Weekly Market Update – 02 July 2018 BMO

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

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

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

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

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

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

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

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

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

(Excerpts from Briefing.com)

Friday Update: Disappointing Finish

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

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

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

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

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

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

Market Internals – Friday 29 June

Dollar: Dollar Index Pulls Back

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

Bonds: First Half Ends With Whimper

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

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


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

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

EIA petroleum data for the week ended June 22

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

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

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

Metals: Weakness persists

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

USDA’s annual acreage report and quarterly grains stocks reports

USDA Quarterly Grain Stocks Report:

USDA Annual Acreage Report :

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

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



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

Benchmarks (21 year average) for wk27:

Key Economic Dates

Week 27

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

Mon 02 July

Tue 03 July

Wed 04 July

Thu 05 July

Fri 06 July



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

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

July Trivia



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

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

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


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

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

Happy Hunting!


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