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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.

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

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!

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

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.

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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.

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Weekly Market Analysis – 08 October 2018 BMO

WEEK IN REVIEW – 01 to 05 OCTOBER 2018 :
Stocks Fall As Yields Surge

The S&P 500 fell 1.0% this week, weighed down by a surge in bond yields, which rose to multi-year highs in front of Friday’s release of the Employment Situation report for September. The tech-heavy Nasdaq and the small-cap Russell 2000 underperformed, losing 3.2% and 3.7%, respectively, but the blue-chip Dow finished flat.

Stocks began the week on a positive note, boosted by Canada joining Mexico and the United States in a trade agreement. On Sunday night, Canada agreed to allow greater dairy market access to the U.S., while also capping its automobile exports to the States. The deal, also known as the United States-Mexico-Canada Agreement (USMCA) replaces the 24-year-old NAFTA deal between the countries. However, Congress still has to approve the deal, which likely won’t be easy.

Investors awoke to continued Italian drama on Tuesday, when Italy’s anti-establishment government defended its plan to increase the country’s budget-deficit target despite pushback from the EU. In addition, Claudio Borghi, who leads the economic policy of the ruling Lega party, claimed that most of Italy’s problems could be solved if the country had its own currency – although that idea was dismissed by Italy Deputy Prime Minister Di Maio.

However, on Wednesday, Italy’s government decided to cede to some of the EU’s budget demands. Italy’s budget-deficit target will be reduced from 2.4% of GDP in 2019 to 2.2% in 2020 and then to 2.0% in 2021.

That news helped push bond yields higher overnight. Yields then extended those gains significantly after the September ADP Employment Change report – a prelude to Friday’s nonfarm payrolls reading – showed an estimated 230K positions were added to private sector payrolls – well above the Briefing.com consensus estimate of 184K. The ISM Services Index for September also came in better-than-expected on Wednesday, hitting a record high of 61.6% (consensus 58.2%), clearly indicating that business activity in the service-providing sector of the economy is strong.

Yields continued to advance on Thursday and then again on Friday following the release of the Employment Situation report for September. The report showed a smaller-than-expected increase in nonfarm payrolls (134K actual vs 184K consensus), but the August increase underwent a notable upward revision (to 270K from 201K). As for the rest of the report, average hourly earnings increased 0.3% (consensus +0.3%), the average workweek was reported at 34.5 (consensus 34.5), and the unemployment rate dropped to 3.7% from 3.9%.

The key takeaway from the September jobs report is that the labor market is solid and still simmering with the prospect of pent-up wage pressures being unleashed at any point as employers encounter difficulty in finding qualified workers.

Looking at this week’s S&P sector standings, most groups finished in negative territory. The consumer discretionary sector led the retreat with a loss of 4.2%, and information technology (-2.0%) and communication services (-2.0%) also showed relative weakness. On a positive note, the influential financial sector advanced 1.7%, benefiting from rising yields and, more specifically, a steepening of the yield curve. The benchmark 10-yr yield jumped 16 basis points in total, closing Friday at 3.23% – which marks its highest level since 2011 – while the 2-yr yield jumped five basis points to 2.88%.

In corporate news, General Electric (GE) replaced CEO John Flannery with former Danaher CEO Larry Culp; Tesla’s (TSLA) CEO, Elon Musk, agreed to settle charges with the SEC, in which Mr. Musk and Tesla are to pay $20 million each, and Mr. Musk is to step down as chairman for three years; Amazon (AMZN) announced that it will be raising its minimum wage to $15 an hour for all U.S. employees, pressuring other retailers to do the same; and General Motors (GM) announced that it will be partnering with Honda Motor (HMC) to build autonomous vehicles.

(Economic Excerpts from Briefing.com)

Monday 01 October

ISM Manufacturing Index Pulls Back in September

The ISM Manufacturing Index for September declined to 59.8% (consensus 60.4%) from 61.3% in August. The dividing line between expansion and contraction is 50.0; and September marked the 24th consecutive month of expansion.

The key takeaway from the report is that even with the September pullback, the Index remains near multi-year highs with continued growth in most sub-indices.

Construction Spending Growth Shy of August Estimates 

Total construction spending increased 0.2% in August (consensus 0.4%) following a downwardly revised 0.2% increase (from 0.1%) in July.

The key takeaway from the report is that public construction spending has continued driving the overall growth rate while private construction spending growth has moderated.

Wednesday 03 October

September ADP Employment Change 230K vs 184K consensus; August revised to 168K from 163K :

ISM Non-Manufacturing Index Hits Record High in September

The ISM Non-Manufacturing Index checked in at 61.6% for September (consensus 58.2%), up from 58.5% in August.  According to the Institute for Supply Management, that is the highest reading for the Non-Manufacturing Index since the inception of the composite index in 2008. The dividing line between expansion and contraction is 50.0%.

The key takeaway from the report is that it clearly indicates business activity is strong for the service-providing sector of the economy, which accounts for a much larger slice of economic activity than the manufacturing sector does.

Thursday 04 October

Initial Claims Dip amid Tight Labor Market Conditions

Initial claims for the week ending September 29 decreased by 7,000 from the prior week to 207,000 (consensus 210,000) while continuing claims for the week ending September 22 decreased by 13,000 to 1.650 million.

The key takeaway from the report is that it shows the labor market remains tight and conducive to an increase in wage growth.

Friday 05 October

September Jobs Report Mixed, but Message Still the Same, Unemployment drops to lowest level since 1969

September nonfarm and private sector payrolls were much weaker than expected. That will be attributed by some sources to the effects of Hurricane Florence, but the overriding point is that upward revisions to August nonfarm and private sector payrolls more than compensated for the headline misses for September.

The key takeaway from the report is that the labor market is solid and still simmering with the prospect of pent-up wage pressures being unleashed at any point as employers encounter difficulty in finding qualified workers.

Trade Deficit Widens in August

The Trade Balance Report for August showed a widening in the trade deficit to $53.2 billion from an upwardly revised $50.0 billion (from -$50.1 billion) in July.

The key takeaway from the report is that it has yet to confirm the tariff actions are succeeding in cutting the trade deficit in a big way; moreover, with the third quarter real average trade deficit 8.9% higher than the second quarter average, trade will be accounted for as a negative input in Q3 GDP forecasts.

Consumer Credit Expands in August

Total outstanding consumer credit increased by $20.1 billion in August after increasing an unrevised $16.6 billion in July.

The key takeaway from the report is that it reflects a pickup in credit demand that should be construed as an offshoot of a strengthening economy led by a solid labor market.

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

Friday 05 October
Rising Rates Drive Falling Stock Prices

The stock market fell on Friday as bond yields continued to climb following the release of the Employment Situation report for September. The S&P 500 and the Dow lost 0.6% and 0.7%, respectively. The tech-heavy Nasdaq dropped 1.1%.

At its session low, the S&P 500 was down 1.1%, falling below its 50-day moving average for the first time since July. The market eventually gathered its footing though, closing near the middle of the day’s trading range.

The Employment Situation report for September was mixed from a headline standpoint, as nonfarm payrolls showed a below-consensus increase of 134,000 (consensus 184K), but the August increase was revised upward to 270,000 (from 201K). Average hourly earnings rose 0.3%, as expected, and the unemployment rate fell to from 3.9% to 3.7%, marking its lowest level since 1969.

U.S. Treasuries extended their weekly losses following the release of the jobs report, pushing yields higher across the curve. The 2-yr yield advanced one basis point to 2.88%, and the benchmark 10-yr yield jumped three basis points to 3.23%, extending its weekly gain to 16 basis points and marking its highest close since 2011.

In corporate news, Costco (COST) lost 5.6% despite reporting above-consensus earnings, and Tesla (TSLA) dropped 7.1% after CEO Elon Musk seemingly mocked the SEC in a late Thursday tweet, just days after agreeing to a settlement with the agency over securities fraud allegations stemming from his failed bid to take the company private.

Market Internals – Friday 05 October 2018

Dollar: Gains for the week

The U.S. Dollar Index closed higher for the week +0.5% but down on Friday -0.1% at 95.60, tracking its first decline since last Tuesday. The Dollar Index spent the Thursday overnight session near its flat line and rallied briefly in immediate response to the Employment Situation report for September, which missed headline expectations, but contained an upward revision to the August reading. The post-data rally did not last, as the Index slipped to a session low in mid-morning trade, but recovered a portion of its loss before the afternoon. The Dollar Index remains on course for its second consecutive weekly advance, having climbed 0.5% since last Friday.

Bonds: 10yr Yield breaks to its highest since 2011

U.S. Treasuries ended a down week on a lower note. Treasury futures saw limited movement in overnight trade, putting the cash market on track for a flat start. The flat open preceded the release of the Employment Situation report for September, which was a mixed bag. Granted, the headline reading missed expectations (actual 134K; consensus 184K), but the August reading was revised up by 69,000 while the Unemployment Rate (3.7%) fell to its lowest level since 1969. Treasuries saw some impulse buying immediately after the report crossed the wires, but the gains were erased in short order, opening the door to another slow, but steady retreat that continued into the afternoon. Atlanta Fed President Raphael Bostic, who is a voter on this year’s FOMC, made some hawkish comments during a midday speech. Mr. Bostic said he materially underestimated the underlying momentum in the economy, which means that a higher rate path may be required. The slope of the Treasury yield curve saw some steepening this week, as the 2s10s spread widened to 35 bps from last Friday’s 25 bps while the 2s30s spread ended the week 13 basis points wider at 52 bps. Keep in mind that the bond market will be closed for Columbus Day on Monday, but the equity market will be open.

The yield curve steepened as the longer maturities’ yields made double figure gains for the week while the 2yr yield only gained 7bps. The spread between the 5s10s widened to 16bps from 11bps the previous week while the 10s30s widened to 17bps from 14bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 86.90, (+1.70 +2.0%) higher than 85.20 the previous week as Energy, Agriculture and Gold all made handsome gains.

WTI oil broke above 76.00 on Wednesday and settled the week at $74.34. The spread between WTI and Brent widened to $9.82 from $9.47 the previous week.

EIA petroleum data for the week ended September 28

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 8.0 mln barrels from the previous week. At 404.0 mln barrels, U.S. crude oil inventories are at the five year average for this time of year. Total motor gasoline inventories decreased by 0.5 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 1.8 mln barrels last week and are about 3% below the five year average for this time of year. Propane/propylene inventories increased by 2.4 mln barrels last week and are about 8% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 8.0 mln barrels last week.

Natural gas inventory showed a build of 98 bcf vs a build of 46 bcf in the prior week. Working gas in storage was 2,866 Bcf as of Friday, September 28, 2018, according to EIA estimates. This represents a net increase of 98 Bcf from the previous week. Stocks were 636 Bcf less than last year at this time and 607 Bcf below the five-year average of 3,473 Bcf. At 2,866 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count decreased by -2 to 1052 following last week’s increase of 1.

Metals: 

Agriculture:

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THE WEEK AHEAD
Week 41 (October 8 to 12)

According to our 5, 10 and 15 year seasonal models, the DIA and SPY should be bullish all week especially towards the end of the week.

Benchmarks Indices (21 year average) for wk41:

Week 41 Key Economic Dates

For the week, important releases for the US include inflation rate, Michigan consumer sentiment and Federal monthly budget statement. Elsewhere: China trade, Caixin Services PMI and monetary indicators; UK monthly GDP figures and industrial production; and India inflation rate will also be in the spotlight.

Mon 08 October

Tue 09 October

Wed 10 October

Thu 11 October

Fri 12 October

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COMMENTARY

“With the rising CPI and higher inflation rate, there is little to hold the Fed back from yet another promised hike. The question is whether it will be  the October or December meeting that the hike happens.”

So we got another hike to 2.0% to 2.25%. And the week after, DOW and S&P break to new highs, further lending credence to my bullish opinion that when rates go higher, so does the market.

In the three years that the FFR rose from 0% in October 2015 to 2.25% in September 2018, the DOW rose by more than 60% while the S&P gained more than 50%. As long as the spread between the 10yr Yield and the FFR stay apart, I stay bullish.

If you want to read the full paper on the relation between the FFR, the 10yr and the benchmarks, check out this link: 
The Fed Fund Rate & The Market 2016

Another rate hike has been promised before the end of the year and it could either happen at the end of this month or in December. Ideally, I’d like to have a healthy correction before that otherwise, buying the high is not something I am comfortable doing in spite of the bullish promise of higher highs with higher rates.

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.

Happy Hunting!

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

HAPPENING THIS WEDNESDAY!

The Last Intro Session For The Last Batch Of 2018

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 want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:

Pattern Trader™ Introductory Session

OR  download our promo slides here:
The Pattern Trader™ Tutorial 2018

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

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

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

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Pattern Trader™ Tutorial Introductory Session

THE LAST SESSION FOR
THE LAST BATCH OF 2018

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 size 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.

“I have taken other financial and investment related courses before, but this course is so different from the others – it is so many notches above the other courses. This course, with Conrad the coach, genuinely aims to provide the specified education that the participants signed up for. The other course that I have attended are probably 20% teaching, 10% networking, and the rest redundant actions, sales talk and activities to fill up the whole session.

However, Conrad packed the participants with so much info, insights and advice giving us little space to breathe and relax. Every now and then during the course, I was hoping that this ‘crazy and super-on coach’ can take a longer smoke or toilet break so that participants can have a longer time to rest !!!

And the education does not stop there. I am grateful for the continuous education and support through the incessant updates of news, issues, video conferencing, and Conrad’s tutelege.

This course is not a shortcut to financial wealth – it however empowers, enriches and encourages the motivated participant to pursue on in this journey to seek knowledge, wisdom in trading and finance.

Conrad created the path and showed the road, the rest is up to the individual person how, and how much, he wishes to reach the goal.”

~ Yeo WP

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

If you want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:

Pattern Trader™ Introductory Session

OR  download our promo slides here:
The Pattern Trader™ Tutorial 2018

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

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

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

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Comments Off on Weekly Market Analysis – 01 October 2018 BMO

Weekly Market Analysis – 01 October 2018 BMO

WEEK IN REVIEW – 24 to 28 September 2018 :
Raising Rates and Playing Politics

The S&P 500 pulled away from record highs this week, losing 0.5% in total, as investors digested a flurry of political headlines and the latest policy statement from the Federal Reserve, which included another rate hike – the third one this year. The Dow also fell, losing 1.1%, but the tech-heavy Nasdaq outperformed, rallying 0.7%.

The week began with the U.S. implementing tariffs on $200 billion worth of Chinese goods, which triggered Beijing to impose retaliatory tariffs on $60 billion worth of American products. Chinese officials also canceled mid-level trade talks that had been scheduled for later in the week, dashing hopes for a near-term resolution.

OPEC was also in focus on Monday after it and several non-OPEC nations ended a weekend meeting without an agreement to increase output in order to counter falling supply from Iran due to U.S. sanctions. President Trump criticized OPEC in front of the UN General Assembly on Tuesday, saying the oil cartel is “ripping off the rest of the world” by colluding to limit supply and prop up prices.

In the same address, the U.S. president also criticized Iran, which is currently the target of U.S. economic sanctions, calling its government a “corrupt dictatorship” and saying its leaders “sow chaos, death, and destruction.” President Trump also spoke regarding North Korea, ISIS, and Syria, and reiterated his administration’s hard stance on fair trade.

The Federal Reserve increased short-term interest rates on Wednesday, as expected, raising the fed funds target range by 25 basis points to 2.00-2.25%. In its policy statement, the Fed removed the word ‘accommodative’, which led some to believe that officials could be moving towards slowing monetary tightening. However, Fed Chairman Jerome Powell said during his post-decision press conference that the language change didn’t signal a change in the Fed’s path for rate hikes.

As for rate-hike projections, the Fed still appears to be on track to raise rates another 25 basis points in December, with the CME FedWatch Tool putting the chances at 75.8%. Beyond 2018, the Fed’s dot plot showed expectations for three rate hikes in 2019 (unchanged from June) and one in 2020 (also unchanged from June).

On Capitol Hill, political drama unfolded on Thursday as Supreme Court nominee Brett Kavanaugh and his accuser, Christine Ford, who has accused Mr. Kavanaugh of sexually assaulting her back in high school, testified before the Senate Judiciary Committee. The Committee advanced Mr. Kavanaugh’s nomination on Friday, but a final Senate vote will be delayed for a one-week FBI investigation.

Overseas, two populist parties governing Italy widened the country’s budget-deficit target for next year to 2.4% of GDP on Friday, likely putting the country at odds with the European Union. The major European stock indices sold off in reaction to the news, with Italy’s MIB leading the retreat.

In U.S. corporate news, Comcast (CMCSA) paid $40 billion to win a bid for European broadcaster Sky, ending a two-year battle with 21st Century Fox (FOXA); Nike (NKE) reported above-consensus earnings for its fiscal first quarter; and Facebook (FB) fell on Friday after disclosing a “security issue” impacting 50 million users.

However, perhaps the week’s biggest corporate story revolved around Tesla’s (TSLA) CEO, Elon Musk, who was sued by the SEC on Thursday evening over his tweet about taking the electric automaker private. Mr. Musk and the SEC were reportedly close to reaching a no-guilt settlement that would have barred him from being chairman for two years, but Mr. Musk backed out at the last minute.

As for the sector standings, they were pretty mixed between red and green. The heavily-weighted financials sector was the second-worst performer, losing 4.1% in total, with materials (-4.5%) being the only group with a more substantial loss. Conversely, the newly-added communications services sector was the top performer with a weekly gain of 1.1%.

(Economic Excerpts from Briefing.com)

Wednesday 26 September

New Home Sales in August Okay, Not Great

New home sales in August increased 3.5% to a seasonally adjusted annual rate of 629,000 (consensus 630,000) versus a downwardly revised 608,000 (from 627,000) for July.

The key takeaway from the report is that it reflects the affordability constraints that are increasing on the back of high prices and rising mortgage rates.  To wit, the median sales price was up 1.9% year/year to $320,200 and the supply of new homes for sale stood at a 6.1-months’ supply at the August sales pace versus 6.0 months a year ago.

Thursday 27 September

FOMC raises federal funds rate 25 basis points to 2.0-2.25%, as expected; drops accommodative language

Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that 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. Risks to the economic outlook appear roughly balanced.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Click here for FOMC release

Third Estimate of Q2 GDP Little Changed from Second Look

The third estimate for Q2 GDP was unchanged from the second read, coming in at 4.2% (consensus 4.3%). The Q2 GDP Deflator came in at 3.0% (consensus 3.0%).

The key takeaway from the report is that it showed no change in personal spending growth (3.8%) from the second estimate.

Transportation Orders Lift August Durable Goods Orders Above Headline Expectations

Durable Goods orders for August increased 4.5% (consensus 1.8%) after a revised 1.2% decline (from -1.7%) in July. Excluding transportation, durable goods orders increased 0.1% (consensus 0.4%) after an unrevised 0.2% increase in July.

The key takeaway from the report is that the headline increase was driven by a jump in nondefense aircraft and parts orders while growth in other areas was shy of expectations.

Initial Claims Increase from Multi-Decade Lows 

Initial jobless claims for the week ending September 22, increased by 12,000 to 214,000 (consensus 209,000) while continuing claims for the week ending September 15 increased by 16,000 to 1.661 million.

The key takeaway from the report is that even with the increase in initial and continuing claims, both series remain near their lowest levels in almost 50 years.

Friday 28 September

Personal Income and Spending Growth Remain True to Trend 

Personal income for August increased 0.3% (consensus 0.4%), personal spending rose 0.3% (consensus 0.3%), the PCE Price Index increased 0.1% for the third consecutive month, and the core PCE Price Index, which excludes food and energy, was unchanged (Briefing.com consensus 0.1%).

The key takeaway from the report is that the year-over-year increase in the PCE Price Index (+2.2% vs. +2.3% prior) and the core PCE Price Index (+2.0% vs. +2.0% prior) will keep the Federal Reserve on its tightening path.

Michigan Consumer Sentiment Pulls Back from Preliminary Reading, but Remains Elevated

The final University of Michigan Consumer Sentiment Index hit 100.1 in September (consensus 100.5), pulling back slightly from the preliminary reading of 100.8.

The key takeaway from the report is that even with the pullback, the Sentiment Index remains above 100.0 for the third time since the start of 2004.

Chicago PMI Declines Again in September

The MNI Chicago Business Barometer, otherwise known as the Chicago PMI, declined to 60.4 in September from 63.6 in August. The dividing line between expansion and contraction is 50.0.

The key takeaway from the report is that the September dip represents the second consecutive decline, returning the Index into the lower half of the range from the past 12 months.

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

Friday 28 September
S&P Closes Friday Flat, Securing 7.2% Gain for Q3

Wall Street finished Friday little changed, securing big gains for the third quarter. The S&P 500 kept near its flat line throughout the session, closing just a tick below its unchanged mark. The Nasdaq and the Dow added 0.1% apiece. For the quarter, the S&P 500 added 7.2%, the Dow added 9.0%, and the Nasdaq added 7.1%.

Friday began with news from across the pond, where Italy’s anti-establishment government widened the country’s budget-deficit target for next year to 2.4% of GDP. That could raise problems with the EU, which has pushed Italy to lower its public debt. European stocks fell in reaction, with Italy’s MIB (-3.7%) leading the retreat.

The headlines weighed on the U.S. futures market as well, but Wall Street quickly pared losses after the opening bell.

Financial shares fell once again on Friday (-1.1%), extending the heavily-weighted financial sector’s weekly loss to 4.1%. On the flip side, the lightly-weighted real estate (+1.3%) and utilities (+1.5%) sectors rallied, closing atop the sector standings. Most other groups finished within 0.4% of their unchanged marks.

Tesla (TSLA) tumbled 13.9% after its CEO, Elon Musk, was sued by the SEC over his tweet about taking the electric automaker private. Mr. Musk and the SEC were reportedly close to reaching a no-guilt settlement that would have barred him from being chairman for two years, but Mr. Musk backed out at the last minute.

In other corporate news, Facebook (FB) dropped 2.6% after announcing that it’s discovered a “very serious” security issue that could affect around 50 million accounts; NVIDIA (NVDA) climbed 5.1% after Evercore ISI raised its target price to a new Street high of $400 per share; and Intel (INTC) advanced 3.1% after announcing that it’s making progress with 10nm chips, but Intel competitor Advanced Micro (AMD) lost 5.2%.

On Capitol Hill, the Senate Judiciary Committee advanced President Trump’s Supreme Court nomination of Brett Kavanaugh on Friday, but a final Senate vote will be delayed after Senator Jeff Flake (R-AZ) unexpectedly called for a one-week FBI investigation into sexual misconduct allegations against the judge.

Market Internals – Friday 28 September 2018

Dollar: Dollar Index Reclaims 50-Day Moving Average

The U.S. Dollar Index closed +0.15% at 95.13, ending the session at its best level in more than two weeks after climbing 0.9% since last Friday. The Dollar Index built on yesterday’s solid advance during the overnight session, as the euro retreated amid renewed focus on Italy’s budget discipline. Italian officials agreed to target a 2019 deficit that will amount to 2.4% of GDP, which was on the high end of estimates. The euro recovered the bulk of its decline during the U.S. session, which pressured the Dollar Index from its high, but the Index remains on track to finish above its 50-day moving average (95.05) for the first time since September 10.

Bonds: Belly Outperforms as Focus Returns to Italy

U.S. Treasuries ended the week on a mixed note. The trading day started with modest gains across the curve, which resulted from a flight to quality after the focus returned to Italy and the country’s fiscal targets. Italian officials confirmed that the target for next year’s deficit will be set at 2.4% of GDP, which was on the high end of expectations, meaning the European Commission is likely to express concern with Italy’s fiscal discipline. Today’s news weighed on BTPs, lifting Italy’s 10-yr yield from 2.907% to a session high of 3.263%, just 13 basis points shy of the post-election high from May (3.388%). The weakness in Italian debt translated into opening strength for U.S. Treasuries, but Treasuries backed off their morning highs as BTPs climbed off their lows, pressuring Italy’s 10-yr yield to 3.149%. The pullback in Treasuries unfolded over the course of the session, with the 10-yr note returning to unchanged by the close while shorter tenors trimmed their gains, but still finished in the green. For its part, the 30-yr bond settled with a modest loss. Coupled with the relative strength in shorter tenors, today’s underperformance in the long bond undid the bulk of this week’s flattening in the yield curve. The 2s10s spread ended the week one basis point tighter at 25 bps while the 2s30s spread also compressed by a basis point, finishing the week at 39 bps.

The yield curve flattened as the longer maturities’ yields made lost ground while the shorter maturities’ yields remained unchanged. The spread between the 5s10s narrowed to 11bps from 12bps the previous week while the 10s30s remained unchanged at 14bps from 14bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 85.20, higher than 84.40 the previous week as Energy and Silver made great gains while Gold and Grains fell slightly.

WTI oil broke up above 73.00 and settled the week at $73.25. The spread between WTI and Brent widened to $9.47 from $8.02 the previous week.

EIA petroleum data for the week ended September 21

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.9 mln barrels from the previous week. At 396.0 mln barrels, U.S. crude oil inventories are about 2% below the five year average for this time of year. Total motor gasoline inventories increased by 1.5 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 2.2 mln barrels last week and are about 3% below the five year average for this time of year. Propane/propylene inventories increased by 1.6 mln barrels last week and are about 10% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 4.5 mln barrels last week.

Natural gas inventory showed a build of 46 bcf vs a build of 86 bcf in the prior week. Working gas in storage was 2,768 Bcf as of Friday, September 21, 2018, according to EIA estimates. This represents a net increase of 46 Bcf from the previous week. Stocks were 690 Bcf less than last year at this time and 621 Bcf below the five-year average of 3,389 Bcf. At 2,768 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count increased by 1 to 1054 following last week’s decrease of 2.

Metals: 

Agriculture: Grains lose ground after USDA report

Click here for USDA Report

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

THE MONTH AHEAD

October is the first month of Quarter Four and the start of Earnings Season for Q3 results. It is renown for almost all the major market corrections in history. During October, the market gets very nervous because the dates of some large historical market crashes occurred during this month. Black Monday, Tuesday and Thursday all occurred in October 1929, after which came the Great Depression. The crash of 1987 occurred on October 19 saw the Dow tank 22.6% in a single day. Today, the October effect is considered mainly to be a psychological expectation rather than an actual phenomenon. While statistical evidence does not support the phenomenon that stocks trade lower in October, the psychological expectations of the October effect still exist. And because most Octobers didn’t go down, it has the reputation of being a “Bear Killer” month.

October 2018 has twenty-two (22) trading sessions and one public holiday. October tends to start bullish in the first week, becomes bearish in the second week before turning bullish again in the third week. October ends the month in volatile fashion, often making fierce corrections in the final week.

October Trivia

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

THE WEEK AHEAD
Week 40 (October 01 to 05)

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

Benchmarks (21 year average) for wk40:

Week 40 Key Economic Dates

In the coming week important releases include US jobs report, trade balance, ISM PMIs, factory orders and construction spending; UK monetary indicators and Markit PMIs; Eurozone retail trade; Japan business and consumer morale; Australia trade balance and retail sales; and interest rate decisions from India and Australia.

Mon 01 October

Tue 02 October

Wed 03 October

Thu 04 October

Fri 05 October

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

COMMENTARY

The DOW is now looking like a giant Double Top if it doesn’t break and hold above 26,750. After eight months below the January high, investors will be looking to cash out on this rally ahead of the famed October Effect. The September Portfolio Dumping session was held off as investors mulled over the longer term effects of the Fed’s latest rate hike, higher crude prices and a resurgent dollar. 

Since the end of July, volumes have been on the lower average for the year. This will be a critical statistic as we begin Earnings Season for Q3 Results in a week’s time. I will be expecting volumes to drop off further in the coming two week as investors hold back in anticipation of the first batch of earnings starting with the first DOW components and mega caps including WBA (11 Oct), C, JPM and WFC (12 Oct) and BAC (15 Oct).

Earnings results and crude prices are going to be keenly watch as an indication to the month-end Fed Decision. With the rising CPI and higher inflation rate, there is little to hold the Fed back from yet another promised hike. The question is whether it will be  the October or December meeting that the hike happens.

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 want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:

Pattern Trader™ Introductory Session

OR  download our promo slides here:
The Pattern Trader™ Tutorial 2018

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

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

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

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Weekly Market Analysis – 24 September 2018 BMO

WEEK IN REVIEW – 17 to 21 September 2018 :
Dow Shrugs Off Tariffs, Returns to Record Territory

Wall Street rallied this week with investors shrugging off another tranche of U.S. tariffs on Chinese goods. The S&P 500 and the Dow touched new records — the first time that’s happened for the Dow since January 26 – and finished the week with respective gains of 0.9% and 2.3%. The Nasdaq lagged though, slipping 0.3%.

President Trump announced on Monday evening that the U.S. will be slapping tariffs on $200 billion worth of Chinese goods starting on September 24. The tariff rate will start at 10%, but will increase to 25% on January 1. The president also said he will impose additional tariffs on $267 billion worth of Chinese goods if Beijing retaliates — which it vowed to do with 5-10% tariffs on $60 billion worth of U.S. goods.

Stocks unexpectedly took off on Tuesday following the tariff announcement, with some analysts pointing to the fact that the initial 10% tariff rate by the U.S. was not as harsh as expected – thereby reflecting a willingness to negotiate. Others said the rally reflected the market’s belief that the U.S.-China trade dispute will eventually die down. Short-covering activity likely helped as well.

The heavily-weighted financial sector was among the top-performing groups this week with a gain of 2.3%, benefiting from a steepening of the yield curve. The yield on the benchmark 10-yr Treasury note climbed seven basis points to end Friday at 3.07%, while the Fed-sensitive 2-yr yield jumped two basis points to 2.81%.

Conversely, the top-weighted information technology sector (-0.1%) underperformed this week, getting surpassed by consumer discretionary (+0.4%) for the top spot in the 2018 sector standings. The two groups hold year-to-date gains of 18.5% and 18.7%, respectively. For comparison, the S&P 500 is up 9.6%.

In total, eight of the eleven S&P sectors finished in the green, with cyclical sectors showing relative strength. A new sector, communication services, will be born after Friday’s close, and it will involve reclassifying several widely-held technology, telecom, and media stocks into the new sector — including Facebook (FB), Alphabet (GOOG), Verizon (VZ), Netflix (NFLX), and Walt Disney (DIS).

In individual stocks, cannabis names were in focus this week, with Tilray (TLRY) going on a wild ride after its CEO suggested that his business would be a “smart hedge” for major pharmaceutical companies. TLRY shares traded as high as $299.46/share – 175% above last Friday’s close – before ending the week at $123.00/share (+13%).

On the oil front, WTI crude climbed 2.6% this week to $70.77/bbl even though President Trump criticized OPEC on Thursday morning, saying the “OPEC monopoly must get [oil] prices down now!” Reuters then reported on Friday that OPEC and non-OPEC countries are discussing the possibility of raising output by 500,000 barrels a day to counter falling supply from Iran due to U.S. sanctions.

Looking ahead, the Federal Reserve will release its latest policy directive on Wednesday. The market is all but certain that the central bank will hike rates – with the CME FedWatch Tool placing the chances at 100% – so investors will be more focused on the Fed’s rate forecast, especially for 2019.

(Economic Excerpts from Briefing.com)

Wednesday 19 September

Housing Starts Up, Building Permits Down in August

Privately-owned housing starts increased 9.2% month-over-month in August to a seasonally adjusted annual rate of 1.282 million (Briefing.com consensus 1.229 mln) while building permits declined 5.7% month-over-month to a seasonally adjusted annual rate of 1.229 million (consensus 1.310 mln).

The key takeaway from the report is that permits (a leading indicator) for single-family homes fell 6.1% month-over-month to 820,000, driven by declines across all four geographic regions.

Thursday 20 September

Initial and Continuing Claims at Multi-Decade Lows

Initial jobless claims for the week ending September 15 decreased by 3,000 to 201,000 (consensus 209,000), the lowest level since November 15, 1969, and continuing claims for the week ending September 8 dropped by 55,000 to 1.645 million, the lowest level since August 4, 1973.

The key takeaway from the report is that it reflects a reluctance on the part of employers to reduce staff, which goes hand-in-hand with a strong economy and tight labor market.

Philadelphia Fed Index Points to Acceleration in September

The Philadelphia Fed Manufacturing Business Outlook Survey for September increased to 22.9 (consensus 15.3) from 11.9 in August, driven by an uptick in the New Orders Index to 21.4 from 9.9.

A number above zero is indicative of growth, so the key takeaway from the report is that it reflects the idea that manufacturing activity in the Philadelphia Fed region accelerated in September.

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

Friday 21 September
Mixed Ending to Largely Positive Week

Wall Street had a mixed outing on Friday, with the underperformance of financial and technology shares balancing gains most elsewhere. The Dow Jones Industrial Average climbed 0.3%, closing at a new all-time high for the second day in a row. The S&P 500 finished slightly below its flat line, and the tech-heavy Nasdaq lost 0.5%.

For the week, the S&P 500 and the Dow added 0.9% and 2.3%, respectively, while the Nasdaq lost 0.3%.

The top-weighted information technology sector lost 0.3% on Friday, capping an unimpressive week overall. Within the group, Micron (MU) was among the worst performers, falling 2.9% after its above-consensus earnings report was overshadowed by disappointing guidance for the current quarter — due in part to tariffs.

Meanwhile, the influential financial sector ended a positive week on a disappointing note. The group lost 0.4% on Friday, trimming its weekly gain to 2.3%, as Treasuries ticked higher, pushing yields slightly lower. The benchmark 10-yr yield, for instance, slipped one basis point to 3.07%, but remained near a four-month high.

On a positive note, the lightly-weighted telecom services group finished atop the sector standings with a gain of 1.0%. Within the group, AT&T (T) advanced 1.0% after being upgraded to ‘Buy’ from ‘Neutral’ at UBS. However, shares gave back some gains in the late afternoon following reports that President Trump is pressing the Department of Justice to breakup the wireless giant.

There was some volatility during the final stretch of Friday’s session due to a major sector rebalancing, which will result in a new ‘Communication Services’ sector.

Several widely-held technology, telecom, and media stocks will be reclassified into this group, including Facebook (FB), Alphabet (GOOG), Verizon (VZ), Netflix (NFLX), and Walt Disney (DIS).

Also adding to the volatility, Friday was a quadruple witching day – when futures and options on both indices and individual stocks expire.

In the crude oil market, WTI crude futures finished up 0.8% at $70.77/bbl, but were volatile after Reuters reported that OPEC and non-OPEC producers are discussing the possibility of raising output by 500,000 barrels a day to counter falling supply from Iran due to U.S. sanctions. OPEC and non-OPEC nations are scheduled to meet in Algeria on Sunday.

Dollar: Dollar Index Rebounds

The U.S. Dollar Index closed at 0.4% at 94.22, bouncing off a ten-week low. The greenback followed Thursday’s retreat with a bit more selling during the overnight session, but the Index notched a low at 93.81, finding support just above its low from July 9 (93.71). The dollar began climbing during Friday’s European session, accelerating its advance during U.S. trade. The greenback has had a particularly good showing against the pound after the market received another reminder that EU and British officials have not gotten any closer to securing a Brexit deal. Today’s advance helped the Dollar Index narrow this week’s loss to 0.7%.

Bonds: Down Week Ends on Modestly Higher Note

U.S. Treasuries ended the week on a mostly higher note, but today’s uptick did little to prevent 5s, 10s, and 30s from posting their fourth consecutive week of losses. For its part, the 2-yr note recorded its sixth consecutive weekly decline. Intraday action saw some volatility, but most tenors finished essentially where they started. Morning trade saw Treasuries slip from their opening levels, but the losses were reclaimed in short order. However, the ensuing rebound was short-lived, as Treasuries found resistance near session highs from Thursday. The trading range narrowed into the afternoon, as Treasuries hovered near their opening levels until the close. The slope of the yield curve flattened a touch today, but steepened over the course of the week. Most notably, the 2s30s spread expanded by five basis points to 40 bps while the 2s10s spread ended the week two basis points wider at 27 bps.

The yield curve steepened as the longer maturities’ yields made greater gains. The spread between the 5s10s widened to 12bps from 9bps the previous week while the 10s30s remained unchanged at 14bps from 14bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 84.40, higher than 82.46 the previous week.

WTI oil broke up above 71.00 and settled the week at $70.78. The spread between WTI and Brent narrowed after six weeks to $8.02 from $9.10 the previous week.

EIA petroleum data for the week ended September 14

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.1 mln barrels from the previous week. At 394.1 mln barrels, U.S. crude oil inventories are about 3% below the five year average for this time of year. Total motor gasoline inventories decreased by 1.7 mln barrels last week and are about 8% above the five year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 0.8 mln barrels last week and are about 2% below the five year average for this time of year. Propane/propylene inventories increased by 0.1 mln barrels last week and are about 12% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 0.4 mln barrels last week.

Natural gas inventory showed a build of 86 bcf vs a build of 69 bcf in the prior week- nat gas prices initially drops following this data. Working gas in storage was 2,722 Bcf as of Friday, September 14, 2018, according to EIA estimates. This represents a net increase of 86 Bcf from the previous week. Stocks were 672 Bcf less than last year at this time and 586 Bcf below the five-year average of 3,308 Bcf. At 2,722 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count decreased -2 to 1053 following last week’s increase of 7.

Metals: All gains

Agriculture: Gains across all grains

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

THE WEEK AHEAD
Week 39 (September 24 to 28)

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

Benchmarks (21 year average) for wk39:

Week 39 Key Economic Dates

In the coming week the most important event will be the Fed monetary policy decision. Key economic data include: US final Q2 GDP growth, personal spending and income, PCE prices, durable goods orders and new home sales; UK final Q2 GDP growth; and China NBS PMIs and Caixin Manufacturing PMI.

Sunday 23 September

Mon 24 September

Tue 25 September

Wed 26 September

Thu 27 September

Fri 28 September

Sat 29 Sentiment

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

COMMENTARY

Expect a volatile week ahead. If this market is as resilient as I think it is, we should se e moderate gains this time next week. But I won’t count out the start of the September correction closer to expiration Friday.”

One week left for Q3 and the last week of September is known for portfolio dumping. With the way the market has been so resilient, I am almost afraid to assume that it will happen this year. Then again …

Happy Hunting!

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

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

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

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

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

If you want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:

Pattern Trader™ Introductory Session

OR  download our promo slides here:
The Pattern Trader™ Tutorial 2018

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

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

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

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Comments Off on Weekly Market Analysis – 17 September 2018 BMO

Weekly Market Analysis – 17 September 2018 BMO

WEEK IN REVIEW – 10 to 14 September 2018 :
Wind in the Sails

Wall Street returned to its winning ways this week, powering through trade-related headlines and Hurricane Florence, one of the strongest storms to hit the Carolinas in decades. The S&P 500 advanced 1.2%, the tech-heavy Nasdaq Composite rose 1.4%, and the blue-chip Dow Jones Industrial Average climbed 0.9%.

Hurricane Florence was largely the talk of the week, forcing residents near the Carolina coast to either pack their bags or hunker down. The storm weakened to a Category 1 from a Category 4 before it made landfall on Friday though, which helped the market keep a positive bias. WTI crude futures were once up nearly 4.0% on the week, but gave the majority of that back as the storm weakened.

Meanwhile, on the trade front,the White House confirmed reports that it has proposed a new round of trade talks with China – a proposition that was welcomed by Beijing. However, President Trump muddied the waters a bit with a tweet on Thursday, saying the U.S. isn’t under pressure to make a deal with China; rather, China is under pressure to make a deal with the United States.

China’s major stock index, the Shanghai Composite, fell 0.8% this week, touching its lowest level since January 2016.

Separately, President Trump is reportedly considering a second meeting with North Korean leader Kim Jong-un ahead of the November midterm elections. The two leaders held a historic summit in June, but relations have cooled since, due to North Korea’s unsatisfactory progress towards denuclearization.

In U.S. corporate news, Apple (AAPL) unveiled a trio of new iPhones – iPhone Xs ($999), iPhone Xs Max ($1099), and iPhone Xr ($749) – at its annual product event on Wednesday, extending last year’s high-end iPhone X line, which was created in celebration of the iPhone’s 10th anniversary. Apple shares added 1.2% on the week.

The top-weighted technology sector was among the top-performing groups this week, rebounding from last week’s disappointing performance, with a gain of 1.8%. In total, ten of eleven groups finished in positive territory. Cyclical sectors generally outperformed, although the heavily-weighted financial space did not, finishing lower by 0.4%.

On the data front, investors received some influential inflation data this week, including the core Producer Price Index for August and the core Consumer Price Index for August. The core PPI declined 0.1%, while the consensus expected an increase of 0.2%, and the core CPI showed a less-than-expected increase of 0.1% (consensus +0.2%).

Those readings helped to ease fears that the Fed might have to be more aggressive in raising rates in order to keep the economy from overheating.

In monetary policy, a trio of central banks released their latest policy decisions this week, including the European Central Bank, the Bank of England, and the Central Bank of Turkey. Both the ECB and the Bank of England kept interest rates unchanged, as expected, but Turkey’s central bank increased its benchmark rate to 24.00% from 17.75%, attempting to stabilize the beleaguered Turkish lira.

The Fed is expected to raise rates by 25 basis points at its September 25-26 policy meeting, with the market placing the chances of a rate hike at 100%.

(Economic Excerpts from Briefing.com)

Wednesday 12 September

Fed releases Beige Book: Fed sees economy expanding at a moderate pace in recent weeks. Most districts note concern on trade.

August Core PPI M/M -0.1% vs +0.2%: Producer Price Index Rolled Back in August

The Producer Price Index for final demand declined 0.1% in August (consensus +0.2%) and so did the index for final demand, less food and energy (consensus +0.2%).

The decline in the final demand index was attributed to a 0.1% decrease in prices for final demand services, which was led by a 0.9% decline in the index for final demand trade services, which measures changes in margins received by wholesalers and retailers. The index for final demand goods was unchanged.

The key takeaway from the report is that it will soothe some burgeoning inflation concerns, as the monthly declines led to a moderation in producer price inflation on a year/year basis. The latter point notwithstanding, the market is apt to maintain its view that the Federal Reserve remains on course to raise rates two more times this year.

Thursday 13 September

Initial Claims and Continuing Claims Still Running Low (Very Low). 

Initial jobless claims for the week ending September 8 decreased by 1,000 to 204,000 (consensus 210,000).  Continuing claims for the week ending September 1 decreased by 15,000 to 1.696 million.

The key takeaway from the report is that the four-week moving averages for initial claims and continuing claims are at their lowest level since 1969 and 1973, respectively.

August Headline CPI M/M +0.2% vs +0.2% consensus. August Core CPI M/M +0.1% vs +0.2% consensus.

Total CPI increased 0.2%, as expected, while core CPI, which excludes food and energy, increased 0.1% (consensus +0.2%).

The key takeaway for the market is that there was a moderation in the year-over-year growth rates for total CPI and core CPI. That won’t alter the prevailing view that the Federal Reserve is likely to raise rates two more times this year, yet the moderation is apt to be seen as a data point that could keep the Federal Reserve from tightening rates too rapidly.

Friday 14 September

Retail Sales in August Fail to Live Up to Expectations

Total retail sales rose just 0.1% (consensus +0.4%) on the heels of an upwardly revised 0.7% increase (from +0.5%) in July. Excluding autos, retail sales jumped 0.3% (consensus +0.5%) following an upwardly revised 0.9% increase (from +0.6%) in July.

The upward revisions to the prior month helped mitigate some of the headline disappointment for August, yet the key takeaway from the report is that consumer spending is up and will continue to support real GDP growth in the third quarter.

Industrial Production Rises for Third Straight Month in August

August Industrial Production +0.4% vs +0.4% consensus
August Capacity Utilization 78.1% vs 78.3% consensus

Industrial production increased 0.4% in August, as expected, following an upwardly revised 0.4% increase (from 0.1%) in July.  August marked the third straight month that industrial production has increased.  The capacity utilization rate increased to 78.1% (consensus 78.3%) from a downwardly revised 77.9% (from 78.1%) in July.

The key takeaway from the report is the understanding that factory output was unchanged, excluding the gain in motor vehicles and parts.

Business Inventories Rise in July, as Expected

Total business inventories increased 0.6% in July, as expected, after increasing 0.1% in June. Total business sales increased 0.2% after increasing 0.3% in June.

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 14 September
Upbeat Week Ends on Flat Note

The stock market saw limited movement on Friday, ending a positive week on a flat note. The S&P 500 (unch) settled just above its flat line, locking in a 1.2% gain for the week. The Dow (unch) and Nasdaq (-0.1%) also finished near their flat lines, ending the week with respective gains of 0.9% and 1.4%.

Equities started the day just above yesterday’s closing levels, but relative weakness in a handful of rate-sensitive sectors and a mixed showing from other groups kept the market near its unchanged level. The underperformance in groups like utilities (-0.5%), telecom services (-0.4%), and real estate (-0.9%) was owed to overnight and early-morning selling in Treasury futures, which lifted the 10-yr yield to a six-week high just below the 3.000% area.

The broader market treaded water during early trade, thanks to gains in cyclical sectors like financials (+0.7%), industrials (+0.5%), and energy (+0.6%). The S&P 500 was on the verge of climbing to a fresh high around noon, but a Bloomberg report, indicating that President Trump is seeking to impose tariffs on $200 billion worth of imports from China despite the recent efforts to revive trade talks, sent the broader market to a session low.

In addition to pressuring stocks, the news weighed on offshore yuan and helped the U.S. Dollar Index (94.94, +0.42) climb to a fresh high, trimming this week’s loss to 0.4%.

Afternoon trade saw a slow climb off session lows, but the S&P 500 was not able to revisit its high, as heavily-weighted groups like consumer discretionary (-0.3%) and health care (-0.3%) struggled. For its part, the top-weighted technology sector spent the session near its flat line, ending little changed.

The market received just two earnings reports between yesterday’s closing bell and today’s open. Adobe Systems (ADBE) climbed 2.3% to a fresh record after beating earnings and revenue expectations while Dave & Buster’s (PLAY) rose 7.9% to a 13-month high after beating quarterly expectations and initiating a quarterly dividend of $0.15 per share.

Treasuries ended the day with losses, though intraday action saw the complex climb off mid-morning lows. The 10-yr yield rose three basis points to 2.99% after approaching its August high (3.02%) in early trade.

Investor participation was fairly consistent with the past two sessions as 762 million shares changed hands at the floor of the New York Stock Exchange.

Market Internals – Friday 14 September

Dollar: Skid Snapped

The U.S. Dollar Index closed up 0.5% at 94.95, locking in its first advance since last Friday. The greenback saw some early-morning weakness, which pressured the Index to a level not seen since the end of July. The Index climbed off its low during the European session, accelerating to a fresh high after the release of a Retail Sales report for August (actual 0.1%; consensus 0.4%), which missed estimates, but included an upward revision to the July reading. The Index built on its advance during the Friday U.S. session, trimming this week’s loss to 0.4%.

Bonds: 10-Yr Yield Flirts With 3.00% Again

U.S. Treasuries ended the week with losses across the curve. Treasury futures faced some selling pressure during overnight trade, as Hong Kong’s Hang Seng continued climbing off this year’s low while equity markets in Europe also recorded gains. Treasuries followed their lower start with a slip to fresh lows after the release of an August Retail Sales report (actual 0.1%; consensus 0.4%), which was below estimates, but contained an upward revision to the July reading. A bit more selling in mid-morning trade briefly lifted the 10-yr yield to its highest level (3.003%) since the start of August, but midday action saw Treasuries edge up from their lows. The rebound accelerated after Bloomberg reported that President Trump is seeking to impose tariffs on another $200 billion worth of imports from China despite the recent efforts to revive trade talks. The midday bid returned Treasuries to their opening levels, where they remained until the close. The slope of the yield curve faced flattening pressure over the course of the just-completed week, as the 2s10s spread compressed to 21 bps from last Friday’s 25 bps while the 2s30s spread tightened by six basis points to 35 bps.

The yield curve flattened as the shorter maturities’ yields made greater gains. The spread between the 5s10s narrowed to 9bps from 12bps the previous week while the 10s30s narrowed to 14bps from 16bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 82.46, marginally lower than 82.59 the previous week.

WTI oil bottomed at 67.54 and settled the week at $68.99. The spread between WTI and Brent widened for a sixth week to $9.10 from $9.08 the previous week.

EIA petroleum data for the week ended September 07

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.3 mln barrels from the previous week. At 396.2 mln barrels, U.S. crude oil inventories are about 3% below the five year average for this time of year. Total motor gasoline inventories increased by 1.3 mln barrels last week and are about 8% above the five year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 6.2 mln barrels last week and are about 3% below the five year average for this time of year. Propane/propylene inventories increased by 1.2 mln barrels last week and are about 11% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 10.1 mln barrels last week.

Natural gas inventory showed a build of 69 bcf vs a build of 63 bcf in the prior week. Working gas in storage was 2,636 Bcf as of Friday, September 7, 2018, according to EIA estimates. This represents a net increase of 69 Bcf from the previous week. Stocks were 662 Bcf less than last year at this time and 596 Bcf below the five-year average of 3,232 Bcf. At 2,636 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count increased +7 to 1055 following last week’s status quo.

Metals: Gold, Copper fight back

Agriculture: September 2018 USDA WASDE report:

Corn and wheat prices drop, while soybeans are modestly higher following monthly WASDE report 0n Wednesday. Here are a few key highlights from the report:

Note: I know it looks like Wheat and Soy swapped prices but its not a mistake. At Friday’s settlement;

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

THE WEEK AHEAD
Week 38 (September 17 to 21)

The DOW, NASDAQ and S&P500 are expecting a rock and roll week ahead.

According to our 5, 10 and 15 year seasonal models, the SPY and DIA should be divergent on Monday, bullish on Tuesday, bearish on Wednesday and moderately bullish on Thursday. The DIA should finish Friday slightly divergent while SPY should be bearish.

Benchmarks (21 year average) for wk38:

Key Economic Dates

Week 38

In the coming week, the most important releases for the US are building permits and housing starts, existing home sales and flash Markit PMIs. Elsewhere, the BoJ interest rate decision, Japan trade and inflation, UK and Euro Area consumer prices and flash Markit PMIs for the Eurozone, France and Germany will also be in the spotlight.

Mon 17 September

Tue 18 September

Wed 19 September

Thu 20 September

Fri 21 September

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

COMMENTARY

I am bullish for the coming week (hope I don’t regret it) especially after the past week’s drop. I won’t be hanging on to anything for too long and will be watching for signs that the September market sell-down might be imminent.

That wasn’t too wild and I didn’t live to regret it. America’s economy still looks solid. With two likely rate hikes between now and the end of the year, there’s little else that concerns me with regard to the economy’s state of health for now.

I am still expecting a September market correction, mostly because I suspect there’s more than enough reason for portfolio dumping in the second half of the month. Even though the benchmarks have been making gains, the broader market doesn’t seem to agree as seen in its internals. Volumes haven’t fallen off a cliff but are considerably lower than the first half of the year, as can be expected leading into the October Effect.

Expect a volatile week ahead. If this market is as resilient as I think it is, we should se e moderate gains this time next week. But I won’t count out the start of the September correction closer to expiration Friday.

Happy Hunting!

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

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

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

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

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

If you want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:

Pattern Trader™ Introductory Session

OR  download our promo slides here:
The Pattern Trader™ Tutorial 2018

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

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

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

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Comments Off on Weekly Market Analysis – 10 September 2018 BMO

Weekly Market Analysis – 10 September 2018 BMO

WEEK IN REVIEW – 03 to 07 September 2018 :
Three-Week Rally Comes to an End as Tech Shares Slide

Investors returned from the extended Labor Day weekend in a selling mood, pulling stocks away from last week’s record highs. The S&P 500 ended the week with a loss of 1.0%, while the tech-heavy Nasdaq Composite dropped 2.6%. The Dow Jones Industrial Average showed relative strength, but still finished lower by 0.2%.

The week kicked off with Amazon (AMZN) becoming the second U.S. company, after Apple (AAPL), to reach a market cap of $1 trillion and with Nike (NKE) unveiling a controversial ad for the 30th anniversary of its “Just Do It” campaign that features Colin Kaepernick, the former San Francisco 49ers quarterback credited with starting the national anthem protests. Amazon soon fell back after touching the $1 trillion milestone on Tuesday though, ending the week with a market cap of $952 billion.

On the Gulf Coast, residents braced for Tropical Storm Gordon to make landfall, which it did on Tuesday evening. Oil prices rallied in anticipation of the storm disrupting crude production, but gave back all of those gains after the storm turned out to be less damaging than feared. Oil prices then fell further on Thursday when the EIA’s weekly inventory report showed a 4.3 million barrel drop in crude stockpiles, but a 1.8 million barrel jump in inventories of gasoline. In total, WTI crude futures lost 2.9% this week, settling Friday at $67.76/bbl, and the oil-sensitive energy sector lost 2.3%.

The top-weighted information technology sector also underperformed this week, dropping 2.9%. Within the group, social media names were in focus after Facebook’s (FB) COO, Sheryl Sandberg, and Twitter’s (TWTR) CEO, Jack Dorsey, testified before the Senate Intelligence Committee on Wednesday morning, defending their efforts to prevent election meddling. Mr. Dorsey also appeared before the House Energy and Commerce Committee in the afternoon, rebuking allegations that Twitter promotes certain political ideologies. The hearings didn’t produce any new information of note, but that didn’t prevent Facebook and Twitter shares from tumbling 2.3% and 6.1% on Wednesday, respectively.

On the trade front, U.S.-China trade tensions resurfaced at the tail end of the week, as many thought the White House would impose tariffs on $200 billion worth of Chinese goods on Thursday at midnight following the end of a public comment period. That didn’t happen, but President Trump did raise the stakes on Friday, saying that he’s got another tranche of tariffs on $267 billion of Chinese goods “ready to go” if Beijing retaliates to the $200 billion tranche.

On a related note, trade talks between the U.S. and Canada resumed this week after the two sides failed to reach an agreement last Friday, but investors were skeptical that a deal would get done after President Trump tweeted on Saturday that there’s “no political necessity to keep Canada in the new NAFTA deal.” As of Friday’s closing bell, officials still had not reached an agreement.

In economic data, the Employment Situation report for August crossed the wires on Friday morning, causing some knee-jerk selling due to a higher-than-expected increase in average hourly earnings (+0.4% actual vs +0.2% consensus), which ignited some fears that inflation might be picking up. However, the realization that the economy is still strong, evidenced by a larger-than-expected increase in nonfarm payrolls (+201K actual vs +187K consensus) and an unemployment rate of 3.9%, helped keep losses in check.

As for the Fed, Friday’s jobs report virtually locked in a September rate hike and increased the chances of a December rate hike to 79.8% from 72.8% on Thursday.

(Economic Excerpts from Briefing.com)

Tuesday 04 September

ISM Manufacturing Index for August Hits Highest Level Since May 2004

The ISM Manufacturing Index for August checked in at 61.3% (consensus 57.6%), which is the highest level since May 2004. The dividing line between expansion and contraction is 50.0; and August marked the 24th consecutive month of expansion. The key takeaway from the report is that manufacturing activity is robust and consistent with a strong economy.

Wednesday 05 September

Trade Deficit Increases in July, Will Be a Drag on Q3 GDP Growth

The trade deficit widened to $50.1 bln in July (consensus -$50.6 bln) from an upwardly revised $45.7 bln (from -$46.3 bln) in June. That was the largest monthly increase in the deficit reportedly since 2015.

The key takeaway from the report is twofold: (1) the widening deficit will create a drag on Q3 GDP growth and (2) the July report is going to fan the Trump Administration’s flames about trade matters as it showed an increase in the deficit with both the European Union and China.

Thursday 06 September – Initial Claims Just Keep Getting Better

Initial Claims 203K vs 214K consensus; Prior 213K. Initial claims for the week ending September 1 decreased by 10,000 to 203,000 (consensus 214,000), which is the lowest level of initial claims since December 6, 1969.  Continuing claims for the week ending August 25 decreased by 3,000 to 1.707 million. The key takeaway from the report is that it is consistent with a tight labor market, as employers appear reluctant to cut payrolls.

Friday 07 September – Wage Growth Picks Up in August; Highest Since May 2009

The biggest surprise in the August employment report was the 0.4% increase in average hourly earnings. That pushed the year-over-year rate to 2.9%, which is the highest since May 2009. The wage growth should be regarded as good news, yet the key takeaway for the market is that it will keep the Fed in a tightening gear, which most likely includes two more rate hikes before the year is done.

Friday 07 September
Stocks Slip Following Jobs Report, Tariff Talk

Stocks slipped on Friday, giving the bears a clean sweep for the abbreviated week, after the Employment Situation report for August showed a stronger-than-expected increase in average hourly earnings and after President Trump threatened yet another round of tariffs on Chinese goods. The S&P 500 finished lower by 0.2%, while the Dow Jones Industrial Average and the Nasdaq Composite lost 0.3% apiece.

The Employment Situation report for August crossed the wires early Friday morning, showing a 0.4% rise in average hourly earnings (consensus +0.2%), which pushes the year-over-year rate to 2.9% – its highest level since May 2009. That ignited fears that inflation may be picking up more than expected, as that may force the Fed to be more aggressive in raising rates.

Equity futures dipped lower following the release, but the market didn’t stay down for long, with the S&P 500 fully reclaiming its opening loss of 0.4% about an hour into the session. However, President Trump sent stocks back to their opening levels around midday after saying that he’s got another tranche of tariffs on $267 billion of Chinese goods “ready to go” if China retaliates to a U.S. bid to impose a tariff on an additional $200 billion of Chinese goods (which hasn’t happened yet, but is expected by many to come to fruition soon).

In the end, the S&P 500, which traded as high as +0.2% and as low as -0.5%, settled near the middle of its trading range. 10 of 11 S&P sectors finished in negative territory, with health care (+0.2%) being the lone exception. The lightly-weighted utilities (-1.2%) and real estate (-1.2%) spaces were the worst performers, but losses were modest in general, with no other group dropping more than 0.5%.

The top-weighted technology space outperformed for much of the day, but eventually finished in line with the broader market, losing 0.3%. Within the space, Broadcom (AVGO) rallied 7.7% after reporting better-than-expected earnings for its fiscal third quarter. Meanwhile, Apple (AAPL) dropped in the late afternoon, settling lower by 0.8%, following headlines that the Trump administration’s proposed tariff list may cover a wide range of the company’s products.

In other corporate news, electric automaker Tesla (TSLA) tumbled 6.3%, hitting a five-month low, after its Chief Accounting Officer announced his resignation after just a month with the company and following headlines that its Chief People Officer will not be returning from her leave.

Looking at other markets, U.S. Treasuries sold off on Friday after the release of the August jobs report, sending yields higher across the curve. The yield on the Fed-sensitive 2-yr note jumped six basis points to 2.69%, and the yield on the benchmark 10-yr note also rose six basis points, closing at 2.94%. Elsewhere, the U.S. Dollar Index rallied 0.4% to 95.34, and WTI crude futures slipped 0.1% to $67.76/bbl.

Market Internals – Friday 07 September

Dollar: Dollar Index Climbs

The U.S. Dollar Index was up 0.4% at 95.42, before closing at 95.34 on Friday. The Index was on track for its third consecutive decline in overnight action on Friday, but the bulk of the overnight loss was reclaimed in early-morning trade. The Index extended its rebound after the release of a stronger than expected Employment Situation Report for August (actual 201K; consensus 187K), which included faster than expected average hourly earnings growth (actual 0.4%; consensus 0.2%). The Index overtook its morning high in midday trade, receiving another boost after President Trump said that another round of tariffs on $267 billion worth of goods from China is “ready to go.” Thanks to Friday’s advance, the Dollar Index locked in its first weekly gain in a month, having climbed 0.3% since last Friday.

Bonds: Strong August Jobs Report Sends Treasuries Lower

U.S. Treasuries ended the week with losses across the curve after the 2-yr note slid to a fresh decade low while longer tenors also retreated, though they are still above this year’s lows. Treasuries started the day with modest losses and continued sliding after the release of a better than expected Employment Situation Report for August, which not only strengthened expectations for two more hikes in 2018, but also boosted the likelihood of another rate increase in March 2019 to 47.7% from 38.1% yesterday. Treasuries hovered near their lows into the afternoon, and while the market saw some buying after President Trump told reporters gathered aboard Air Force One that another round of tariffs on $267 billion worth of imports from China is “ready to go”, those gains were surrendered in late trade. The threat of fresh tariffs on goods from China boosted the dollar against offshore yuan, leaving the Chinese currency within 1.5% of this year’s low. On a somewhat related note, President Trump also said that trade negotiations with Japan will be opened.

The yield curve rose and steepened as the long end made greater gains. The spread between the 5s10s widened to 12bps from 11bps the previous week while the 10s30s remained unchanged at 16bps from 16bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 82.59, lower than 83.74 the previous week as Energy, Metals fell.

WTI oil fell after 2 weeks of gains, settling at $67.75. The spread between WTI and Brent widened for a fifth week to $9.08 from $7.62 the previous week.

EIA petroleum data for the week ended August 31

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.3 mln barrels from the previous week. At 401.5 mln barrels, U.S. crude oil inventories are at the five year average for this time of year. Total motor gasoline inventories increased by 1.8 mln barrels last week and are about 7% above the five year average for this time of year. Finished gasoline and blending components inventories both increased last week. Distillate fuel inventories increased by 3.1 mln barrels last week and are about 6% below the five year average for this time of year. Propane/propylene inventories increased by 2.0 mln barrels last week and are about 12% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 3.6 mln barrels last week.

Natural gas inventory showed a build of 63 bcf vs a build of 70 bcf in the prior week- nat gas initially pops a little higher following this data. Working gas in storage was 2,568 Bcf as of Friday, August 31, 2018, according to EIA estimates. This represents a net increase of 63 Bcf from the previous week. Stocks were 643 Bcf less than last year at this time and 590 Bcf below the five-year average of 3,158 Bcf. At 2,568 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count remained unchanged at 1048 following last week’s increase by 4.

Metals: Fall back

Agriculture: Corn and Wheat bounce, Soy falls some more

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

THE WEEK AHEAD – Week 37 (September 10 to 14)

According to our 5, 10 and 15 year seasonal models, the SPY and DIA will be very bullish on Monday and Tuesday, divergent on Wednesday and moderately bullish on Thursday.

DIA should finish the week bullish on Friday but SPY is expected to be bearish on Friday.

I don’t know if I can trust the Stock Trader’s Almanac for the coming week because there are obvious errors in the weekly data and trivia for their Benchmarks (21 year average) for week 37. The most glaring error is that it states Friday 14 as Triple Witching Friday.

Key Economic Dates

Week 37

In the coming week, the US will publish inflation rate, retail trade, industrial production and the preliminary reading of Michigan consumer sentiment. Elsewhere: UK monthly GDP and unemployment; Japan final GDP growth; China inflation, industrial production, retail trade and fixed asset investment; and interest rate decisions from the ECB, the BoE and the Central Bank of Turkey.

Sun 09 September

Mon 10 September

Tue 11 September

Wed 12 September

Thu 13 September

Fri 14 September

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

COMMENTARY

Has September begun its bearish nature already? I’m thinking that its early days yet and that it can get more bearish as the month  moves into its second half. The possibility of portfolio dumping is very real given that the market has really underperformed this year. The recent two-month run on the S&P and tech components will give the fund managers a reason to dump as the spectre of a bear market next year looms real. (Stocks are in ‘the danger zone’)

I am bullish for the coming week (hope I don’t regret it) especially after the past week’s drop. I won’t be hanging on to anything for too long and will be watching for signs that the September market sell-down might be imminent.

Happy Hunting!

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

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

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

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

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

If you want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:

Pattern Trader™ Introductory Session

OR  download our promo slides here:
The Pattern Trader™ Tutorial 2018

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

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

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

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Comments Off on Weekly Market Analysis – 04 September 2018 BMO

Weekly Market Analysis – 04 September 2018 BMO

WEEK IN REVIEW – 27 to 31 August 2018 :
Going Deeper Into Record Territory

After returning to record territory last Friday, the S&P 500 trekked even higher this week, adding 0.9% in total. The tech-heavy Nasdaq outperformed, adding 2.1%, and the Dow also advanced, tacking on 0.7%. Investors dealt with a flurry of trade-related headlines this week, especially in regards to NAFTA negotiations.

The U.S. and Mexico reached a bilateral trade deal on Monday, a headline that sent Wall Street to new all-time highs. Canada then entered the discussions to try to work out a deal with the United States, but the two sides weren’t able to reach an agreement by President Trump’s Friday deadline. However, the White House said late on Friday that talks will resume next week.

In other trade-related news, Wall Street registered its only loss of the week on Thursday following reports that President Trump wants to move forward with tariffs on $200 billion worth of Chinese goods as early as next week. In addition, the president said in a Bloomberg interview that the EU’s offer to eliminate auto tariffs does not go far enough and compared the EU’s trade policies to those of China.

Meanwhile, on the earnings front, investors once again received quarterly results from a number of retailers this week, including results from well-known companies like Dollar General (DG), Best Buy (BBY), lululemon athletica (LULU), Dollar Tree (DLTR), Ulta Beauty (ULTA), Tiffany & Co (TIF), and Burlington Stores (BURL).

The results came in mostly better-than-expected, but guidance was more mixed, leaving the SPDR S&P Retail ETF (XRT) with a modest weekly gain of 0.3%.

Away from earnings, Amazon (AMZN) climbed to new records and crossed the $2000 mark for the first time ever after Morgan Stanley raised its target price for the online retail giant to $2500 — a new Street high. Meanwhile, Apple (AAPL) also hit new records, helped by investing legend Warren Buffett, who said he’s recently bought more shares of the world’s largest tech company.

Tesla (TSLA) also made headlines, moving lower after its CEO, Elon Musk, announced that he’s abandoned plans to take the electric automaker private.

As for the sector standings, seven groups finished the week in the green and four groups finished in the red. The top-performing sectors were technology (+2.0%), consumer discretionary (+1.8%), and health care (+1.0%). Conversely, telecoms (-1.7%), consumer staples (-0.5%), and utilities (-0.6%) finished at the back of the pack.

Also of note, there were some important pieces of economic data released this week, including the second estimate of Q2 GDP (+4.2% actual vs +4.0% consensus) and the July reading of the core PCE Price Index (+0.2% actual vs +0.2% consensus), which is the Fed’s preferred measure of inflation. Neither report elicited much of response from the stock market though.

With August now in the books, it still appears very likely that the Fed will raise rates at its September meeting, with the CME FedWatch Tool placing the chances at 98.4%.

U.S. markets will be closed on Monday in celebration of Labor Day.

(Economic Excerpts from Briefing.com)

Wednesday 29 August – Q2 GDP Revised Up with Second Estimate

The second estimate for Q2 GDP checked in at 4.2% (consensus 4.0%) versus the advance estimate of 4.1%. The Q2 GDP Deflator also pushed up to 3.2% (consensus 3.0%) from the advance estimate of 3.0%.

The key takeaway from the report is that it included a downward revision to personal spending growth (from 4.0% to 3.8%) that was offset by a higher estimate for nonresidential investment growth, government spending, and a downward revision to imports, which are a subtraction in the calculation of GDP.

Thursday 30 August – Initial Claims Rolling Along at Low Levels

Initial claims for the week ending August 25 increased by 3,000 to 213,000 (consensus 214,000) while continuing claims for the week ending August 18 decreased by 20,000 to 1.708 million. The key takeaway from the report is the recognition that the four-week moving average of 212,250 for initial claims is the lowest since December 13, 1969, underscoring the strength in the labor market.

Thursday 30 August – Personal Income and Spending for July Keep Economy on Solid Growth Track

Personal income for July increased 0.3% (consensus +0.4%), personal spending jumped 0.4% (consensus +0.4%), the PCE Price Index increased 0.1% for the second straight month, and the core PCE Price Index, which excludes food and energy, rose 0.2% (Briefing.com consensus +0.2%).

The key takeaway from the report is twofold: (1) the spending increase puts Q3 GDP on a solid growth track and (2) the year-over-year increase in the PCE Price Index (+2.3% vs. +2.2% prior) and the core PCE Price Index (+2.0% vs. +1.9% prior) will keep the Federal Reserve on its tightening track in September.

Friday 31 August – August Chicago PMI 63.6 vs 63.0 consensus, July 65.5

The MNI Chicago Business Barometer, otherwise known as the Chicago PMI, dipped to 63.6 in August (consensus 63.0) from a six-month high of 65.5 in July.  The dividing line between expansion and contraction is 50.0.

Despite the dip, the key takeaway from the August report is that manufacturing activity in the Chicago Fed region remains robust.

Friday 31 August
Stocks Hold Steady Despite No U.S.-Canada Trade Deal

Friday’s trading session – the last session ahead of an extended Labor Day weekend – was an eventful one in terms of trade-related headlines, but a largely uneventful one for the major averages, which finished roughly flat. The S&P 500 (unch) added less than a point, the Nasdaq Composite (+0.3%) advanced modestly, and the Dow Jones Industrial Average (-0.1%) finished slightly lower.

All eyes were on Washington, where U.S. and Canadian officials were scrambling to get a trade deal done by President Trump’s end of Friday deadline. The two sides weren’t able to reach an agreement, but the White House then said talks will extend into next week. The extension was unexpected, as President Trump has said he’d be willing to move on without Canada if a deal wasn’t in place by Friday.

Nonetheless, the news helped the market recover modest losses from earlier in the day, which were extended after The Toronto Star released “off the record” remarks that President Trump made during a Bloomberg interview on Thursday, including an acknowledgement that he’s not making any compromises in the trade talks with Canada.

U.S. Trade Representative Robert Lighthizer announced late in the afternoon that President Trump has officially notified Congress that he wants to sign a trade agreement with Mexico, which agreed to a bilateral deal with the U.S. on Monday, and potentially Canada, in 90 days. The deals are aimed at replacing the North American Free Trade Agreement, which has been in place since 1994.

As for the 11 S&P 500 sectors, almost all of them finished within 0.5% of their unchanged marks. The energy sector (-0.7%) was the lone exception, falling in tandem with the price of crude oil; WTI crude futures slid 0.5% to $69.84/bbl. Energy finished August at the bottom of the sector standings with a monthly loss of 3.8%; for comparison, the S&P 500 added 3.0%.

In earnings news, lululemon athletica (LULU) and Ulta Beauty (ULTA) advanced 13.1% and 6.4%, respectively, after releasing their quarterly results, but Big Lots (BIG) dropped 10.1% after reporting lower-than-expected profits and guidance for FY19.

Looking at other markets, U.S. Treasuries advanced, pushing yields lower across the curve, with the benchmark 10-yr yield slipping one basis point to 2.85%; the U.S. Dollar Index climbed 0.4% to 95.05, its best level in a week; and the CBOE Volatility Index, often referred to as the “investor fear gauge”, slid 3.2% to 13.10.

Market Internals – Friday 31 August

Dollar: Dollar Index Reclaims 50-Day Average

The U.S. Dollar Index was up 0.4% at 95.12, to end a volatile month on a modestly higher note. The dollar held its ground in overnight trade on Friday, but began rallying during the latter portion of the European session, accelerating its advance after weakness in Italian debt lifted the country’s 10-yr yield (3.24%) to a level not seen since Italy’s 10-yr yield spiked to 3.39% in late May. In addition to rallying against the euro, the greenback has had a strong showing against commodity currencies, pressuring the Aussie to a fresh 2018 low. The Dollar Index has reclaimed its 50-day moving average (95.01) to add 0.6% for August after being up 2.6% for the month at its highest point on August 15.

Bonds: Long Bond Surrenders Intraday Gain Ahead of NAFTA Update

Shorter-dated U.S. Treasuries ended the week on a higher note while longer tenors surrender their gains in afternoon action. The trading day started with modest gains after an overnight rally in Treasury futures amid renewed focus on trade. Recall that a report released on Thursday afternoon reminded investors that the next tranche of tariffs on $200 billion worth of imports from China is likely to go into effect next week. In addition, there was some speculation about the longevity of the agreement President Trump made with European Commission President Jean-Claude Juncker to suspend tariffs while negotiations take place, after President Trump said that it would be insufficient for Europe to remove tariffs on auto imports if other barriers remained in place. The comments were made during an interview with Bloomberg.

Treasuries extended their gains during the first hour of trade, moving higher alongside the U.S. dollar. That advance took place as weakness in Italian debt lifted Italy’s 10-yr yield (3.24%) to a level not seen since the country’s 10-yr yield spiked to 3.39% in late May. The morning rally was followed by a small intraday pullback, but the 10-yr note surrendered the bulk of its gain while the long bond turned negative during the final minutes of the action, in a move coinciding with an announcement that Canada’s Foreign Minister Chrystia Freeland will hold a press conference at 16:30 ET (Friday) to discuss the results of NAFTA negotiations. The late selling returned 10s and 30s to little changed while 2s and 5s finished the session near their highs.

The yield curve rose across the board, steepening slightly at the long end. The spread between the 5s10s remained unchanged at 11bps from 11bps the previous week while the 10s30s widened to 16bps from 15bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 83.74, higher than 83.69 the previous week as Energy,  Corn and Wheat make gains.

WTI oil rose for a second, settling at $69.80. The spread between WTI and Brent continued to widen for a fourth week to $7.62 from $7.10 the previous week.

EIA petroleum data for the week ended August 24

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.6 mln barrels from the previous week. At 405.8 mln barrels, U.S. crude oil inventories are at the five year average for this time of year. Total motor gasoline inventories decreased by 1.6 mln barrels last week and are about 5% above the five year average for this time of year. Finished gasoline inventories decreased while blending components inventories remained virtually unchanged last week. Distillate fuel inventories decreased by 0.8 mln barrels last week and are about 8% below the five year average for this time of year. Propane/propylene inventories increased by 2.6 mln barrels last week and are about 12% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 1.7 mln barrels last week.

Natural gas inventory showed a build of 70 bcf vs a build of 48 bcf in the prior week. Working gas in storage was 2,505 Bcf as of Friday, August 24, 2018, according to EIA estimates. This represents a net increase of 70 Bcf from the previous week. Stocks were 646 Bcf less than last year at this time and 588 Bcf below the five-year average of 3,093 Bcf. At 2,505 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count increased by 4 to 1048 following last week’s decrease by 13.

Metals: Fall back

Agriculture: Corn and Wheat bounce, Soy falls some more

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

THE MONTH AHEAD

September is the last month of Quarter Three, the “worst” quarter of the financial year. September has the reputation of being the most bearish month of the trading year. 

September 2018 is the shortest trading month of the year with only nineteen (19) trading sessions and one public holiday. September tends to start bullish in the first two weeks, becomes bearish and volatile in the third week and ends the month in typical unpredictable fashion, often selling down in the final week.

September Trivia

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

THE WEEK AHEAD – Week 36 (September 03 to 07)

According to our 5, 10 and 15 year seasonal models, the SPY and DIA will be expecting a divergent and volatile week ahead:

Benchmarks (21 year average) for wk36:

Key Economic Dates

Week 36

In the coming week, the US will release the jobs report, trade balance, ISM PMIs, ADP employment and factory orders. Elsewhere, important data include: UK Markit PMIs; Japan household spending; China foreign trade and Caixin PMIs; and Australia interest rate decision, GDP growth, trade balance and retail sales.

Sun 02 September

Mon 03 September

Tue 04 September

Wed 05 September

Thu 06 September

Fri 07 September

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

COMMENTARY

August has been a reliably bearish month over the last 30 years but this year’s August Bear was driven away by very good Q2 earnings and a still-lofty US economy. It closed the last week in rather volatile fashion.

Asian and European markets closed out the week to the downside in the light of increasing trade war pressure following Thursday’s reports that President Trump intends to move ahead with tariffs on $200 billion worth of Chinese goods as early as next week. In addition, separate reports said that Mr. Trump has rejected an offer from the EU to eliminate tariffs on automobiles.

President Trump criticized the EU on Thursday, leading to speculation that his agreement with European Commission President Jean-Claude Juncker to suspend tariffs while negotiations take place will be short-lived. Yesterday’s reminder about the likelihood of another round of tariffs going into effect next week was followed by comments from President Trump, who said the United States could leave the World Trade Organization if the WTO doesn’t “shape up.

With regard to the U.S.-Canada trade talks, Thursday’s selling carried over into Friday’s session as investors awaited news from Washington, where U.S. and Canadian trade officials were scrambling to reach a deal by President Trump’s end of day deadline. U.S.-Canada trade discussions appeared promising earlier in the week, but seem to have soured a bit as of late, especially following a Toronto Star report, which accused President Trump of making inflammatory “off the record” remarks in a Bloomberg interview on Thursday.

According to The Star, Mr. Trump said that he is not making any compromises in the trade talks with Canada, but he doesn’t want to say that publicly because “it’s going to be so insulting they’re not going to be able to make a deal.” Traders are still waiting to see how the drama will play out, although some have likely already left to get a jump start on the Labor Day weekend.

SUMMARY

It is a shortened week in the month that has a reputation for being bearish. It is also going to be a very short month in which we will be having loads of significant macroeconomic events that will lead up to the final Earnings Season in October.

Expect increased volatility with lower volumes as September has regularly offered in the past. I remain cautiously bullish and will still keenly be watching for the first signs of a correction that the month so famously presents almost every year.

Happy Hunting!

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

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

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

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

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

If you want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:

Pattern Trader™ Introductory Session

OR  download our promo slides here:
The Pattern Trader™ Tutorial 2018

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

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

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

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

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

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Comments Off on Weekly Market Analysis – 27 August 2018 BMO

Weekly Market Analysis – 27 August 2018 BMO

WEEK IN REVIEW – 20 to 24 August 2018 :
Back to Record Territory

The S&P 500 advanced 0.6% this week, closing Friday at a new record high for the first time since January 26. Political uncertainty, trade ambiguity, and strengthened expectations for two more rate hikes this year all failed to dissuade motivated buyers, who pushed stocks higher in three of the week’s five sessions.

As for the other major averages, the Nasdaq and the Russell 2000 also notched new records, adding 1.7% and 1.9%, respectively, while the Dow climbed 0.5%.

The week started on a mildly positive note, with stocks ticking higher on Monday and Tuesday, but investors were cautious over the next two sessions, largely due to the legal woes of President Trump’s former campaign manager, Paul Manafort, and longtime personal lawyer, Michael Cohen.

Mr. Manafort was convicted of tax and bank fraud on Tuesday afternoon, while Mr. Cohen pleaded guilty to a range of charges, including tax fraud and excessive campaign contributions, and implicated the president directly by saying that Mr. Trump directed him to pay two women hush money “for the principal purpose of influencing the election.”

It’s too early to say what these developments will mean for President Trump’s political future, but it’s worth noting that the president chose to say, in regards to the situation, that the market would crash “if I ever got impeached” and that “I don’t know how you can impeach somebody who has done a great job.”

Moving on to the trade front, two days of trade talks between the U.S. and China wrapped up on Thursday without any visible sign of progress. President Trump said beforehand that he wasn’t expecting much to come out of the talks, which marked the first official negotiations since a breakdown nearly three months ago.

In monetary policy, President Trump reiterated his displeasure with the Fed on Monday, saying he was “not thrilled” with Fed Chair Jerome Powell for raising rates.

Two days later, the Fed released the minutes from the July/August FOMC meeting, which only strengthened the expectation that the U.S. central bank will hike rates at its September meeting, with officials saying in the minutes that it would likely “soon” be appropriate to raise rates.

Then, on Friday, Fed Chairman Powell gave a speech at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming, saying that gradual rate hikes remain appropriate. Mr. Powell also expressed confidence in the economy and said he doesn’t see any signs of inflation getting out of hand.

Seven of eleven sectors advanced this week, with cyclical groups showing relative strength. The energy sector (+2.6%) was the top performer — rebounding from last week’s 3.6% tumble — helped by an increase in crude prices; West Texas Intermediate crude futures climbed 4.2% this week to $68.66 per barrel.

Meanwhile, the consumer discretionary sector (+2.0%) also outperformed amid a steady flow of retail earnings. TJX (TJX) jumped 4.7% on Tuesday after reporting better-than-expected results, while Lowe’s (LOW) and Target (TGT) added 5.8% and 3.2%, respectively, on Wednesday after also beating estimates.

On the downside, the four declining sectors were consumer staples (-1.8%), utilities (-1.4%), telecom services (-0.7%), and real estate (-1.1%).

(Excerpts from Briefing.com)

Wed 22 August – Fed releases minutes from July 31/August 1 FOMC policy meeting

Thu 23 August – Initial Claims Remain Near Recent Levels (210K vs 217K consensus)

Fri 24 August – S&P Notches First Record Close Since January

Friday was a record-setting day for the stock market, with the S&P 500 (+0.6%) notching its first record close (2874.69) since January 26. The Nasdaq (+0.9%) also registered a fresh record finish, as did the small-cap Russell 2000 (+0.5%). The Dow (+0.5%) advanced, but finished about 3.0% below its January record high.

The market extended opening gains after Fed Chairman Jerome Powell didn’t say anything upsetting in his speech at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming. Mr. Powell reiterated that gradual rate hikes remain appropriate, adding that he doesn’t see any signs that inflation is getting out of hand.

On the international front, investors brushed off news that two days of trade talks between the U.S. and China ended on Thursday without any visible sign of progress. That result was expected as President Trump said beforehand that he didn’t believe much would come from the negotiations.

Separately, President Trump tweeted on Friday afternoon that he’s asked Secretary of State Mike Pompeo not to go to North Korea because there has not been sufficient progress with respect to the decentralization of the Korean Peninsula. The stock market had a muted reaction to the tweet.

Wall Street’s gains were broad-based on Friday with 10 of 11 sectors advancing.

The lightly-weighted materials sector (+1.2%) was the top-performing group, followed closely by the top-weighted technology sector (+1.1%). Within the tech space, software company Autodesk (ADSK) spiked 15.3% after reporting better-than-expected earnings and revenues on Thursday evening.

In other earnings news, retailers dominated the headlines once again with Gap (GPS) and Foot Locker (FL) tumbling 8.6% and 9.2%, respectively, and Buckle (BKE) dropping 4.5% in reaction to their quarterly results. Conversely, Ross Stores (ROST) ticked up 0.1%.

The consumer staples sector (-0.2%) was the lone decliner, but financials (+0.3%), industrials (+0.4%), and utilities (+0.4%) also underperformed.

Looking at other markets, U.S. Treasuries finished slightly lower, pushing the benchmark 10-yr yield up one basis point to 2.83%. Meanwhile, the U.S. Dollar Index gave back nearly all of Thursday’s rebound, dropping 0.5% to 95.05, and West Texas Intermediate crude futures jumped 1.2% to $68.66/bbl.

Market Internals – Friday 24 August

Dollar: Dollar Index Revisits 50-Day Average

The U.S. Dollar Index was down 0.6% at 95.13, hovering just above its 50-day moving average (95.02) once again. The greenback surrendered a portion of Thursday’s gain in overnight trade, dropping to a fresh session low after the release of Fed Chairman Jay Powell’s speech from the Jackson Hole Symposium. The speech was largely in-line with expectations, as Chairman Powell acknowledged that continued rate hikes are warranted as long as economic growth remains on track. Mr. Powell did not discuss currencies in his remarks. The Dollar Index is on track to surrender 1.0% for the week.

Bonds: Treasuries Yawn at Comments from Jackson Hole

U.S. Treasuries ended Friday on a slightly lower note after reclaiming the bulk of their opening losses. Treasuries ticked lower in overnight trade, widening their losses ahead of the release of Fed Chairman Jay Powell’s speech from the Jackson Hole Symposium. However, those losses were mostly reclaimed after Mr. Powell’s speech fit largely in-line with the market’s view of monetary policy. The Fed Chairman said he believes that increasing rates in gradual fashion will remain appropriate if growth stays on its current path. Mr. Powell did not discuss trade and did not talk about the expected impact of Fed policy on emerging markets. Pressure on the yield curve persisted, briefly compressing the 2s10s spread to a new cycle low of 19 bps. However, the 2s10s spread returned to unchanged by the end of the session, ending the week at 22 bps, three basis points tighter when compared to last Friday.

The yield curve flattened more as the longer maturities’ yields fell more than the shorter maturities’ yields. The spread between the 5s10s tightened to 11bps from 12bps the previous week while the 10s30s tightened to 15bps from 16bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 83.69, higher than 83.35 the previous week as ABCDE

WTI oil snapped a seven week losing streak, settling at $68.72. The spread between WTI and Brent continued to widen for a third week to $7.10 from $5.92 the previous week.

EIA petroleum data for the week ended August 17

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.8 mln barrels from the previous week. At 408.4 mln barrels, U.S. crude oil inventories are at the five year average for this time of year. Total motor gasoline inventories increased by 1.2 mln barrels last week and are about 6% above the five year average for this time of year. Finished gasoline and blending components inventories both increased last week. Distillate fuel inventories increased by 1.8 mln barrels last week and are about 7% below the five year average for this time of year. Propane/propylene inventories decreased by 0.9 mln barrels last week and are about 13% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 2.5 mln barrels last week.

Natural gas inventory showed a build of 48 bcf vs a build of 33 bcf in the prior week. Working gas in storage was 2,435 Bcf as of Friday, August 17, 2018, according to EIA estimates. This represents a net increase of 48 Bcf from the previous week. Stocks were 684 Bcf less than last year at this time and 599 Bcf below the five-year average of 3,034 Bcf. At 2,435 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count decreased by 13 to 1044 following last week’s status quo.

Metals: All recover

Agriculture: Grains Resume Seasonal Weakness

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

THE WEEK AHEAD – Week 35 (August 27 to 31)

According to our 5, 10 and 15 year seasonal models, the SPY and DIA will be expecting a divergent and volatile week ahead:

Trivia:

Benchmarks (21 year average) for wk35:

Key Economic Dates

Week 35

Next week the US will publish the second estimate of GDP growth, personal income and spending, PCE prices, and pending home sales. Elsewhere: UK monetary indicators; Eurozone inflation; Japan retail sales and industrial output; China official PMIs; and Canada, India and Brazil GDP growth rates.

Mon 27 August

Tue 28 August

Wed 29 August

Thu 30 August

Fri 31 August

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

SUMMARY

So the market breaks higher highs in a month that’s not supposed to be bullish and is about to go into a month that’s supposed to be the year’s most bearish. There is nothing ordinary about what’s going on and I shouldn’t be surprised either as the macros still favour a bull market.

The yield curve, on the other hand is still a cause for concern and I will be watching it closer than ever as we get into September, especially if September shows its usual signs of declining.

Happy Hunting!

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

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

 

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

 

 

Details of the October Batch can be found here:

PTTPG07, OCTOBER 2018 (Penang)

<<<<<==>>>>>

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

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

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

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

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

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

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Comments Off on Weekly Market Analysis – 20 August 2018 BMO

Weekly Market Analysis – 20 August 2018 BMO

WEEK IN REVIEW – 13 July to 17 August 2018 :
Hodgepodge of Headlines Helps Fuel Rebound

The S&P 500 advanced 0.6% this week – recouping last week’s modest decline – amid a host of retail earnings, more volatility in the Turkish lira, and another (minor) chapter in the U.S.-China trade war saga. The blue-chip Dow outperformed the S&P 500, rallying 1.4%, but the tech-heavy Nasdaq lagged, losing 0.3%.

Retailers stepped up to the earnings plate this week, with Walmart (WMT), Home Depot (HD), Macy’s (M), Nordstrom (JWN), Advance Auto (AAP), and J.C. Penney (JCP) all reporting their quarterly results. The market’s reaction to the reports was mixed.

In the session immediately following their respective earnings releases, Walmart spiked 9.3%, Home Depot lost 0.5%, Macy’s plunged 16.0%, Nordstrom spiked 13.2%, Advance Auto climbed 7.8%, and J.C. Penney plunged 27.0%. On a related note, the July Retail Sales report came in better-than-expected, showing a month-over-month increase of 0.5% (Briefing.com consensus +0.1%).

Non-retail names reporting earnings this week included Cisco Systems (CSCO), NVIDIA (NVDA), and Deere (DE). Cisco Systems and Deere rallied in the session immediately following their releases, adding 3.0% and 2.4%, respectively, but market-darling NVIDIA tumbled, losing 4.6%, after disappointing guidance overshadowed upbeat results.

In other corporate news, Tesla’s (TSLA) chief executive, Elon Musk, attempted to clarify last week’s tweet about taking Tesla private, saying that his claim that funding has been secured is based on repeated conversations with Saudi Arabia’s sovereign wealth fund. Mr. Musk also did a high-profile interview with The New York Times, in which he discussed his personal struggles, calling this past year “the most difficult and painful” of his career. Tesla shares ended the week lower by 14.1%.

In currencies, the Turkish lira followed up last Friday’s 16% plunge with another slide on Monday, touching a new all-time low against the U.S. dollar, but then rebounded for the next three sessions. That streak ended with another tumble on Friday, but the currency still finished with a weekly gain of 6.1%.

On the trade front, reports that the U.S. and China will resume trade talks by the end of the month helped equities rally on Thursday. The talks will mark the first official negotiations since a breakdown two months ago, but it’s worth noting that the talks are expected to be between low-level officials. In addition, The Wall Street Journal reported late on Friday that Chinese and U.S. negotiators are planning talks to try to end their trade disagreement ahead of multilateral meetings between President Trump and President Xi in November.

Elsewhere, West Texas Intermediate crude futures tumbled 2.5% to $65.94 per barrel this week, touching a fresh two-month low on Wednesday after the Energy Information Administration’s weekly inventory report showed an unexpected build of 6.8 million barrels. The drop in oil prices weighed on the energy group, which finished at the bottom of the sector standings with a loss of 3.6%.

Most S&P 500 sectors finished the week in positive territory, with less-risky, countercyclical groups – including consumer staples (+3.2%), utilities (+2.5%), and telecom services (+3.7%) – leading the charge. The top-weighted technology sector underperformed, shedding 0.2%, but remains 2018’s top-performing group with a year-to-date gain of 15.6%.

(Excerpts from Briefing.com)

Wed 15 August – Industrial Production & Capacity Utilisation

Thu 16 August – Initial Claims & Philly Fed

Fri 17 August – Leading Indicators

Fri 17 August – Positive Trade Headlines Fuel Late Uptick

The S&P 500 advanced 0.3% on Friday, securing a weekly gain of 0.6%, helped by a Wall Street Journal report that Chinese and U.S. negotiators are planning talks to try to end their trade disagreement ahead of multilateral meetings between President Trump and President Xi in November. The Dow added 0.4% on Friday, and the Nasdaq ticked up 0.1%.

Friday’s gains were broad-based, with all 11 S&P sectors closing in the green. The industrials (+0.6%), materials (+0.7%), consumer staples (+0.7%), and real estate (+1.0%) sectors were the top performers, while consumer discretionary (+0.1%), financials (+0.2%), and technology (+0.2%) finished at the back of the pack.

Stocks opened roughly flat and stayed largely unchanged until the afternoon when the WSJ report crossed the wires, pushing the market to new highs.

In corporate news, Tesla (TSLA) tumbled 8.9% following a New York Times interview with its CEO, Elon Musk, in which he discussed his personal struggles, calling this past year “the most difficult and painful” of his career. The NYT also reported that some of Tesla’s board members are concerned over Mr. Musk’s use of Ambien and recreational drugs.

On the earnings front, NVIDIA (NVDA) and Applied Materials (AMAT) tumbled 4.9% and 7.7%, respectively, after they reported worse-than-expected guidance, which overshadowed their better-than-expected earnings. The Philadelphia Semiconductor Index lost 0.7%.

Conversely, Nordstrom (JWN) spiked 13.2% after reporting above-consensus earnings and guidance for FY19, and Deere (DE) climbed 2.4% despite missing bottom-line estimates and issuing below-consensus guidance for the current quarter.

Away from stocks, the Turkish lira lost 3.6% against the U.S. dollar, ending its three-session rebound, and U.S. Treasuries spent most of the day in the green, but finished the session little changed. The yield on the benchmark 10-yr Treasury note finished flat at 2.87%.

Market Internals – Friday 17 August

Dollar: Dollar Index Pulls Back

The U.S. Dollar Index was down 0.4% at 96.30, turning negative for the week. Overnight action saw a pullback in the Dollar Index, which coincided with an uptick in the yuan. The yuan is not in the Dollar Index basket, but the overnight uptick was followed a jump in the euro, pound, and Australian dollar, which pressured the Dollar Index. The Index reclaimed the bulk of its loss in Friday’s early-morning trade, but slid to a fresh low a few hours later. Friday’s decline is the Index’s first weekly loss in four weeks, though the Index was only down 0.1% since the end of last Friday’s session.

Bonds: Afternoon Pullback Produces Flat Finish

U.S. Treasuries ended the week on a flat note after trade-related news prompted some late selling. The afternoon pullback prevented 10s and 30s from recording their third consecutive week of gains. Early action saw Treasuries oscillate near their opening levels, making for a mostly quiet trading day. However, the complex backed off session highs during the last 90 minutes of action, after The Wall Street Journal reported that officials from the U.S. and China would like to resolve disagreements over trade in time for multilateral meetings in November. The late report gave a boost to offshore yuan (USD/CHN -0.5% to 6.828), helping the Chinese currency secure its first weekly advance in ten weeks and only the third higher finish for the week out of the past 18 weeks. The dollar gave way to other currencies as well, causing the Dollar Index to extend its decline to 0.6% from 0.4% before the news. The yield curve ended the week at a slightly flatter level, as the 2s30s spread compressed to 41 bps from last Friday’s 42 bps while the 2s10s spread tightened by a basis point to 25 bps.

The yield curve flattened slightly as the 2 and 5-yr maturities gained 1bps more than the 10 and 30-yr. The spread between the 5s10s tightened to 12bps from 13bps the previous week while the 10s30s remained unchanged at 16bps from 16bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 83.35, lower than 84.23 the previous week as Oil and Metals continued their seasonal weakness. Lumber was the strongest commodity, up almost 7% at a three-week high.

WTI oil locks in a seventh straight weekly loss, settling at $65.91, on weaker demand outlook while Brent registered its third straight week down. The spread between WTI and Brent continued to widen for a second week to $5.92 from $5.18 the previous week.

EIA petroleum data for the week ended August 10

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.8 mln barrels from the previous week. At 414.2 mln barrels, U.S. crude oil inventories are about 1% above the five year average for this time of year. Total motor gasoline inventories decreased by 0.7 mln barrels last week and are about 5% 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 3.6 mln barrels last week and are about 8% below the five year average for this time of year. Propane/propylene inventories increased by 3.4 mln barrels last week and are about 10% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 17.4 mln barrels last week.

Natural gas inventory showed a build of 33 bcf vs a build of 465 bcf in the prior week. Working gas in storage was 2,387 Bcf as of Friday, August 10, 2018, according to EIA estimates. This represents a net increase of 33 Bcf from the previous week. Stocks were 687 Bcf less than last year at this time and 595 Bcf below the five-year average of 2,982 Bcf. At 2,387 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count remained unchanged at 1057 following last week’s increase of of 13.

Metals: All lower

Agriculture: Grains Bounce

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THE WEEK AHEAD – Week 34 (August 20 to 24)

According to our seasonal model, the SPY and DIA will be expecting a divergent week ahead:

Trivia:

Benchmarks (21 year average) for wk34:

Key Economic Dates

Week 34

This week the Fed, the ECB and the RBA will publish the minutes of their last monetary policy meetings. Key economic data include: US existing and new home sales, durable goods orders and flash Markit PMIs; UK CBI factory orders; Eurozone flash Markit PMIs; and Japan inflation rate and flash Manufacturing PMI.

Mon 20 August

Tue 21 August

Wed 22 August

Thu 23 August

Fri 24 August

Sat 25 August

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SUMMARY

With two weeks remaining in August, the month has yet to rear its bearish nature. The benchmarks, for now, remain range-bound  with the exception of NASDAQ that seems to have come up against a formidable resistance at 7,900 while S&P is stuck below 2,850 and the DOW at 25,650.

U.S. economy is still lofty and showing no signs of failing anytime soon. By most measures, the economy is as strong now as it has been in decades. Hiring is strong, unemployment is low, households and business are confident and stocks are rising again. Any headwinds are likely to come from off-shore threats such as the tariff-tango and trade wars. Crisis in emerging markets like Turkey rarely hurt the U.S. economy but there have been a few events such as the “Asian contagion” in 1997 and a Russian default in 1998 when the danger become global.

Then you have the Federal Reserve. The central bank has been raising the cost of borrowing in the U.S. by lifting interest rates. Europe and Japan may also tighten monetary policy. Minutes of the August-ending meeting are due for release this Wednesday. If the Fed moves either too fast or too slow, the results could be painful for the economy. Already, higher rates appear to have dampened home sales and construction. The Fed Chair, Jerome Powell’s speech on Friday 24 August will be keenly watched for hints as to what the Fed is likely to do in the coming September FOMC Monetary Policy meeting.

Happy Hunting!

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