Weekly Market Update – 25 June 2018 BMO

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

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

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

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

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

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

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

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

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

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

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

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

(Excerpts from Briefing.com)

Friday Update: Down Week Ends on High Note

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

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

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

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

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

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

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

Market Internals – Friday 22 June

Dollar: Dollar Index Inches Lower

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

Bonds: Quiet Week Ends on Flat Note

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

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


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

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

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

EIA petroleum data for the week ended June 15

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

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

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

Metals: Downtrend continues

Agriculture: Seasonal weakness persists



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

Benchmarks (21 year average) for wk26:

Key Economic Dates

Week 26

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

Mon 25 June

Tue 26 June

Wed 27 June

Thu 28 June

Fri 29 June



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

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


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

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

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

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

Happy Hunting!


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