.S. ECONOMIC UPDATE

Wednesday 24 October:

October U.S. Markit Manufacturing PMI- Prelim 55.9, Prior 55.6; Services PMI- Prelim 54.7, prior 53.5

Stronger overall business activity growth was driven by the service sector in October, which more than offset a slight loss of momentum in manufacturing. Higher levels of business activity were supported by another sharp rise in new work. Survey respondents noted that improving domestic economic conditions were the main factor behind rising client demand. Robust new business growth placed additional pressure on operating capacity in October, as highlighted by another modest accumulation of unfinished work. Payroll growth remained solid as firms continued to expand capacity, though the rate of private sector job creation eased to its slowest since June 2017

New Home Sales a Real Dud in September

New home sales declined 5.5% month-over-month in September to a seasonally adjusted annual rate of 553,000 (consensus 625,000).  That was the weakest pace since December 2016 and it followed on the heels of a sharp downward revision for August to 585,000 (from 629,000).

The key takeaway from the report is that it underscores how demand is being impacted by rising mortgage rates.  Median and average home prices were both down year-over-year, yet that didn’t seem to provide much of a lift for new home sales.

Thursday 25 October:

Durable Orders Exceed September Estimates

Durable Goods orders for September increased 0.8% (consensus -1.8%) after a revised 4.6% increase (from 4.5%) in August. Excluding transportation, durable goods orders increased 0.1% (consensus 0.3%) after a revised 0.3% increase (from 0.1%) in August.

The key takeaway from the report is that the headline increase was driven by growth in transportation equipment orders and defense aircraft and parts orders while growth in other areas was more of a mixed bag.

Initial Claims Remain Near Multi-Decade Lows

Initial claims for the week ending October 20 increased by 5,000 to 215,000 (consensus 211,000). Continuing claims for the week ending October 13 decreased by 5,000 to 1.636 million, which is the lowest level since August 4, 1973.

The key takeaway from the report is that the trend of steadily decreasing initial and continuing claims has been uninterrupted by today’s report.

Friday 26 October:

Consumer Spending and Inventories Puff Up Q3 GDP

Real GDP increased at an annualized rate of 3.5% (consensus 3.3%) while the price deflator checked in at a lower-than-expected 1.7% (consensus 2.1%).

The key takeaway from the report is that real final sales of domestic product, which subtracts the change in private inventories, were up just 1.4% – the weakest growth rate since the fourth quarter of 2016.

Consumer Sentiment Eases in October, but Still High

The final October reading for the University of Michigan Index of Consumer Sentiment was 98.6, down slightly from the preliminary reading o 99.0 and the final September reading of 100.1.

The key takeaway from the report is that consumer sentiment has not been unduly affected by the stock market sell-off or the jump in interest rates.  The outlook for consumers is still rooted in feelings about job security.

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

Friday 26 October
S&P 500 Tumbles as Amazon, Alphabet Disappoint

The S&P 500 lost 1.7% in a volatile session on Friday, in which it never touched positive territory. Disappointing earnings reports from Amazon (AMZN) and Alphabet(GOOG) rattled a fragile market pestered by peak-earnings concerns.

The benchmark index briefly dipped into correction territory, characterized by a 10% pullback from a prior high, before it took a sharp turn upwards in late morning trading. Nevertheless, the comeback proved futile, as stocks eventually rolled over again. The 11 S&P 500 sectors all finished lower.

The Dow Jones Industrial Average lost 1.2%, the Nasdaq Composite lost 2.1%, and the Russell 2000 lost 1.1%.

A stronger-than-expected advance Q3 GDP reading (+3.5% actual vs +3.3% consensus) took a backseat in Friday’s trading action to Amazon lowering its fourth quarter revenue guidance and Alphabet missing third quarter revenue expectations. The encouraging headline GDP figure, though, was tempered by the understanding that real final sales, which exclude the change in private inventories, increased just 1.4%, marking the slowest growth rate since the fourth quarter of 2016.

Amazon and Alphabet weighed heavily on the underperforming consumer discretionary (-3.6%) and communication services (-2.4%) sectors, as their disappointments filtered through to other growth stocks, which have been beaten down sharply this month on valuation concerns.

Facebook (FB), Netflix (NFLX), and Apple (AAPL) also backpedaled from notable gains in the previous session, adding pressure to the communication services and information technology (-1.9%) sectors.

In other earnings news, Mohawk Industries (MHK), Western Digital (WDC), and Colgate-Palmolive (CL) contributed to angst over future earnings growth.

Flooring manufacturing company Mohawk cited weakening demand, inflation, and pricing pressures for its lower outlook; Western Digital said customers are being more conservative, resulting in softening demand; and Colgate-Palmolive encountered profit margin pressures from higher raw material and packaging material costs.

Conversely, Dow component Intel (INTC) easily beat consensus revenue and EPS estimates for the third quarter and issued fourth quarter guidance that exceeded analysts’ average estimates. Shares of the chip maker finished 3.1% higher.

U.S. Treasuries prices rose, as the market turmoil drove some safe-haven positioning. The 2-yr yield decreased five basis points to 2.81%, and the 10-yr yield dropped six basis points to 3.08%. The U.S. Dollar Index traded 0.3% lower at 96.37, though not far from its two-month high.

Overseas, markets closed on a downbeat note amid the early negative price action in the U.S. market.

Market Internals – Friday 26 October 2018

Dollar: Index Backtracks From August High

The U.S. Dollar Index closed down at 96.32 after surrendering a modest early Friday-morning gain. The Dollar Index climbed during the European session while European equities faced early selling pressure. The Index marked a session high (96.86) just below its high from August (96.98), but backed off its best level of the session as European equities and the euro rebounded. The Dollar Index booked its second consecutive weekly advance, having climbed 0.8% since last Friday.

Bonds: Treasuries Climb as December Rate Hike Odds Recede

U.S. Treasuries ended the week with gains across the curve. The cash session started with solid gains after Treasury futures rallied amid another weak showing from equity markets in Asia and Europe. Treasuries backed off their starting levels after the release of a slightly stronger than expected advance GDP for the third quarter (actual 3.5%; Briefing.com consensus 3.3%), but that pullback was short-lived. Treasuries overtook their opening levels during a mid-morning push, which coincided with more selling in the stock market. The Treasury complex marked session highs around 11:00 ET, as equities were hitting their lowest levels of the day. Midday action saw Treasuries backpedal to their starting levels while equities reclaimed some of their losses. The recent weakness in stocks and the corresponding bounce in Treasuries have curtailed expectations for a December rate hike, but Federal Reserve officials have not hinted at any imminent changes to the policy course. The implied probability of a December hike declined to 70.3% from 77.1% yesterday and 83.8% one week ago, according to the fed funds futures market.

The yield curve fell across the board with the sharpest drop along the belly of the curve in a steepening move. The spread between the 5s10s widened to 17bps from 15bps the previous week while the 10s30s widened to 24bps from 18bps the previous week. 

Commodities 

The Bloomberg Commodity Index settled at 85.00, lower than 85.95 the previous week as oil, copper and grains lost ground.

WTI oil fell to $66.00 p/b before settling the week at $67.59. The spread between WTI and Brent narrowed to $10.03 from $10.66 the previous week as Brent settled at $77.62 p/b.

EIA petroleum data for the week ended October 19

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.3 mln barrels from the previous week. At 422.8 mln barrels, U.S. crude oil inventories are about 2% above the five year average for this time of year. Total motor gasoline inventories decreased by 4.8 mln barrels last week and are about 6% above the five year average for this time of year. Finished gasoline and blending components inventories both decreased last week. Distillate fuel inventories decreased by 2.3 mln barrels last week and are about 4% below the five year average for this time of year. Propane/propylene inventories decreased by 0.3 mln barrels last week and are about 4% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 8.0 mln barrels last week.

Natural gas inventory showed a build of 58 bcf vs a build of 81 bcf in the prior week. Working gas in storage was 3,095 Bcf as of Friday, October 19, 2018, according to EIA estimates. This represents a net increase of 58 Bcf from the previous week. Stocks were 606 Bcf less than last year at this time and 624 Bcf below the five-year average of 3,719 Bcf. At 3,095 Bcf, total working gas is below the five-year historical range

Baker Hughes total U.S. rig count increased by +1 to 1068 following last week’s increase of 4.

Metals: Precious Gain, Copper Corrects

Agriculture: Corn Consolidates, Wheat and Soy continue to fall

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

ASIA-PACIFIC REGION

As of Friday’s close, the Shanghai Composite has lost -49.81% from its 2015 high of 5,178.19 and continues to dive deeper into Bear Market territory having lost -21.42% YTD and -23.73% YonY.

Singapore’s Straits Times Index (STI) closed at 2,972.02, breaking below its critical 3,000 support for the first time since January 2017. The STI is now down -12.66% YTD and -8.13% YonY and is digging deeper below its 200DSMA.

Japan’s Nikkei 225 gave up gains to slip 0.4 percent by the closing bell to 21,184.6 while the Topix index declined by 0.31 percent to 1,596.01.

South Korea’s Kospi dropped 1.75 percent to close at 2,027.15 while the Kosdaq index fell 3.46 percent to 663.07.

Australia’s ASX 200 closed near flat at 5,665.2, with the heavily weighted financial subindex up by 0.35 percent.

India’s Sensex lost 1.0%, widening this week’s decline to 4.0%.

Economic Data

News

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

THE MONTH AHEAD

November is the second month of Quarter Four and the end of Earnings Season for Q3 results. November starts the “Best Six Months” on the DOW and S&P and also begins the “Best Eight Months” on the NASDAQ

October 2018 has twenty (20) trading sessions, one half-day session and one public holiday. November 23 is Black Friday – the start of Christmas Sales. Black Friday is always the Friday after Thanksgiving. 

November Trivia

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

THE WEEK AHEAD
Week 44 (October 29 to November 02)

According to our 5, 10 and 15 year seasonal models;

Benchmarks Indices (21 year average) for wk44:

Week 44 Key Economic Dates

In the coming week, important releases for the US include the jobs report and unemployment rate, ISM Manufacturing PMI, personal income and spending and PCE prices.

Elsewhere: Interest rate decisions from the BoE and the BoJ; Eurozone Q3 GDP growth; China NBS PMIs and Caixin Manufacturing PMI; and UK budget announcement will also be in the spotlight.

Mon 29 October

Tue 30 October

Wed 31 October

Thu 01 November

Fri 02 November

Earnings 

Big Tech and Big Industrials dominate the coming week’s earnings schedule. Big Oil’s results then ends the second-most busiest week of earnings season.

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

TECHNICALS

S&P and Dow Jones closed in negative territory for the year.  The Nasdaq still remains positive on the year while Small & MidCaps have been negative since their aggressive breakdowns below their 200DSMAs early in the month.

All the technical signals have been triggered in the last two weeks with all four benchmarks closing the week below their 200DSMA to signal a Technically Bearish Market. All four benchmarks are also in Correction Territory as of Friday’s close, trading more than 10 percent below its record high reached in September.

Seven of the 11 S&P 500 sectors are down at least 10 percent from their 52-week highs, including energy, materials and financials. Around three quarters of the index’s stocks are also in a correction. At this rate, we’re likely to see the ultimate Death Cross (50DSMA crossing below the 200DSMA) within two weeks.

Even before October has ended, the DOW is already being threatened by its first bearish monthly MACD histogram. As you can see, the MACD histograms in this configuration rarely turns for little or no reason.

COMMENTARY

“I can’t see any reason for this technically bearish signal to be sustained. If we do get a few surprises that shock the market into lower lows, I will be ready as I have not changed my stance from the last two weeks. I am still not a buyer and will stay heavily hedged or short with tight stops.

That was really a good – and profitable – decision to stay hedged and bearish. 

Now as the market delves deeper into bearish territory, let’s see if the dip-buyers come back. Their failure to return will surely spark a further sell-off especially if the Bears stay stubborn and not cover their shorts. Should that happen, I’ll be expecting the yield curve to flatten in a hurry as more monies find a flight to safety amidst the aforementioned uncertainties; a strong dollar, the slowdown in China and other foreign markets, tariff issues, raw material price increases, political uncertainty, diplomatic uncertainty, price increases for consumers, rising interest rates, profit margin pressures and earnings growth.

Cleveland’s Fed Chair, Loretta Mester (Voting Member) said this week that the current volatility is “a natural thing” and I have to agree with her. (Read: Market turmoil is a “risk”) Such is the nature of October’s Earnings Season. The irrational fear of the October Effect especially against a backdrop of over-priced stocks will make any sensible investor nervous and twitchy.

So if this “natural thing” does the normal thing, we should be seeing a bottom very soon and be back on the way up by mid-November. I still maintain that the U.S. economy remains lofty with no damaging signs that would imply any economic weakness or failure for the next quarter or two. 

I remain bearish (but less so now) and heavily hedged on my longs. The coming week is only the second of three of the busiest weeks in earnings season. If you’re thinking of turning Bear now, you might just be a tad late. Stay safe and stay out – never chase the trend.

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 environment 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 and get the most value our of your education investment, there’s no better choice than the time-tested and well reputed Pattern Trader™ Tutorial

Download our promo slides here:
The Pattern Trader™ Tutorial 2019

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

The schedule for the FEBRUARY 2019 Batch is here:
Pattern Trader™ Tutorial – February 2019

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

Screen Shot 2017-10-01 at 1.38.39 PM

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Comments Off on Weekly Market Analysis – 22 October 2018 BMO

Weekly Market Analysis – 22 October 2018 BMO

WEEK IN REVIEW – 15 to 19 OCTOBER 2018 :
Mixed Outing As Earnings Season Ramps Up

Stocks had a mixed outing this week after suffering heavy losses in the week prior. The benchmark S&P 500 finished flat, leaving its October loss at 5.0%, and the blue-chip Dow ticked up 0.4%. Conversely, the tech-heavy Nasdaq fell 0.6%, and the small-cap Russell 2000 lost 0.3%.

The third quarter earnings season ramped up this week after kicking off last Friday. Financial companies Goldman Sachs (GS), Morgan Stanley (MS), Bank of America(BAC), U.S. Bancorp (USB), Charles Schwab (SCHW), and BlackRock (BLK) reported mostly better-than-expected profits, helping to boost the S&P financial sector 0.8% higher.

Meanwhile, the health care sector rallied 0.5% after Dow components Johnson & Johnson (JNJ) and UnitedHealth (UNH) beat earnings estimates and issued above-consensus guidance.

Software giant Adobe Systems (ADBE) surged nearly 10% on Tuesday after it reaffirmed fourth quarter guidance and said it expects FY19 revenues to be up 20%. The information technology sector trailed the broader market this week overall though, losing 1.2%. Chipmakers were relatively weak, with the Philadelphia Semiconductor Index falling 2.2%.

Netflix (NFLX) was another notable name on this week’s earnings calendar. The streaming media giant beat bottom-line estimates and reported higher-than-expected subscriber growth by adding nearly seven million new subscribers last quarter – six million coming from overseas. However, shares fell later in the week on news that The Wall Street Journal is investigating the company’s corporate culture.

Away from earnings, home-improvement retailers Home Depot (HD) and Lowe’s (LOW) sold off on Wednesday following some disappointing housing data. Housing starts rose to a seasonally adjusted annualized rate of 1.201 million units in September, below the consensus estimate of 1.221 million, and building permits declined to a seasonally adjusted annualized rate of 1.241 million, also below the Briefing.com consensus estimate of 1.273 million.

Also of note, retailer Sears Holdings (SHLD) filed for Chapter 11 bankruptcy. While the news was not a surprise, it did generate a sentimental story line given the retailer’s storied operating history.

The minutes from the September FOMC meeting were released on Wednesday, showing that officials generally agreed on the need for more gradual rate hikes. In addition, the minutes revealed that a number of officials saw the need to hike rates above levels expected to prevail over the long run. The probability of a December rate hike remains high, ticking up to 83.7% from 79.8% last week, according to the CME FedWatch Tool.

As for the 11 S&P 500 sectors, they finished the week pretty evenly mixed between green and red. Defensive groups like consumer staples (+4.3%), utilities (+3.1%), and real estate (+3.2%) were the top performers, while growth-sensitive groups like consumer discretionary (-2.0%), energy (-1.9%) and materials (-1.4%) finished at the bottom of the sector standings.

In other markets, U.S. Treasuries slipped this week, pushing yields higher; the yield on the benchmark 10-yr note climbed three basis points to 3.20%. The U.S. Dollar Index advanced 0.6% to 95.46, but WTI crude fell 2.9% to $69.26/bbl.

The disappearance and alleged murder of Washington Post columnist Jamal Khashoggi pressured U.S. Treasury Secretary Steven Mnuchin into pulling out of next week’s Future Investment Initiative conference in Saudi Arabia. President Trump expressed confidence in intelligence reports that the murder was ordered by high-level Saudi officials, but stopped short of putting the blame on Saudi Arabia’s crown prince Mohammed bin Salman.

Elsewhere overseas, China’s Shanghai Composite touched a new four-year low this week due to investor concerns over slowing economic growth. On Friday, China reported 6.5% year-over-year GDP growth, less than the prior quarter’s growth of 6.7% and less than the expected growth of 6.6%. Meanwhile, the Euro Stoxx 50 advanced 0.5% this week despite continued angst that the Italian budget situation could get nasty.

Additionally, Canada became the second country in the world to legalize marijuana on Wednesday, causing a sell-the-news reaction in weed stocks.

(Economic Excerpts from Briefing.com)

Monday 15 October:

Retail Sales Come Up Short in September :

Retail sales were up just 0.1% in September (consensus +0.6%) after increasing 0.1% in August. Excluding autos, sales declined 0.1%. (consensus +0.4%)

The key takeaway from the report is that core retail sales, which factor into GDP growth models, were up a solid 0.5%. Hence, the headline numbers were disappointing, yet this report will still factor favorably for Q3 real GDP growth prospects.

Business Inventories in August Match Expectations :

Total business inventories increased 0.5% in August, in-line with the consensus estimate, after increasing an upwardly revised 0.7% (from 0.6%) in July. Total business sales also increased 0.5% after increasing 0.2% in July.

The key takeaway from the report is that business sales continued to outpace inventory growth year-over-year, which is a favorable trend that carries the potential to lead to a better pricing environment for businesses.

Treasury Budget Deficit Increases by $113.2 Billion in FY18 :

The Treasury Budget for September showed a surplus of $119.1 billion versus a surplus of $7.9 billion for the same period a year ago. The Treasury Budget data is not seasonally adjusted, so the September surplus cannot be compared to the $214.1 billion deficit for August.

The budget deficit for fiscal 2018 totaled $779.0 billion versus $665.8 billion in fiscal 2017.

Tuesday 16 October:

Industrial Production Up in September Despite Hurricane Florence :

Industrial production increased 0.3% in September, matching the consensus estimate, after increasing an unrevised 0.4% in August.  Hurricane Florence had an estimated effect of less than 0.1 percentage point on output growth.  The capacity utilization rate remained at 78.1% for the second straight month, slightly shy of the consensus estimate of 78.2%.

The key takeaway from the report is that it revealed the strongest year-over-year growth rate in industrial production (+5.1%) since December 2010.

Wednesday 17 October:

Housing Starts Sluggish in September :

The key takeaway from the September Housing Starts and Building Permits report is that the supply of new homes isn’t picking up fast enough to meet the demand for new homes at more affordable price points. Accordingly, overall home sales activity will continue to be curtailed by affordability constraints.

Fed releases minutes from September FOMC policy meeting :

Key Excerpts :

Minutes of the Federal Open Market Committee

Thursday 18 October:

Initial Claims Send Good October Payrolls Signal :

Initial claims for the week ending October 13 dropped by 5,000 to 210,000 (consensus 212,000). Continuing claims for the week ending October 6 decreased by 13,000 to 1.640 million, which is the lowest level since August 4, 1973.

The key takeaway from the report is that it covered the week in which the survey for the October employment report was conducted. Accordingly, with the low level of initial claims, economists will have a basis to forecast another solid increase in nonfarm payrolls.

Philadelphia Fed Index Eases in October, but Remains Rooted in Expansion :

The Philadelphia Fed Index eased to 22.2 in October (consensus 20.0) from 22.9 in September. The dividing line between expansion and contraction for this regional manufacturing survey is 0.0.

The key takeaway from this report is that manufacturers remain optimistic about the outlook, as 48% of respondents expect business activity to increase over the next six months versus only 14% that expect declines.

Leading Economic Index Rides Consumer Expectations to September Gain :

The Conference Board’s Leading Economic Index increased 0.5% in September (consensus +0.5%) after increasing an unrevised 0.4% in August.

The key takeaway from the report is that there was widespread strength in the basket of leading indicators.  The strongest contribution came from average consumer expectations for business conditions (+0.14 percentage points), which should be constructive for consumer spending activity.

Friday 19 October:

Rising Mortgage Rates Clip Existing Home Sales in September :

Existing home sales declined 3.4% month-over-month in September to a seasonally adjusted annual rate of 5.15 million (consensus 5.30 million), which is the lowest sales level since November 2015. Total sales were 4.1% lower than the same period a year ago.

The key takeaway from the report is that home sales activity was pressured by the limited supply of lower-priced homes and the affordability constraints presented by higher mortgage rates.

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

Friday 19 October
S&P 500 Finishes Flat Despite Strong Start

The S&P 500 closed Friday at its flat line, a fitting end to a flat week; the benchmark index ended just 0.02% above last Friday’s close. The session began with a bang, with the S&P 500 adding as much as 1.0%, following a positive overnight performance from Chinese markets and more upbeat earnings. However, sentiment soon shifted, prompting a slow and steady retreat from early highs.

As for the other major averages, the blue-chip Dow Jones Industrial Average added 0.3%, tech-heavy Nasdaq Composite lost 0.5%, and the small-cap Russell 2000 fumbled 1.2%.

China’s Shanghai Composite rebounded from a four-year low on Friday, adding 2.9%, despite reporting a lower-than-expected GDP reading (+6.5% actual vs +6.6% consensus). Chinese officials made a collaborative effort to ease investor angst about liquidity risk and China’s economic fundamentals.

On the earnings front, Procter & Gamble (PG) and PayPal (PYPL) jumped 8.8% and 9.4%, respectively, after beating earnings estimates. Procter & Gamble wowed investors with quarterly organic sales increasing 4% — its highest increase since Q1 of its fiscal 2014 year. In addition, Dow component American Express (AXP) enjoyed a healthy gain of 3.8% after besting earnings estimates and raising its profit guidance.

Within the S&P 500 sectors, investors played defense again. The consumer staples (+2.3%), utilities (+1.6%), and real estate (+1.0%) sectors finished atop Friday’s leaderboard. Conversely, the consumer discretionary (-0.9%) and health care (-1.0%) sectors weighed on the broader market, and energy (-0.8%) and materials (-0.7%) also underperformed.

Looking at other markets, U.S. Treasuries ticked lower to conclude the week, pushing yields higher. The 2-yr yield and 10-yr yield each increased two basis points to 2.90% and 3.20%, respectively. For the week, the 2-yr yield added four basis points, and the 10-yr yield added three basis points. In addition, the U.S. Dollar Index fell 0.3% to 95.46.

In energy, WTI crude recouped some of its recent losses on Friday, settling 0.8% higher at $69.26/bbl. Still, the commodity remains near a one-month low.

Market Internals – Friday 19 October 2018

Dollar: Streak Snapped

The U.S. Dollar Index closed down on Friday at 0.2% at 95.64, marking its first decline since Monday. The Dollar Index held its ground during the Thursday overnight session, but it began retreating once attention turned to Europe. A rebound in Italian debt boosted the euro, which in turn pressured the Dollar Index to a session low around 12:45 ET. The Index climbed off its low, but it held the bulk of Friday’s decline, trimming this week’s gain to 0.5%.

Bonds: Down Week Ends on Lower Note

U.S. Treasuries ended the week on a lower note, but intraday movement was limited, as the 10-yr note and the 30-yr bond settled within striking distance of their opening levels. Treasury futures held their ground in overnight trade while Asian markets had a mixed showing. China reported slightly weaker than expected year-over-year growth (actual 6.5%; expected 6.6%) for the third quarter, but the report was overshadowed by comments from several Chinese officials, who discussed measures for supporting China’s capital markets. The remarks helped China’s Shanghai Composite jump 2.6% after hitting a four-year low yesterday. The sideways action in the Treasury futures market was followed by selling just before the U.S. cash open. That weakness took place as Italian debt rebounded from this week’s low. Treasuries saw some selling during the first two hours of the session, but longer tenors showed resilience while 2s and 5s remained near their morning lows until the close. The slope of the yield curve was unchanged when compared to last Friday. The 2s10s spread remained at 30 bps while the 2s30s spread held at 48 bps.

The yield curve rose across the board. The spread between the 5s10s remained at 15bps from 15bps the previous week while the 10s30s remained at 18bps from 18bps the previous week. The spread between the 2yr and 30yr yields is only 48bps. 

Commodities 

The Bloomberg Commodity Index settled at 85.95, lower than 86.24 the previous week as energy, grains and copper fell.

WTI oil broke below $70.00 p/b and settled the week at $69.12. The spread between WTI and Brent widened to $10.66 from $9.09 the previous week.

EIA petroleum data for the week ended October 12

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.5 mln barrels from the previous week. At 416.4 mln barrels, U.S. crude oil inventories are about 2% above the five year average for this time of year. Total motor gasoline inventories decreased by 2.0 mln barrels last week and are about 7% above the five year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 0.8 mln barrels last week and are about 3% below the five year average for this time of year. Propane/propylene inventories increased by 2.0 mln barrels last week and are about 5% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 3.0 mln barrels last week.

Natural gas inventory showed a build of 81 bcf vs a build of 90 bcf in the prior week. Working gas in storage was 3,037 Bcf as of Friday, October 12, 2018, according to EIA estimates. This represents a net increase of 81 Bcf from the previous week. Stocks were 601 Bcf less than last year at this time and 605 Bcf below the five-year average of 3,642 Bcf. At 3,037 Bcf, total working gas is below the five-year historical range.

OPEC sees oil prices continuing lower over the coming weeks, according to the WSJ.

Baker Hughes total U.S. rig count increased by +4 to 1067 following last week’s increase of 11.

Metals: 

Agriculture:

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

THE WEEK AHEAD
Week 43 (October 22 to 26)

According to our 5, 10 and 15 year seasonal models;

Benchmarks Indices (21 year average) for wk43:

Week 43 Key Economic Dates

Next week, important releases for the US include: Q3 GDP growth, flash Markit PMIs, new and pending home sales and durable goods. Elsewhere, ECB and Bank of Canada monetary policy decisions; Eurozone, Germany and France flash Markit PMIs; and Japan flash Markit Manufacturing PMI will also be in the spotlight.

Sun 21 October

Mon 22 October

Tue 23 October

Wed 24 October

Thu 25 October

Fri 26 October

Earnings 

With 17% of the S&P 500 having reported quarterly results, reported earnings are up 22%; 81% have beat on the bottom line but only 51% have traded higher in response.

Next week is the start of three very heavy weeks of earnings reports with almost a third of the DOW and S&P 500 reporting quarterly results.

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

COMMENTARY

Despite the recent drop, I am still not a buyer yet. For now, I prefer to stay heavily hedged on any long position or just stay short (with tight stops) for the possibility of a further drop given October’s reputation.”

That was definitely a good plan which I will keep for the next two weeks at least. Let’s not forget that we’re coming into the busiest and most volatile weeks of earnings season in the coming two weeks.

The S&P500 closed a single point below its critical 200DSMA on Friday while the DOW narrowly avoided testing its own 200DSMA. The NASDAQ is two sessions below its 200DSMA but the Transports have it worse – eight sessions below is 200DSMA and looking like confirming its second Death Cross below the 200DSMA next week – the 10DSMA crossed below the 200DSMA on Wednesday and next week is likely to see the 20DSMA flow suit.

With a huge batch of big-hitters announcing their earnings in the coming week, I can’t see any reason for this technically bearish signal to be sustained. If we do get a few surprises that shock the market into lower lows, I will be ready as I have not changed my stance from the last two weeks. I am still not a buyer and will stay heavily hedged or short with tight stops.

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 environment 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 and get the most value our of your education investment, there’s no better choice than the time-tested and well reputed Pattern Trader™ Tutorial

Download our promo slides here:
The Pattern Trader™ Tutorial 2019

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

The schedule for the FEBRUARY 2019 Batch is here:
Pattern Trader™ Tutorial – February 2019

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

Screen Shot 2017-10-01 at 1.38.39 PM

Connect with me at LinkedIn

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Comments Off on Weekly Market Analysis – 15 October 2018 BMO

Weekly Market Analysis – 15 October 2018 BMO

WEEK IN REVIEW – 08 to 12 OCTOBER 2018 :
An Ugly Week on Wall Street

Stocks sold off sharply this week, sending the S&P 500 lower by 4.1%. Fears over potentially weakening economic and earnings growth helped fuel the selling, which left stocks at three-month lows going into the third quarter earnings season. The Dow Jones Industrial Average lost 4.2% this week, and the tech-heavy Nasdaq Composite fell 3.7%.

The International Monetary Fund (IMF) cut its 2018 and 2019 global growth outlook to 3.7% from 3.9% on Tuesday, citing trade uncertainties that include tariffs between the U.S. and China, a pending Brexit deal, and the new trilateral agreement between the U.S., Canada, and Mexico that’s supposed to replace NAFTA.

On a related note, President Trump and Chinese leader Xi Jinping have reportedly agreed to meet at next month’s G-20 summit with hopes of resolving their trade conflict.

A third quarter earnings warning from specialty chemicals company PPG Industries (PPG) weighed on sentiment this week, dampening hopes of another strong quarter. Financial giants JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) kicked off the Q3 earnings season on Friday with mixed results; JPM and C beat bottom-line estimates, but WFC missed. The financial sector initially had a positive reaction to the earnings results on Friday, but later rolled over to close the week with a total loss of 5.6%. A curve-flattening trade in the bond market didn’t bode well for lenders, which depend on the interest-rate differential between what they pay for deposits and what they make on loans.

The yield on the benchmark 10-yr Treasury note, which spiked to a seven-year high last week, hovered between 3.12% and 3.26% before eventually settling Friday at 3.14% – nine basis points below last Friday’s close. Meanwhile, the yield on the more Fed-sensitive 2-yr Treasury note fell four basis points to 2.84%, leaving the 2-10 spread with a five bps point loss for the week.

President Trump blamed this week’s selling on the Federal Reserve, which he says has “gone crazy” with its rate hikes. The Fed has raised rates three times this year with the most recent hike coming in September, and it appears to be on track to raise rates again at its December meeting. The CME FedWatch Tool places the chances of a December rate hike at 79.7%; that’s down slightly from 80.0% last Friday.

The S&P 500 got into technical trouble this week, breaching its 50-day moving average on Wednesday and then its 200-day moving average on Thursday. The benchmark index tried to reclaim its 200-day moving average on Friday, but closed right at the key technical mark. The Dow Jones Industrial Average and the Nasdaq Composite breached their 200-day moving averages as well; the Dow eventually reclaimed the key technical level, but the Nasdaq did not.

Also of note, the CBOE Volatility Index (VIX), often referred to as the “investor fear gauge,” touched its highest level since late March (28.64) before pulling back a bit on Friday. Still, the VIX finished the week roughly 40% higher.

In other news, Hurricane Michael made landfall in the Florida Panhandle on Thursday as a Category 4 storm. The storm has devastated the region, causing billions of dollars in damages and killing at least 13 people. Many oil producers in the Gulf of Mexico halted operations in anticipation of the storm, but WTI crude fell this week nonetheless, dropping 3.9% to $71.41/bbl, and the S&P 500’s energy sector lost 5.4%.

Looking ahead, earnings season will ramp up next week with Bank of America (BAC), Charles Schwab (SCHW), UnitedHealth (UNH), Johnson & Johnson (JNJ), Morgan Stanley (MS), Goldman Sachs (GS), IBM (IBM), Netflix (NFLX), Travelers (TRV), American Express (AXP), PayPal (PYPL), Procter & Gamble (PG), and a host of others scheduled to report their quarterly results.

(Economic Excerpts from Briefing.com)

Wednesday 10 October: PPI in line with expectations; Wholesale inventories above expectations

Producer Price Index Rebounds in September

The Producer Price Index for final demand increased 0.2%, as did the final demand index less food and energy (core PPI). The 0.2% month-over-month increases were in-line with the consensus estimates and followed 0.1% declines in August.

The key takeaway from the report is that producer prices climbed in September without a contribution from prices for final demand energy, which fell 0.8%. Furthermore, there is nothing in the report to suggest the Fed is likely to deviate from another rate hike at its December FOMC meeting.

Wholesale Inventories Up Sharply in August

Wholesale inventories increased 1.0% in August (consensus 0.8%) – the largest monthly increase since October 2013 – on top of a 0.6% increase in July. Wholesale sales were up 0.8% following a 0.2% increase in July.

The key takeaway from the report is that the build in wholesale inventories will be accounted for as a positive input for Q3 GDP forecasts.

Thursday 11 October – Initial Claims Up Slightly, but Still Low

Initial Jobless Claims 214K vs. 205K Consensus; prior 207K :

Initial claims for the week ending October 6 increased by 7,000 to 214,000 (consensus 205,000) while continuing claims for the week ending September 29 increased by 4,000 to 1.66 million.

The key takeaway from that report is that it remains reflective of a tight labor market, which will catch the Fed’s eye as a contributing factor for why it can validate the continuation of gradual rate hikes.

September CPI Pleasing to Headline Eye 

Total CPI and core CPI, which excludes food and energy, increased 0.1%. Both were expected to increase 0.2%, according to the consensus estimate.

Those monthly increases left total CPI up 2.3% year-over-year, versus 2.7% in August, and core CPI up 2.2%, unchanged from August.

The key takeaway from the report is that it helped temper concerns about rising inflation for the time being, yet with total CPI and core CPI running above the Fed’s longer-run inflation target of 2.0%, it still left little reason to think the Fed is going to back away from a rate hike in December.

Friday 12 October

Consumer Sentiment Slips in October, but Still Strong

The preliminary University of Michigan Index of Consumer Sentiment for October checked in at 99.0 (consensus 100.0) versus the final reading of 100.1 for September.  The October reading is higher than the average reading (98.5) for 2018.

The key takeaway from the report is that it revealed some budding concerns about inflation crimping real income expectations, which is something to be watched closely considering spending is driven more by income growth than consumer confidence.

Fuel Prices Drive Up Import Prices in September

Export prices were flat in September after declining 0.2% in August and import prices were up 0.5% after being down 0.4% in August. Excluding agricultural exports, export prices increased 0.2% after declining 0.2% in August. Excluding fuel, import prices were unchanged after declining 0.2% in August.

The key takeaway from the report is rooted in the understanding that nonfuel import prices are being held in check, which is helpful in terms of easing some of the market’s inflation angst.

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Friday 12 October
Stocks Rebound, But Still Finish Solidly Lower for the Week

Stocks rebounded on Friday, recouping a good chunk of their weekly losses in a volatile day of trading. The S&P 500 added as much as 1.7% at the start of the session, but nearly wiped it all out intraday before rallying to finish higher by 1.4%.

The Dow Jones Industrial Average advanced 1.2%, and the tech-heavy Nasdaq Composite outperformed, finishing higher by 2.3%. Small caps underperformed, though, leaving the Russell 2000 with a slim gain of 0.1%. For the week, the four indices lost between 3.7% and 5.2%.

This week’s sharp sell-off propagated a belief that the major indices had gotten oversold on a short-term basis and were due for a rebound. Friday’s upward movement also found some technical support from the S&P 500’s 200-day moving average (2766.17), which the index closed just slightly above at 2767.13.

The third quarter earnings season began on a mixed note on Friday morning when big banks JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) reported before the opening bell. JPMorgan and Citigroup both beat earnings estimates, but Wells Fargo came up short. In the company’s conference call, JPMorgan CEO Jamie Dimon expressed optimism in the global economy, although he did note that trade tensions present some risks going forward.

On a related note, PNC (PNC) tumbled 5.6% despite beating bottom-line estimates.

The financials sector added as much as 1.6% following bank earnings, but eventually rolled over, bringing the broader market with it. The group did rebound in the final stretch though, closing higher by 0.1%. 10 of 11 sectors finished in the green, and information technology was the top performer with a gain of 3.2%.

Within the tech sector, giants Apple (AAPL) and Microsoft (MSFT) outperformed, as did chipmakers, evidenced by a 2.0% jump in the Philadelphia Semiconductor Index. Meanwhile, in the communication services sector (+2.1%), Netflix (NFLX) rallied 5.8% after Citigroup said its recent tumble represents a buying opportunity.

Away from equities, U.S. Treasuries finished roughly flat on Friday, with the benchmark 10-yr yield ticking up one basis point to 2.14%. Meanwhile, the U.S. Dollar Index rebounded from a more than two-week low, climbing 0.3% to 94.96, and WTI crude climbed 0.6% to $71.41/bbl. Crude finished solidly lower for the week though, dropping 3.9%.

Also of note, the CBOE Volatility Index (VIX) fell 14.3% on Friday, retreating from its highest level since February.

Market Internals – Friday 12 October 2018

Dollar: Dollar Index Reclaims 50-Day Moving Average

The U.S. Dollar Index closed at 95.23 to finish the week just above its 50-day moving average (95.22). The greenback followed three days of selling with a modest rally on Friday, which began taking shape during the early portion of the European session. The Dollar Index climbed in the Friday morning trade, hitting a session high around 10:00 ET. The Index backed off its high during the early part of the U.S. session, but it has remained above its 50-day moving average. Friday’s gain has helped the Index trim this week’s loss to 0.4%.

Bonds: Longer Tenors Settle Slightly Lower, but Secure Weekly Gains

Longer-dated U.S. Treasuries ended the week on a modestly lower note, but intraday action saw a steady push off opening lows, which brought shorter tenors back to little changed while 10s and 30s stopped a bit short of their flat lines. The trading day started with modest losses, resulting from overnight selling in the futures market. The overnight weakness coincided with a rebound in Asian and European equity markets while U.S. indices also started the day on a firmly higher note. However, stocks succumbed to selling pressure in late-morning trade and surrendered a good chunk of their gains into the afternoon. The pullback in equities took place as Treasuries clawed back the majority of their losses, though longer tenors found resistance just beneath their flat lines. The slope of the yield curve faced flattening pressure this week, as the 2s10s spread compressed to 30 bps from last Friday’s 35 bps. For its part, the 2s30s spread tightened to 48 bps from 52 bps at the end of last week. The 30-yr bond, 10-yr note, and 5-yr note recorded only their second week of gains over the past seven weeks while the 2-yr note saw its first weekly advance in nine weeks.

The yield curve flattened as the longer maturities’ yields fell more than the 2yr yield. The spread between the 5s10s narrowed to 15bps from 16bps the previous week while the 10s30s widened to 18bps from 17bps the previous week. The spread between the 2yr and 30yr yields is not only 48bps. 

Commodities 

The Bloomberg Commodity Index settled at 86.24, lower than 86.90 the previous week.

WTI oil broke above 76.00 on Wednesday and settled the week at $74.34. The spread between WTI and Brent narrowed to $9.09 from $9.82 the previous week.

EIA petroleum data for the week ended October 05

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.0 million barrels from the previous week. At 410.0 million barrels, U.S. crude oil inventories are at the five year average for this time of year. Total motor gasoline inventories increased by 1.0 million barrels last week and are about 7% above the five year average for this time of year. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 2.7 million barrels last week and are about 4% below the five year average for this time of year. Propane/propylene inventories increased by 1.5 million barrels last week and are about 7% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 11.3 million barrels last week.

Natural gas inventory showed a build of 90 bcf vs a build of 98 bcf in the prior week : Working gas in storage was 2,956 Bcf as of Friday, October 5, 2018, according to EIA estimates. This represents a net increase of 90 Bcf from the previous week. Stocks were 627 Bcf less than last year at this time and 607 Bcf below the five-year average of 3,563 Bcf. At 2,956 Bcf, total working gas is below the five-year historical range.

IEA says that global oil demand and supply are now close to new, historically significant peaks at 100 mb/d

Both global oil demand and supply are now close to new, historically significant peaks at 100 mb/d, and neither show signs of ceasing to grow any time soon. Fifteen years ago, forecasts of peak supply were all the rage, with production from non-OPEC countries supposed to have started declining by now. In fact, production has surged, led by the US shale revolution, and supported by big increases in Brazil, Canada and elsewhere. In future, a lot of potential supply could come to the market from places like Iran, Iraq, Libya, Nigeria and Venezuela, if their various challenges can be overcome.

Full IEA Release

Baker Hughes total U.S. rig count increased by +11 to 1063 following last week’s decrease of 2.

Metals: 

Agriculture:

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THE WEEK AHEAD
Week 42 (October 15 to 19)

According to our 5, 10 and 15 year seasonal models;

Benchmarks Indices (21 year average) for wk42:

Week 42 Key Economic Dates

In the coming week, US will receive September Retail Sales, Industrial Production and Capacity Utilization, Housing Starts and Building Permits, Existing Home Sales, and the minutes from the September FOMC meeting.

In addition, China GDP growth; Japan inflation and trade data; and UK unemployment, earnings, inflation and retail sales will also be in the spotlight.

Mon 15 October

Tue 16 October

Wed 17 October

Thu 18 October

Fri 19 October

Earnings 

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COMMENTARY

The coming week will be the start of Earnings Season with C, WFC and JPM getting the party started on Friday. This is going to add yet another dimension to the volatility of the current market sentiment which always makes October’s Earnings Season an exciting roller coaster ride.

The DOW and S&P500 broke below their 50DSMA on Wednesday and then broke below their 200DSMA on Thursday. The NASDAQ, already below its 50DSMA from the previous week, broke below its 200DSMA on Wednesday. The VIX spiked above 28.84 points on Thursday before closing the week out at 21.31. In the two sessions on Wednesday and Thursday, the DOW lost 1,294 points (-5.15%) while the S&P500 lost 139 (-5.1%).

Looks like things are getting hot and heavy early this October. In a matter of two weeks, the DOW and S&P are down to 2.5% and 3.5% respectively above their 2018 opening price, having wiped off double figure gains from September. Last week, I mentioned that, “Ideally, I’d like to have a healthy correction … buying the high is not something I am comfortable doing in spite of the bullish promise of higher highs with higher rates.” 

Despite the recent drop, I am still not a buyer yet. For now, I prefer to stay heavily hedged on any long position or just stay short (with tight stops) for the possibility of a further drop given October’s reputation.

Happy Hunting!

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