Weekly Market Update – 30 July 2018 BMO

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WEEK IN REVIEW – 23 to 27 July 2018 :
Facebook Flop Steals Trade-Deal Thunder

Stocks moved mostly higher this week, sending the S&P 500 within 1.5% of its January 26 record high, with investors focused on a potential U.S.-EU trade deal and the latest batch of Q2 earnings, which featured results from high-flying FAANG names like Facebook (FB), Amazon (AMZN), and Alphabet (GOOG).

The S&P 500 advanced 0.6%, and the Dow Jones Industrial Average climbed 1.6%. The tech-heavy Nasdaq struggled, however, losing 1.1%, due in large part to Facebook’s 19% plunge on Thursday – which marked the biggest-ever one-day drop in market value for a U.S.-listed company (-$119.1 billion).

Facebook tumbled in response to its Q2 earnings report, which showed below-consensus revenues and slowing user growth, due in part to the #DeleteFacebook movement following the Cambridge Analytica data scandal. In addition, the social media giant also issued below-consensus revenue guidance. However, Google’s parent company Alphabet and internet-retail behemoth Amazon helped balance things out with better-than-expected results.

Still, the top-weighted technology sector, which houses most FAANG names, was the worst-performing group this week, diving 1.2%. Conversely, financials was among the top-performing spaces with a gain of 2.0%, benefiting from a rise in interest rates; the yield on the benchmark 10-yr Treasury note climbed six basis points to 2.96%.

On the data front, the preliminary reading for second quarter GDP showed an annualized increase of 4.1%, in line with the Briefing.com consensus estimate and the best reading since the third quarter of 2014. Consumer spending was the main engine of growth, increasing 4.0% and contributing 2.69 percentage points.

In politics, President Trump met with European Commission President Jean-Claude Juncker at the White House on Wednesday. Stocks spiked that afternoon on headlines that Mr. Trump has secured trade concessions from the EU, including a pledge to import more soybeans and natural gas from the U.S. and to improve market access for U.S. medical devices. The two sides also decided to table auto tariffs while they continue to negotiate.

The European Central Bank decided on Thursday to keep its key policy rate unchanged, as expected, and reiterated that net asset purchases will likely cease at the end of December, with the reinvestment of principal payments continuing for an extended period of time thereafter.

Looking ahead, the Federal Reserve will release its latest policy directive on Wednesday. The market isn’t expecting a rate hike, but investors will be interested to see what the central bank has to say about future rate increases this year; currently, the market is anticipating two additional hikes by year’s end.

(Excerpts from Briefing.com)

Wed 25 July Initial Claims 217K vs 215K; Prior revised to 208K from 207K

The weekly initial jobless claims count totaled 217,000, while the consensus expected a reading of 215,000. The tally was above the revised prior week count of 208,000 (from 207,000). Continuing claims declined to 1.745 million from a revised count of 1.753 million (from 1.751 million).

Friday: Tech Tumble Trims Weekly Gains

Stocks started Friday stable, but began tumbling in the afternoon, with tech shares pacing the broad-based retreat.

The tech-heavy Nasdaq dropped 1.5%, ending the week lower by 1.1%. The S&P 500 and the Dow also declined, losing 0.7% and 0.3%, respectively, but managed to keep in positive territory for the week (+0.6%; +1.6%). The small-cap Russell 2000 underperformed (-1.9%), extending its weekly loss to 2.0%.

All eyes were on Amazon (AMZN) coming into Friday’s session, with investors hoping that its better-than-expected Q2 earnings report could restore some faith in FAANG names, which lost a lot of momentum on Thursday due to Facebook’s (FB) earnings-induced plunge.

Amazon was up around 4.0% in pre-market trading, but weakened substantially intraday, trimming its gain to just 0.5% by the closing bell. The petering out didn’t do much good for the bulls, which, just a few days ago, were looking to ride another FAANG-led rally back into record territory.

The top-weighted technology sector finished a ways behind the ten other groups on Friday, losing 2.0%. Intel (INTC) weighed heavily on the group as concerns over its slow roll out of next-generation chips overshadowed its better-than-expected Q2 earnings report. Twitter (TWTR) was also a drag on the tech space, plunging 20.5%, after reporting a decline in monthly active users and disappointing guidance.

No other sector lost more than 0.9%, and three groups – financials (+0.2%), consumer staples (+0.2%), and telecoms (+1.9%) – actually finished in the green.

Health care (-0.7%) ended near the bottom of the sector standings, with Merck (MRK) slipping despite upbeat earnings results. Energy (-0.5%) was another decliner following a mixed post-earnings performance from Chevron (CVX) and Exxon Mobil (XOM).

Elsewhere, U.S. Treasuries finished the week with a modest rally, pushing yields lower across the curve; the benchmark 10-yr yield slipped two basis points to 2.96%. Meanwhile, WTI crude futures broke a three-day win streak, dropping 1.3% to $68.72/bbl, and the U.S. Dollar Index ticked down 0.1% to 94.45.

Reviewing Friday’s economic data, which included the preliminary reading of Q2 GDP and the final reading for the July University of Michigan Consumer Sentiment Index:

Market Internals – Friday 27 June

Dollar: Slim Overnight Gain Surrendered

The U.S. Dollar Index was down 0.1% at 94.69, revisiting levels from Thursday afternoon. The Index held its ground in overnight trade, overtaking Thursday’s high during the early portion of Friday’s European session. However, the Index pulled back after the release of a second quarter GDP report (4.1%; consensus 4.1%) that was in-line with expectations. The Index continues hovering near its low in afternoon trade, on track to add 0.3% for the week.

Bonds: Treasuries Tick Higher Ahead of Busy Week

U.S. Treasuries ended Friday on a higher note, putting a modest dent in losses recorded earlier in the week. Broadly speaking, the Friday session was quiet with the bulk of the action unfolding in morning trade. Treasuries started the day with slight losses that were reclaimed promptly after the release of a second quarter GDP report (actual 4.1%; Briefing.com consensus 4.1%), which pointed to a strong annualized rate of growth, but not as strong as some speculated at the beginning of the week. To be sure, the second quarter reading was strong enough to support the belief that the Federal Reserve will remain undeterred from steady tightening, which will eventually weigh on growth. The market will receive the latest FOMC Statement next week, but a rate hike is not expected due to the lack of a press conference after the policy meeting. Keep in mind that starting in 2019, every FOMC meeting will be followed by a press conference. Treasuries backed off their session highs in mid-morning trade, hovering inside a narrow range until the close.

The 2s10s spread tightened by a basis point for the week (to 29 bps) while the 2s30s spread also ended the week one basis points tighter, at 42 bps. Next week will be unusually busy on the central banking front, considering the market will receive the latest policy statements from the Bank of Japan (Tuesday), Reserve Bank of India (Wednesday), Federal Reserve (Wednesday), Central Bank of Brazil (Wednesday), and Bank of England (Thursday).

The yield curve flattened for the week as the shorter maturities’ yields gained against the longer maturities’ yields. The spread between the 5s10s narrowed to 11bps from 13bps the previous week while the 10s30s remained unchanged at 13bps from 13bps the previous week. 


The Bloomberg Commodity Index settled at 84.84, higher than 83.68 the previous week as energy and grains find some strength. 

WTI oil closes above $68/barrel for the week. The spread between WTI and Brent widened for a third week to $5.60 from $4.81 the previous week.

EIA petroleum data for the week ended June 20

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 6.1 mln barrels from the previous week. At 404.9 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 2.3 mln barrels last week and are about 4% above the five year average for this time of year. Finished gasoline and blending components inventories both decreased last week. Distillate fuel inventories decreased by 0.1 mln barrels last week and are about 13% below the five year average for this time of year. Propane/propylene inventories decreased by 0.8 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 9.7 mln barrels last week.

Natural gas inventory showed a build of 24 bcf vs a build of 46 bcf in the prior week. Working gas in storage was 2,273 Bcf as of Friday, July 20, 2018, according to EIA estimates. This represents a net increase of 24 Bcf from the previous week. Stocks were 705 Bcf less than last year at this time and 557 Bcf below the five-year average of 2,830 Bcf. At 2,273 Bcf, total working gas is within the five-year historical range.

Baker Hughes total U.S. rig count increased by 2 to 1048 following last week’s decrease of 8.

Metals: Precious weakness continues, Copper bounces

Agriculture: Wheat strengthens for a third week



Week 31 (July 30 to August 03) on the DIA tends to volatile with a very bearish Tuesday and ending with week very bullishly on Friday on our 5, 10 and 15 year averages.

The SPY tends to be very bullish on Monday but becomes bearish on Tuesday and Wednesday before becoming flat for the rest of the week on our 5, 10 and 15 year averages.

Benchmarks (21 year average) for wk31:

Key Economic Dates

Week 31

In the coming week the Fed, the BoE and the BoJ will decide on monetary policy. Other important releases include: US jobs report, trade balance, personal income and spending, PCE prices and ISM PMIs; UK monetary indicators and PMIs; Eurozone GDP growth and inflation; Japan unemployment and consumer confidence; and China PMIs.

Mon 30 July

Tue 31 July

Wed 01 August

Thu 02 August

Fri 03 August

Earnings – July 30 to August 03

Just over 52% of the S&P 500 has reported earnings so far. Second quarter earnings are currently expected to grow 21.4% with sales up 9.1%. Third quarter earnings are expected to grow 20.8% with sales up 7.3%.



August is the second month of Quarter Three, the “worst” quarter of the financial year. August and September are the most bearish months on record. 

August 2018 is the longest trading month this year with twenty-three (23) trading sessions and no public holidays. August tends to start out bullishly but becomes volatile mid month and becomes bearish in the final week of the month.

August Trivia



Last week, I mentioned that this would be the first of three weeks when earnings season gets crazy. This is especially so in quarter three. However, I never expected it to be this divergent. I have not seen this many consecutive days where the benchmarks have been so divergent.

I reckon more volatility lies ahead in the coming week and that it will be more than just earnings that will gyrate the market. With the Japanese, UK and US central banks calling out their latest rate decisions within the week along with a slew of employment numbers, things are going to look more divergent and bearish than the past week.

So strap in tight, hang on for dear life and hold your breath because it is going to be a very bumpy ride!

Happy Hunting!


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