Expect Liquor Companies To Go Higher With All The Rain

 

As Harvey continues to dump excessive amounts of rain in Texas, we have another relatively quiet week ahead until Friday. Then, we fade into the last weekend of summer and the long Labor Day weekend. Traders will also continue to assess the damage from Hurricane Harvey. On the economic front, we have Manufacturing PMI, the Unemployment Rate, Non-Farm Payrolls and Average Hourly Earnings. 

Hurricane: Energy companies will be checking their oil and gas platforms for damage from this weekend’s hurricane which brought to the Gulf of Mexico and Texas 130+ mph winds. The US Gulf of Mexico is home to about 17 per cent of the nation’s crude oil output, which stands at 9.5M barrels a day, according to the US energy department. Roughly 45% of US refining capacity is along the Gulf coast, so the longer the platforms are down, we could see a jump in the price of oil on a short term dip in supply. The longer the rain continues and disrupts people’s daily lives, we could see a dip in GDP for 3Q, which could lower the broader markets. Also watch insurance companies as the more destruction we see, insurance companies will have to make more payouts, negatively affecting their stock. Home builders would get a boost as more money from insurance company payouts would be used for rebuilding. Liquor companies would also see stock boosts as some people will spend the insurance money on booze, drugs and maybe, a vacation.

Non-Farm Payrolls & Unemployment Rate: Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for August are scheduled to be released this Friday (9/1). Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, the markets will likely go lower along with the US Dollar. Like in previous months, the Unemployment Rate may drop but average hourly earnings will continue to stagnate as additional part time workers at Amazon will only be paid minimum wage until a robot can do it for cheaper.

I’m Building a Wall, Where the Illegals Get in: President Trump’s rhetoric helped drive the markets down last week when he said he would shut the government down if he didn’t get funding for the wall in the next budget. A potential government shutdown would be bad for everybody, except for the government temporary not wasting your money. Congress has to pass a budget by September 30th so they have a month to pass one. They could just pass a clean bill and push everything off a year, but this is unlikely at this juncture as they also work on tax reform. Since it’s still a month away, besides a knee jerk reaction to the markets, we could see a move into safe havens with Treasury yields going lower, the Japanese Yen and gold go higher.

GDP Second Release: On Wednesday (8/30), we get our second release of US GDP for the 2nd quarter. We get 3 releases, Advance, Preliminary and Final. The first release is the most impactful. However, if a line item were to surprise in the Preliminary reading, the markets can react accordingly. The first release came in at 2.6%, in-line with expectations.  If we get better than expected information with this reading on the consumer, we can expect to see equities go higher. If the consumer comes in weaker, expect equities to fall.   

So much for a quiet week: Similar to my office, which is borderline working with a skeleton crew, the last week of the summer is the time when many people are on vacation. And just like last week, we are likely to continue to see low volume. However, algos could potentially be busy in an instant with anything coming out of the Trump White House, or from another terror attack.

Jackson Hole Reactions: Even though the markets were able to react to most speakers from the Jackson Hole Symposium, additional speeches were made after the market closed on Friday. Monday morning will give algos and investors the first chance to react.

UK Bank Holiday: UK banks will be closed on Monday (8/28) for what they just call Summer Bank Day, or what we call here in the US Labor Day, the end of summer. Enjoy both!!!  

All Eyes on the Jackson Hole Symposium

Well, one eye still on the White House Circus 

The week is relatively quiet until the Jackson Hole Symposium later in the week. On the economic front, we have Durable Goods and New Home Sales.

Jackson Hole Symposium: From Thursday, (8/24) – Saturday, (8/26), central bankers, finance ministers, academics and other important finance people participate in the Jackson Hole Symposium, in Jackson Hole Wyoming. At the Symposium, we can expect speeches from Super Mario Draghi, Fed Chair Janet Yellen and many others from around the world. Comments from the central bankers can move markets. If they mention any change in policy or a time frame to the Fed unloading their balance sheet, or the ECB pulling back on its bond buying, we can expect a strengthening in the respective currency and a possible pull back in the broader markets.

The Apprentice, White House Edition: Another week, another instance of “Your Fired.” But the latest person to leave (Steve Bannon) had a reaction in the markets cause of his anti-globalization view which had the markets react. If we have somebody unexpectedly leave the White House such as Gary Cohn or the Treasury Secretary Steve (Street Fighter 2 sounding) Mncuhin, we could see a sell off again as Trump’s pro-business agenda could potentially be in jeopardy.

Another Draghi Speech: ECB President, Super Mario Draghi is also scheduled to speak on Wednesday (8/23), a few days before the Jackson Hole Symposium. Draghi could potentially mention that he will be ending Europe’s Quantitative Easing. If this were to happen, we would see the Euro weaken and also a pullback in the markets on both sides of the Atlantic.

So much for a quiet week. The last 2 weeks of the summer are the time when a lot of people go on family vacation (especially in the northeast) as camp is over for the kids, but school has not started yet, so families go away. And with it, we usually see low volume. However, algos could potentially be busy in an instant with anything coming out of the Trump White House, or from another terror attack, such as in Barcelona.  

So Many PMI readings:  Flash Manufacturing PMI readings from across the globe are due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.

Dow Theory: The Dow Jones Transports Average (Made up of 20 transportation companies) have been going lower the last few weeks while the Dow Jones Industrials Average has been going higher. With this divergence, traders have been paying attention to Dow Theory. Dow Theory states that when we see a divergence between the 2 indexes, in a reasonable time the Industrials average would likely follow suit. This would mean that we should see the Industrials, and the broader markets pull back. For more on Dow Theory, please watch my video from Nasdaq Advisory Live where I discussed the divergence we are seeing between the Dow Jones Industrials and the Dow Jones Transportation Average.

UK GDP Second Estimate: On Thursday (8/24), the UK releases their revised GDP or “2nd Estimate.” The 1st reading usually has the largest effect on the market, but if the reading were to surprise, we could see markets go higher, or lower. If UK markets were to go higher, we would see the British Pound weaken as it continues to negotiate on Brexit.    

Happy Mountain Day

 

Besides the continuation of earnings, investors will turn their attention to Fed speakers as we have a slow economic week ahead. On the economic front, we have CPI and PPI readings.

Fed Members Speak: This week, we have 4 FOMC members scheduled to give speeches across the country. These are their first speeches since the latest Fed Meeting and July’s Unemployment Rate figures. Investors will continue to listen for clues as to the timing of the unwinding of the Fed’s balance sheet. Any additional hints or potential dovish comments could send the broader markets higher.

Earnings: Earnings intensity continues to go downhill as we only have 32 S&P 500 companies scheduled to report this week. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, we have now seen 84% of S&P 500 companies report 2nd quarter earnings so far. Of them, 69% reported revenue above expectations while 73% have reported earnings above expectations. What’s surprising of these figures is the revenue being so high. The past 4 quarters have only seen 56% of S&P 500 companies beat revenues estimate. This will be the highest % for a quarter since Q2 2011.

Wildcard Trump: After the news broke on Thursday afternoon (8/3) of Mueller widening the probe by convening a grand jury, the broader markets fell on the news. Investors will be waiting for the latest Trump tweet or update on Muller’s investigation, which could adversely affect the markets. Trump’s wildcard play have the potential to rattle the very low volatile markets at any time.   

DAWG Days of Summer: Summer is traditionally the lowest volume trading month of the year. Traders are on vacation so nobody is around to let the algos go wild. Because of the low volume, stocks have the opportunity to have outsized gains or loses if they have little liquidity (actual people to trade with).Investors may try to capitalize on these situations but it will be on an individual basis and tough to predict until it actually happens.

Reserve Bank of New Zealand: On Wednesday, (8/9) New Zealand has their version of England’s “Super Thursday” by publishing their policy statement, Inflation statement, Official Cash Rate and Press Conference. For the country of 4M Kiwis, New Zealand will give us their latest ratio of sheep to people and consumer consumption of Tui beers. Additionally, the higher the ratio of sheep to people, then fewer farmers are converting their farms to cows to sell milk to China, signaling a slowdown in China.

Mountain Day: Japanese Banks and markets will be closed Thursday (8/11) for Mountain Day. The day off only started last year and the holiday is a chance to provide people (I’m not making this up) to get familiar with mountains. Waiting for the US’s first Mountain Day where I actually get off.    

Just Work On Tax Reform Please!!!

 

Investors have another heavy earnings week ahead as we also await the latest Unemployment Rate and Average Hourly Earnings figures. Additionally, on the economic front, we have Personal Spending, Pending Home Sales and Challenger Job Cuts.

Earnings: Earnings had their heaviest week last week, so it’s all down here from here. We still have a heavy week with 133 S&P 500 companies and 2 Dow components this week. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, we have now seen 58% of S&P 500 companies report 2nd quarter earnings so far. Of them, 71% reported revenue above expectations while 73% have reported earnings above expectations.

Non-Farm Payrolls & Unemployment Rate: Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for July are scheduled to be released this Friday (8/4). Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, the markets will likely go lower along with the US Dollar. As we’ve seen time and again with these figures, the Unemployment Rate may drop but average hourly earnings will continue to stagnate as another part time worker at Amazon will only be paid minimum wage until a robot can do it for cheaper.

Bank of England: The Bank of England is scheduled this week to publish its policy decision, Inflation Report Official votes and new forecasts or as they call it, Super Thursday (cause their Super, thanks for asking). The Bank of England Governor will also give us his latest outlook and if they will be raising interest rates. With significant uncertainty around the impact of Brexit on the UK’s economy, investors will likely not see any changes and will continue the wait and see approach.

So Many PMI readings:  PMI readings from across the globe are due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.

Chinese Data: This week, China will be releasing Manufacturing PMI Non-Manufacturing PMI and Caixin Service PMI. Investors will monitor the data and the Yuan’s reaction as strong data will put upward pressure on the currency, with the potential for markets to rise globally.

WWJD July 2017 Edition

What Would Janet Do?

Likely Nothing

Investors have a light economic data week ahead as all eyes point to the Fed and earnings. On the economic front, we have 2Q GDP.

Federal Reserve: On Wednesday (7/26), the Fed will release a statement where everybody will be waiting to see if the Federal Reserve decides to raise interest rates again. Right now, the odds are very low for the Fed to raise rates after raising them ¼ of a point at the last meeting. If the Fed does raise rates for the third time in 2017, we can expect to see significant volatility following the statement release. Some of the results of an interest rate increase include a strengthening in the US Dollar, a spike in Utilities & Financial companies, a weakening of foreign currencies, oil and metals. We would also see mortgage rates go up as Treasury yields will increase. However, with Treasury Yields, they have been falling all year as China said they would be buying them again putting downward pressure on yields. This statement will not be followed by a press conference with FOMC Chair Janet Yellen taking questions. However, the statement may potentially announce when the Fed may actually begin to unwind their balance sheet, but they will likely just say “later this year.”

Earnings: Earnings continue to heat up as investors get to hear from 190 S&P 500 companies and 13 Dow components this week. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, we have now seen 19% of S&P 500 companies report 2nd quarter earnings so far. Of them, 73% reported revenue above expectations while 74% have reported earnings above expectations.

2Q GDP First Release: On Friday (7/28), we get our first release of US GDP for the 2nd quarter, the first full quarter with Trump as President. The first release is the most impactful. Should the number come in higher than expected, we can expect to see equities go higher. If GDP is less than expected, we may see equities fall as investors believe the economy is not growing as fast as expected. If the number comes in much higher than expected, we should expect the White House to say it was beautiful number and the economy is growing. If it comes in lower than expected, expect Donald Trump to tweet and call it fake news.

Oil: Oil dropped at the end of last week on a report of rising OPEC supply. A scenario I highlighted months ago as members of OPEC really don’t like each other (which is an understatement). Brent finished last week below $49. Investors will be watching Crude Oil Inventories, US rig data, and any other chatter from OPEC to see if oil can push above the $50 threshold or fall lower on a global glut. 

Manufacturing PMI: PMI readings from across the globe are also due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.

 

A Quiet Data Week, Not So Quiet for Earnings

 

Investors will turn their attention towards the latest out of earnings as we have a quiet data week. On the economic front, we have Empire State Manufacturing, Building Permits and Housing Starts.

Earnings: After our first bout of earnings with the banks last Friday, earnings heat up as investors get to hear from 70 S&P 500 companies and 9 Dow components this week. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, only 6% of S&P 500 companies have reported 2nd quarter earnings so far. Of them, 83% reported revenue above expectations while 80% have reported earnings above expectations.

ECB Interest Rate Statement: On Thursday (7/20), the ECB releases their interest rate statement, followed by a press conference from Super Mario Draghi. Investors will be listening for any changes to the ECB’s asset purchase program. Should they decide to taper the program, we would see the Euro strengthen, and send European markets (and the US) lower.

Bank of Japan: Also on Thursday (7/20), we are expecting a policy statement from the Bank of Japan. Investors are not expecting any massive monetary policy shift. However, any unexpected monetary stimulus announcement or tightening by the bank has the potential to push markets in one direction or the other. A tightening would send stocks down with the Japanese Yen strengthening while monetary stimulus would send the Yen lower. Their policy outlook could potentially depend on how many tourists are riding the streets of Tokyo as Mario Kart.

Chinese Data: This week, China will be releasing 2nd quarter GDP and Industrial Production. Since the 3Q 2015, Chinese GDP has hovered between 6.7% and 6.9%. Investors will monitor the latest release and if it comes in weaker than expected, (how much of that # is fake is a little tough to determine) we could see oil fall on weaker demand.

No Fed Speakers this week. The Federal Reserve entered into their media blackout period over the weekend. So this week, we won’t have any sound bites of FOMC members contradicting themselves confusing algos and the markets as to the timing of interest rate normalization and balance sheet reduction. The next Federal Reserve meeting is next week which has the potential to move markets.

Servers on a Beach

Working much harder than New Jersey Governor Chris Christie ever would

 

After a heavy week on the economic front, investors will turn their attention to the testimony of Fed Chair Janet Yellen in front of the House Financial Services Committee. On the economic front, we have CPI, Retail Sales and University of Michigan Sentiment.

Oil: Brent oil finished the week below $46 after US Crude Production surged putting downward pressure on the black gold. Last week also saw the US Oil rig count climb to 763 as their price point still makes it cost effective for them to increase rigs. Investors will watch to see if the global glut continues to put downward pressure on oil, or if algos have their way and push the commodity higher. 

Janet Yellen Testimony: On Wednesday (7/12) Fed Chair Yellen is scheduled to testify before the House Financial Services Committee on Monetary Policy. After giving a prepared statement, the committee will than have a Q&A section which could see volatility based on Janet’s responses. If she mentions that the Fed may tighten faster than the market expects, we can expect to see Treasury yields rise. If she sounds more accommodative towards monetary policy, we can expect to see Treasury yields fall.

Fed Members Speak: This week, we have 4 FOMC members scheduled to give speeches across the country. With Treasury Yields spike of late, investors will be listening to clues to see If they are still on track for another rate hike later this year, and additional details as to the exact start of the unwinding of the balance sheet.

CPI: On Friday (7/14), CPI is released. Should CPI come in stronger than expected, it would signal that the consumer is able to absorb the latest interest rate hike. If it comes in weaker than expected, it may give the Fed reason to pause before potentially raising rates again later this year.

2Q Earnings Seasons Begins: Earnings season commences with 9 S&P 500 companies due to report this week.  So far, only 7% of companies in the S&P 500 have reported Q2 earnings. Traders can see individual stocks have huge price swings if a company’s earnings outpace or fall short of what the street expected. 

North Korea: The red headed step child wild card. With North Korea’s latest missile launch, we briefly saw a market pullback and a move to safety such as gold (which went lower anyway) and the Japanese Yen. Investors will watch to see the latest out of the hermit kingdom and if the situation were to escalate, we would see markets sell off with a move to safe haven assets such as gold and the Japanese yen. However, algos would be confused as it tries to buy Japanese Yen since the missiles North Korea would launch would potentially go to Japan, which would see the Japanese Yen drop.  

Gold: Gold has been down 4 weeks in a row. We have seen an inverse relation as bonds sell off increasing yields, the price of gold drops as a safe haven. Investors will watch to see if gold continues to fall and goes below the psychologically important $1200 level.

Will Trump Accidentally Lock Himself In a Bathroom Before Meeting Putin??

We can’t get anything passed him at this point

 

We start off the 2nd half of the year with a shortened trading week for the 4th of July holiday. On the economic front, we have Manufacturing PMI, the Unemployment Rate, Non-Farm Payrolls and Average Hourly Earnings. 

Non-Farm Payrolls & Unemployment Rate: Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for June are scheduled to be released this Friday (7/7). Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, the markets will likely go lower along with the US Dollar.

Illinois: So after decades of mismanagement and epic cronyism of the state budget and Ponzi scheme (ahem state pension), Illinois has the chance of becoming the first state to declare bankruptcy. If they were to default, muni markets across the country could potentially feel the ramifications with yields spiking higher. Bond investors will be keeping a close high as to how negotiations for the state’s budget end up. As of this writing, the state has not come to an agreement and the ratings agencies have held off a downgrade for the time being to see how the negotiations go.

Government Bond Yields:  Back on Tuesday (6/27) Super Mario Draghi said “Deflationary forces have been replaced by reflationary ones.” The reaction in the bond market was immediate. Within a few days we saw yields on government debt spike. In a 1 week period, the US govt 10 year yield jumped (in % change terms) over 5% while German govt. 10 year yields jumped (in % change terms) 77%. Investors will watch to see if bond yields continue to climb higher, helping bank stocks and pushing gold lower.     

Holiday, Celebrate: Markets will be closed in the US on Tuesday (7/4) for Independence Day. US markets will also be closing early on Monday (7/3) ahead of the holiday so Americans can sit in bumper to bumper traffic on their way to the beach and BBQ’s. Markets in Canada will also be closed on Monday (7/3) for Canada Day (very original name, atleast we don’t have America Day). When trading does resume, expect volumes to be lower for the remainder of the week as traders and quants are still recovering from their hangovers and fireworks injuries. Individual stocks could potentially see outsized moves if they have a lack of liquidity.

G20: After Trump likely drives on the greens (just like some unnamed guy in Iceland) of his own golf course but doesn’t get thrown off the course, Trump will meet with his idol, Russian President Vladimir Putin at the G20 meetings in Germany on Friday (7/7). Usually these meetings talk a big game but nothing ever develops. Investors will be watching for similar banter as the G 20 heads meet. Should we see some kind of economic agreement toward trade, we could see individual companies react from market headlines. If we hear about strengthening nationalistic stances or if Trump starts a trade war with China, we could see a tariff on steel imports sending US steel companies higher. 

FOMC Meeting Minutes: 8:01, 8:02, 8:03. The latest Fed meeting minutes are scheduled to be released on Wednesday (7/5). Investors will be looking closely at the language of the minutes to see what may have changed from the previous FOMC meeting. Since we just had a rate hike at the last meeting, and we were given some details as to the timing of the unloading of the Fed’s balance sheet, their likely won’t be any market moving details in these minutes.

Chinese Data: This week, China will be releasing Manufacturing PMI and Caixin Service PMI. Investors will monitor the data and the Yuan’s reaction as weak data will put downward pressure on the currency, with the potential for markets to fall globally.

Manufacturing PMI: PMI readings from across the globe are also due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.

Monetary Policy Report: Tentatively scheduled for Friday (7/7, but could be Wednesday) at 11AM, the Federal Reserve will release its biannual monetary policy report. Discussion of monetary policy and economic developments in the report could see the US Dollar strengthen or weaken against a basket of currencies.

 

The latest on the NYC MTA: I’d like to thank the NY State Governor for declaring a state of Emergency for the MTA and announcing an additional spending of $1 Billion which nobody knows where it will go. Looking forward to the next quick fix before my fare goes up in a week another 10% for a 30% drop in service. Sounds like a win win for everybody.

 

 

All Is Quiet On The Trading Front

Investors have a quiet week ahead as summer continues, but “hold my beer” moments are never far away. On the economic front, we have Existing Home Sales and New Home Sales.

Fed Members Speak: This week, we have 4 FOMC members scheduled to give speeches across the country. After the second rate hike of 2017, investors will be listening to clues to see If they are still on track for another rate hike later this year, and additional details as to the exact start of the unwinding of the balance sheet. Markets in reaction from the latest out of the Fed have gone lower. We shall see if additional talking from the Fed drives markets lower.

Brexit Talks Begin: On Monday (6/19) Divorce talks between the United Kingdom and the European Union are set to begin. Investors will likely see the British Pound go up on a softer Brexit while if negotiations are going bad, expect a weakening of the British Pound. Please note that these divorce proceedings could take up to 2 years.

Slumping Oil: Oil has continued its downward spiral with West Texas and Brent crude hitting 7 month lows last week. We have also seen 4 straight weeks of losses. With OPEC already coming to a supply cut agreement (that will definitely not hold), the near term has few catalysts to push the commodity higher. The Saudis may even temporary cut exports to the US so the weekly US inventory level looks less just to try to drive the price higher (why do we consider the Saudi’s our friends????). Investors will watch to see if any catalysts can drive the price higher or if the global glut level pushes prices even lower. Expect to see energy companies and shippers of oil react with the price.

Manufacturing PMI: PMI readings from across the globe are due out this week. Traders will watch these readings as to see if the Trump rhetoric around protectionist policies resonates. Any unanticipated jump in a reading could send the markets higher and their respective currency stronger.

 

I will be recovering from a visit to Plant Hoth (Iceland) next week so this blog will take a break and start up again in 2 weeks. 2 Weeks.

WWJD June 2017 Edition

What Would Janet Do???

 

The week ahead is highlighted by the Fed statement and the potential to see another interest rate hike. On the economic front, we have Building Permits, CPI, Retail Sales and Michigan Sentiment.

Federal Reserve: On Wednesday (6/14), the Fed will release a statement where everybody will be waiting to see if the Federal Reserve decides to raise interest rates again. Odds for an interest rate hike are above 90% so the markets have already priced it in. If the Fed does raise rates for the second time in 2017, and 3rd since the election, we can expect to see significant volatility following the statement release. Some of the results of an interest rate increase include a strengthening in the US Dollar, a spike in Utilities & Financial companies, a weakening of foreign currencies, oil and metals. We would also see mortgage rates go up as Treasury yields will increase. However, with Treasury Yields, they have been falling all year as China said they would be buying them again putting downward pressure on yields. A press conference will follow the announcement with FOMC Chair Janet Yellen taking questions. If they were to not hike at this meeting, we could see a temporary reversal with the markets pushing higher, and mortgage rates falling back. This could also put additional pressure on oil pushing it higher, as its priced in US Dollars. We may also potentially hear when they may begin to unwind the Fed’s balance sheet, but will likely just say “later this year.”

Oil and Qatar: It’s very hypocritical for the Saudis, the financiers of 9/11 and ISIS, as saying Qatar funds terrorists while they are acting all innocent. Qatar’s market and currency has crashed since the countries broke off diplomatic ties with them last week. Shippers are seeing their cargo not getting in or out of Qatar which hurts firms such as Maersk. Investors will watch to see if this comes to some conclusion or we could see shippers continue to get hurt the longer this embargo lasts. Oil will likely go lower as an agreement between OPEC members to cut production may likely be in jeopardy adding to the global over supply. Adding to the surprise move by Gulf countries, we are still not even sure if President Trump knows that US Central Command with 10,000 US troops fighting ISIS is commanded out of Qatar which also bewilders the markets potential response.      

Policy Statements: Besides the Fed, we are expecting policy statements from the Bank of Japan, Swiss National Bank and the Bank of England all on Thursday (6/15). Investors are not expecting any massive monetary policy shift. However, any unexpected monetary stimulus announced by either bank has the potential to push markets higher not just in their respective countries, but across markets worldwide. This would likely push the US Dollar higher against the respective currencies.

Housing Starts: On Friday (6/16), Housing Starts is scheduled to report. Investors will be looking to see if the report was affected by the recent drop in mortgage rates as Treasury Yields are at year to date lows. If more people took advantage of the lower rates and this number beats, we will see housing stocks and home improvement companies potentially increase.

VIX Down Below 10: Now with all the excitement behind us, what’s a market to do? For the VIX, no place to go but up as volatility risk keeps dropping. The VIX is now at a 23 year low. The VIX spiked in late afternoon trading last Friday after Amazon (AMZN) saw a flash crash from a fat finger. However, broader markets keep hitting new highs, almost on a daily basis. Investors will watch to see if the lack of market moving news push the VIX to an even lower level over the coming days and weeks.

 

This latest blog is brought to you by the wonderful MTA of NYC. I’d like to thank them for making my 5.7-mile commute home yesterday take 3 trains in 100 minutes. How the board of the MTA is not dragged into the street and shot is beyond comprehension.

Which Winter Be Done Till 9

Like Covfefe, why are people so obsessed with autocorrect? That was a text I sent to a group that autocorrected a word when I said I was doing laundry. I still get texts “which winter be done till 9” years later. 

Another potential quiet week for the markets is upon us, but Trump is always up for a “hold my beer” moment. On the economic front we have Factory Orders and ISM Non-Manufacturing PMI. Additionally, investors will watch to see how President Trump will continue to destroy the environment. 

ECB Interest Rate Statement: On Thursday (6/8), Super Mario Draghi’s next stop in his European tour is back in Brussels at the ECB for their interest rate statement. Last week, he announced that interest rates would be staying at extraordinarily low levels for the time being, so nobody expects him to announce that they are raising them. So unless he makes an announcement of some change in monetary policy, expect the status quo with the markets.  

British Elections: The UK is scheduled to have a “snap” general elections on Thursday (6/8). In the last few weeks, the race has become much tighter for Theresa May’s party, the Tories, with the potential to lose a majority in Parliament. The latest poll had the Conservative Party ahead of Labour by 8%, compared to 20% a few weeks back. Leading up to the election, the British Pound will react back and forth. If the Tories win and keep their majority, expect the British Pound to strengthen. If they lose the majority in parliament, we can expect the Sterling to fall.   

Oil: The US oil rig count has been up 20 weeks in a row. This has helped to drive the price of oil lower, along with OPEC’s agreement and the massive global glut. To begin the week, West Texas crude and Brent crude ae both trading below $50 per barrel. Investors will watch to see if US oil rigs do go up again on Friday (6/9) which would put additional downward pressure on oil.

Services PMI: PMI readings from across the globe are due out this week. Traders will watch these readings as to see if the Trump rhetoric around protectionist policies resonates. Any unanticipated jump in a reading could send the markets higher and their respective currency stronger.

Fed Blackout Period: June 3rd started the blackout period for the Federal Reserve to comment on monetary policy or the economy. So this week, we will have no Fed speakers make any market moving statements. The Federal Reserve is scheduled to meet next week with an interest rate statement on Wednesday June 14th. Odds makers have a rate hike at that meeting at 92%.

June 6 D-DAY: Tuesday (6/6) is the 73rd anniversary of the Normandy Landings on D-Day, leading to the liberation of Europe from the Nazis. We should all be thankful for the sacrifices that generation made so we can have a President that tweets random stuff in the middle of the night, have pointless arguments on Twitter and Facebook, have a man whine about not being able to see Wonder Woman in a movie theatre filled with all women, and post pictures of the food we’re about to eat. Below is a picture of the NY Post from that day.

 

No BBQ, No Bitcoin, Atleast Our Pets Heads Are Still on

Welcome back. As Memorial Day weekend in the US is the official start of summer, we should start to see volumes in the stock markets head lower for the next few months. On the economic front, this week we have Manufacturing PMI, the Unemployment Rate, Non-Farm Payrolls and Average Hourly Earnings. Investors will also look to see if Trump will spread more fake news negatively affecting equities. 

Holiday, Celebrate: Markets will be closed in the US on Monday (5/29) for Memorial Day. Markets in the UK and in China will also be closed for their respective holidays on Monday (UK Spring bank Holiday, China Dragon Boat Festival). When trading does resume, expect volumes to be lower as traders and quants are still recovering from their BBQ hangovers. Individual stocks could potentially see outsized moves if they have a lack of liquidity.

Super Mario Speaks: On Monday (5/29) ECB President Mario Draghi European tour takes him to Brussels to testify about the economy and monetary developments. Draghi mentioned that interest rates will be staying at record low levels even though the European economy has been improving. He feels that an increase in rates may not be sustainable. Since US markets are not open Monday, investors will have to wait until the open the next day to get a reaction. However, markets will likely react to the news by going higher as the European punch bowl will not be going away any time soon.    

Oil: Last week, OPEC decided to extend its output cut for 9 months until March 2018. Investors were disappointed that they didn’t cut output even further, and in reaction, oil fell for the day over 4%. West Texas finished below $50. Traders will monitor to see if oil falls even further as the supply glut the world over continues. This could adversely affect energy companies, and oil producing nations economies.

Non-Farm Payrolls & Unemployment Rate: Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for May are scheduled to be released this Friday (6/2). Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, the markets will likely go lower along with the US Dollar. If the number is strong, Sean Spicer will likely say this number is real unlike Obama’s White House fake numbers while a weak number was made up in the Unemployment centers. The Fed will also be paying attention to the data points as strong readings would give additional ammo to the Fed to raise interest rates once again at their next meeting.   

Chinese Data: This week, China will be releasing Manufacturing PMI and Caixin Service PMI. Investors will monitor the data and the Yuan’s reaction as weak data will put downward pressure on the currency, with the potential for markets to fall globally.

Bitcoin: WTF. If you are invested in the digital currency Bitcoin, I imagine you are doing some type of shady business or are a huge gambler. However, if you are in some parts of China, and you are looking to get your money out before the Yuan depreciates too much and your money becomes devalued, here is an option. Bitcoin is up 180% for the year and hit a record of $2,791.70 before falling. As of yesterday, Bitcoin has fallen 19% off of its highs. Investors will look to see if this crypto currency continues to sky rocket, or if other crypto currencies come to light, which would plunge Bitcoin lower.

Manufacturing PMI: PMI readings from across the globe are due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.

Trump Overseas, What Could Go Wrong??

 Get your popcorn ready (we all know Putin is) as the world watches President Trump’s first overseas trip and meets with other world leaders. He hopefully doesn’t have an international incident that rattles markets ahead of the 3-day weekend coming up for Memorial Day. On the economic front, we have Durable Goods, University of Michigan Consumer Sentiment and Preliminary GDP.

President Trump Overseas: Besides multiple chances to embarrass the US, he will likely be announcing bilateral deals with other nations which could affect the Aerospace and Defense sector, such as the $110 Billion arms deal with Saudi Arabia he announced on Saturday (5/20). Investors will be listening to any announcements made on the trip which could help individual companies. Additionally, investors will be watching for any tweets the President makes on his trip that completely contradicts any of his statements. For example, he made a speech in Saudi Arabia on Sunday telling Muslim majority countries to redouble their counter terrorism efforts. By the time you read this he could already have already tweeted a complete contradiction rattling markets.

GDP Second Release: On Friday (5/26), we get our second release of US GDP for the 4th quarter. We get 3 releases, Advance, Preliminary and Final. The first release is the most impactful. However, if a line item were to surprise in the Preliminary reading, the markets can react accordingly. The first release came in at a weak 0.7%. If we get better than expected information with this reading on the consumer, we can expect to see equities go higher. If the consumer comes in weaker, expect equities to fall.

FOMC Meeting Minutes: 8:01, 8:02, 8:03. The latest Fed meeting minutes are scheduled to be released on Wednesday (5/24). Investors will be looking closely at the language of the minutes to see what may have changed from the previous FOMC meeting. They will also be searching for any hints as to the timing of potential rate hikes for later this year which could affect the US Dollar and Treasury Yields.

OPEC Meetings: On Thursday (5/25) OPEC meets in Vienna. Investors will be waiting to see if OPEC will agree to an output cut extension and for how long. The market is forecasting a cut that will last until the end of this year. However, they could go out even further to say 12 months. In both instances, this will send the price of oil higher. If they can’t come to an agreement, expect the price to drop on oversupply.

Central Bankers Speak: This week has 4 FOMC Member scheduled to give speeches across the country.  As the Fed looks to potentially hike rates again, Investors (and algos) will look to see if we have more hawkish comments than dovish comments. More hawkish comments will have the projections on rates steepening, sending the Dollar and interest rates higher, along with helping the banking sector. More dovish comments may see interest rate projections flatten, pushing Treasuries higher.   

Super Mario Speaks: On Wednesday (5/24) ECB President Mario Draghi is scheduled to speak in Madrid. Investors will be listening to potential changes to the banks quantitative easing program since the European economy looks to be standing on better ground. Any hawkish comments would send the Euro higher amongst most currencies and send stocks lower.     

Bank Holidays: Exchanges across Europe will be closed on Thursday (5/25) for Ascension Day. Volume will likely be subdued for the holiday shortened week. So we can potentially expect outsized moves and lower liquidity than normal.  

 

I want to thank the MTA for your excellent service this past week with trains in Astoria down for an hour at rush hour Thursday night and Friday morning causing my friend to take a $90 UBER for a 3 mile ride. Keep up the great work!!!

Where Have All the Traders Gone?

do-do-do, do-do-do

 As the mainstream media continues to have 24 hour coverage of Comey’s firing, investors will try to concentrate on the quieter than normal markets. On the economic front, we have a quiet week with Building Permits and Housing Starts. Of course North Korea can always saber rattle the markets by launching another missile.

Earnings Season Winds Down: 1Q Earnings season continues to wind down as we have now had over 90% of the S&P 500 report 1Q earnings. This week has 19 S&P 500 companies and 3 Dow components expected to report. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, with approx. 90% of S&P 500 companies reporting 1st quarter earnings, 63% reported revenue above expectations while 75% have reported earnings above expectations. Both of these figures are above the last 4 quarters averages. These figures are also higher than what we witnessed with earnings last quarter. The blended earnings growth estimate is now approx. 14.7%. Additionally, the S&P 500 forward PE ratio is currently at 17.7X which is also near a decade high. So on a historical basis, the S&P could potentially be considered overvalued.

Chinese Data: This week, China will be releasing Industrials Production and Retail Sales. Investors will monitor the data and the reaction from commodities such as oil in case readings are weak. We will also monitor to see if the Chinese bond sell off continues, which could have ripple effects for global markets sending them lower. 

13F Filings: By this Monday (5/15), all institutions with $100M in assets under management have to file their 3/31 ownership positions. Should some well-known investors declare new sizable positions in a certain company, we can expect that stock to have a bump higher. For example, when Berkshire Hathaway filed a position in the airlines last fall, the sector moved up over 3% the next day.   

OPEC: In a laughable request, OPEC asked major oil producers such as the US not to pump so much oil to keep prices artificially higher. The reason behind this is the markets over supply of black gold, which has sent prices to below $50 per barrel. OPEC is scheduled to meet in Vienna and make a formal statement on May 25th. Investors will be watching for statements leading up to this meeting regarding potential agreements to extending output cuts for another 6 months. For the days leading up to the statement, any headline whether they have an agreement or not will send the price of oil higher or lower.    

VIX: Last week, the VIX, a measurement of volatility was at 9.56, its lowest level since 1993. It has now been 14 days in a row that the VIX has closed below 11, an all-time record. Traders will continue to watch if this record low volatility continuous, or if some catalyst comes in pushing it higher. But as long as the markets believe that central banks will step in with any downturn, we likely won’t see a spike any time soon. So much for a free market.

Wildcard: The latest missile launch out of North Korea has futures lower across the world. Investors will continue to monitor the latest out of the situation. Additionally, this cyber attack that hit roughly 150 countries on Friday (5/12) may continue to affect countless computers across the world. Traders will continue to monitor the latest developments. If these wildcards do not pan out, expect volumes to continue to be light. 

Atleast I Read This Before I Sent It

After watching elected officials vote on a bill and admit to not actually reading it, investors will be looking forward to more stupidity from its elected officials. In the meantime, the adult in the room (the stock market) will be turning its attention to the latest out of earnings and the price of oil. On the economic calendar, we have CPI, Retail Sales and PPI.

French Election: Last night was the result of the French election in the world’s 6th largest economy. As Emmanuel Macron was declared the winner, we may see an additional bump from the confidence in the markets once they open on Monday. We will also see a move into more risk off assets and a potential sell off in gold.

Earnings Season: 1Q Earnings season starts to wind down but we still have 42 S&P 500 companies and 1 Dow component expected to report this week.  Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, with approx. 82% of S&P 500 companies reporting 1st quarter earnings, 64% reported revenue above expectations while 75% have reported earnings above expectations. Both of these figures are above the last 4 quarters averages. These figures are also higher than what we witnessed with earnings last quarter. The blended earnings growth estimate is now over 14%. Additionally, the S&P 500 forward PE ratio is currently at 17.7X which is also near a decade high. So on a historical basis, the S&P could potentially be considered overvalued.

CPI: On Friday (5/12), CPI is released. The previous months CPI reading came in below 0, indicating that prices went down over the period or deflation, mostly on the backs of a weak energy component.  Investors will watch to see if this number reverses and beats expectations, which would likely send the markets higher. A strong reading would also add fuel for a potential rate hike next month.

Oil: Oil tumbled over 6% last week and even had a mini flash crash last Thursday night (5/4) sending oil down to below $43. Oil has been tumbling thanks to a slowdown of consumption in China, US Crude Inventories building, and of course those silly algos. This is oil’s lowest level since OPEC agreed to a cutback in November. Some of the commodity sensitive currencies such as the Canadian Dollar, Australian Dollar and Russian Ruble also dropped for the week. Investors will be watching to see if oil continues to fall, pushing down energy stocks, commodity sensitive currencies and their respective stock markets. The move lower would likely send investors into safe haven assets such as the Japanese Yen, Treasurys and gold.

Central Banks Speak: Multiple central banks will be making policy statements including the Bank of England and the Reserve Bank of New Zealand. For England, they are scheduled this week to publish its policy decision, minutes of the meeting, official votes and new forecasts. Investors will be listening to how the potential divorce from the EU may affect monetary policy. We will likely see stocks and foreign exchange to be affected. For New Zealand, we will get our latest ratio of sheep to people and consumer consumption of Tui beers.

Where’s the volatility? For the last 8 sessions, the Dow and S&P 500 have seen movements of less than 0.2% in either direction. This is something that has not happened in 53 years.  Even with weak economic data for 7 consecutive weeks, and a ton earnings, markets have shown little reaction. The VIX (a measurement of volatility) dipped below 10 earlier this week for the first time in 10 years. Investors will continue to wait for some type of catalyst to which may send the markets even higher, or a pullback, or if we continue to see very little volatility.

G7 Meetings: The Group of Seven ((not 6, 7) used to be 8)) meets at the end of the week. At the meetings they will be discussing global economic issues. Officials will give interviews to reporters during the day but these meetings are closed to the press. If an official makes a certain statement about a change in policy, we will likely see currency markets being impacted. At the conclusion of the meetings, officials will come out with an official statement.  

Still Possibly a Banana Republic: Take 2

Traders will be dealing with déjà vu all over again over a possible government shutdown and a string of earnings. On the economic front, we have Manufacturing PMI, the Unemployment Rate, Non-Farm Payrolls and Average Hourly Earnings.

Non-Farm Payrolls & Unemployment Rate: After the disappointing US GDP figure last week, along with radio and Twitter silence from the White House, we have the release of Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for April this Friday (5/5). Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, the markets will likely go lower along with the US Dollar. If the number is strong, Sean Spicer will likely say this number is real unlike Obama’s White House fake numbers while a weak number was made up in the GDP centers.   

Earnings Season: After the largest week for earnings in 10 years, 1Q earnings season rolls on with another 127 S&P 500 companies and 3 Dow components expected to report this week. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, with approx. 58% of S&P 500 companies reporting 1st quarter earnings, 76% reported revenue above expectations while 65% have reported earnings above expectations. Both of these figures are above the last 4 quarters averages. These figures are also higher than what we witnessed with earnings last quarter.

Déjà vu All Over Again: Last Friday, (4/28) the House and Senate voted to approve a 1 week spending bill to avoid a government shutdown. So the government will now continue to function/dysfunction until this Friday (5/5). Like last week, here are the scenarios that could play out in the markets. The closer we get to the deadline without a deal, the markets may pull back as volatility and the VIX would rise. We would also see a move into safe havens such as Gold, Treasury’s and the Japanese Yen. If they just pass a budget that gets them through the end of the fiscal year, which ends Sept 30, or another extension for a few days to hammer out details, expect the status quo. If we actually do shut down with a Republican majority House, Senate and Republican President, start working on the banana republic flag design.   

Another Fed Statement: On Wednesday (5/3), the Fed releases their latest statement. At this juncture, markets have not been paying any attention to this statement, since their attention has been on taxes, a possible government shutdown, North Korea, Healthcare, our pets getting killed on United flights (R.I.P. Simon), etc. The markets do not expect any change in monetary policy. However, they will be looking for any hints as to when the Fed may start to unwind their massive balance sheet. Any announcement could see the US Dollar strengthen against a basket of currencies, weakening oil even further (since priced in US dollars).

Treasury Secretary (Street Fighter) Mnuchin: Due to speak at the Milken Conference is Treasury Secretary Mnuchin. After announcing President Trump’s tax plan, investors will be listening to Mnuchin for additional details as to who will benefit with the President’s tax proposal. Traders will also be listening to additional hints as to deductions and how they may affect personal finances. 

Oil: Last week saw West Texas Crude oil fall below $50, a 4-week low. Contributing to the drop was a strengthening of the US Dollar after the ECB left interest rates at 0% and a surprise build in oil inventories. Drawing it lower partially are technicals as crude fell below its 200 day moving average, which had acted as a strong support level. Investors will watch to see if this downward trend in price continues, which will continue to send energy companies lower. We will also be listening to the latest out of OPEC as they meet at the end of May to discuss furthering their production cut. Algos will start to go wild on any headline from a member of OPEC which could positively or negatively impact the price of oil.   

Chinese Data: This week, China will be releasing Manufacturing PMI and Caixin Service PMI. Investors will monitor the data and the Yuan’s reaction as weak data will put downward pressure on the currency, with the potential for markets to fall globally.

A Few Bank Holidays this Week: Markets in Europe will be closed on Monday (5/1) for May Day celebrations or Labor Day in certain countries. Japanese Banks and markets will be closed Wednesday (5/3) for Children’s Day. Another holiday Japan gives off to workers which we should also be doing. Don’t forget to raise your carp-shaped koinobori flags, as is tradition.  

 

Today’s blog is brought to by the Long Island Railroad. “You don’t think I can mess up your commute 20 consecutive days, hold my beer.” The LIRR thanked its customers again by delaying their commute home for the 20th consecutive day last week. The LIRR in a press release said, “If people are dumb enough to continue riding the railroad, we will continue to spend their exorbitant monthly ticket to pay for our conductor’s $200K salary and pension.” Not a bad gig when the toughest part of your job is punching the occasional ticket and telling people you are on the correct train.

Don’t Kid Yourself, It’s a Banana Republic

Shut it down, shut it down.

Investors have a busy week ahead starting with the reaction from the French Election. We have a ton of earnings data, economic data, a potential government shut down, and our first look at 1Q GDP. On the economic front, we have Consumer Confidence, Pending Home Sales, and New Home Sales.

The markets took a sigh of relief Sunday night after the establishment candidate, Emmanuel Macron, received the most votes in the 1st round of the French election. On the results, The Euro is hitting a 5 month high and futures markets have also gone higher. The 2nd and final round will be between Macron and far right Candidate Marine Le Pen on May 7th. The broader markets are still not out of the woods yet with Le Pen making the 2nd round, but most polls show Macron winning by a sizeable margin.

US Government Shut Down – On Friday (4/28), the U.S. Treasury officially runs out of the legal authority to spend money. If Congress doesn’t approve a new bill before the deadline, the US government would shut down. Besides national parks and monuments being closed, 800K federal workers would be told not to come to work and not get paid. The army would continue to drops bombs overseas (that obviously never stops) but the soldiers won’t get paid for it. And the NSA will keep listening to your phone calls. In regards to trading, there would be no economic data releases, which could move the markets.

Adding pressure to the negotiations are sticky parts such as funding for Sanctuary Cities, Planned Parenthood and President Trump wanting to demand money for the border wall. So much for having Mexico pay for it. The closer we get to the deadline without a deal, the markets may pull back as volatility and the VIX would rise. We would also see a move into safe havens such as Gold, Treasury’s and the Japanese Yen. If they just pass a budget that gets them through the end of the fiscal year, which ends Sept 30, or if they get an extension for a few days to hammer out details, expect the status quo. If we actually do shut down with a Republican majority House, Senate and Republican President, there is no reason not to think of the US as anything more than a banana republic.    

Taxes? President Trump announced last week that sometime this week, he will finally unveil his long a waited tax reform package. Investors have been waiting for this release since he became President. Investors will be listening to see if he picks an actual tax rate and where he would raise revenue. Even though this is likely a starting point in a negotiating process, if the tax rate is lower than what the market expects, we could see markets go higher. If the tax rate disappoints and is higher than expected, we could see a market sell off.

Super Mario Speaks: On Thursday (4/27), ECB President Mario Draghi will announce the latest interest rate decision. At this juncture, investors are not expecting any changes to rates. However, investors will be listening to potential changes to the banks quantitative easing program since the European economy looks to be standing on better ground. Any hawkish comments would send the Euro higher amongst most currencies and send stocks lower.    

Earnings Season: Earnings season heats up with 194 S&P 500 companies and 12 Dow components expected to report Q4 earnings this week. This is the most S&P 500 companies to report in 1 week in over 10 years. Traders can see individual stocks have huge price swings if a company’s earnings outpace or fall short of what the street expected. According to Thomson Reuters I/B/E/S, with approx. 19% of S&P 500 companies reporting 1st quarter earnings, 62% reported revenue above expectations while 75% have reported earnings above expectations. Both of these figures are above the last 4 quarters averages. This is also reversal of where we were at this time with earnings last quarter.

GDP First Release: On Friday (4/28), we get our first release of US GDP for the 1st quarter, the first with Trump as President. The first release is the most impactful. So far, Fed regional banks have been lowering their forecast of where GDP will come in at. Should the number come in higher than expected, we can expect to see equities go higher. If GDP is less than expected, we may see equities fall as investors believe the economy is not growing as fast as expected. If the number comes in much higher than expected, we should expect the White House to say it was beautiful number and the economy is growing. If it comes in lower than expected, expect Sean Spicer to call it fake news from the GDP centers.

Consumer Confidence: On Tuesday (4/25) Consumer Confidence is released. This figure has increased significantly since Donald Trump became President. Investors will be looking to see if this figure stays elevated, even though it hasn’t translated to any outsized gains in consumer spending or business investment. A scale back in this reading could see stocks slide.

 

A Nationalist, A Communist and An Independent Walk Into a Bar

This isn’t a joke, those are the top candidates to be the next President of France.

French Elections: After Brexit and Trump, France is now saying “Hold My Beer.” The latest polls out of the French Presidential election are showing a 4-way race between a Nationalist (Marine Le Pen), a Communist (Jean-Luc Mélenchon) a Independent (Emmanuel Macron) and a Conservative (François Fillon). The market does not like uncertainty, and it certainly does not like Communists and Nationalists potentially leading countries. Investors will be monitoring the latest polls as we get closer to the April 23rd election. If 1 candidate does not get a majority of the votes, we will have a run off in May between the top 2 candidates. Almost all polls are seeing this scenario play out, but it is up in the air right now as to which two candidates will be in it. And as we have seen before, polls have not seen the outcome we expected. If the communist or Nationalist are looking more likely as the leading candidates, expect markets on both side of the Atlantic to fall, the Euro to fall, Treasuries and gold will likely strengthen. If the centrist or conservative candidates start to pull away, expect the status quo. Below is a basic list of the platforms of Mélenchon and Le Pen. As you can see from this list it makes perfect sense as to why the markets could have a freak out moment if they were to be the 2 finalists.

Le Pen: Hold an in-out referendum on membership in the EU. Leave the Euro currency and the Schengen passport free area. Reduce the immigration level to 10,000 people per year. Employers who hire foreigners (including EU citizens) have an extra tax of 10% of an employee’s salary.      

Mélenchon: Cut the 35-hour work week to 32 hours (that sounds AWESOME) and drop the retirement age to 60. Enforce a maximum wage (Bernie Sanders dream). Leave NATO, the International Monetary Fund, the World Bank, and block European trade treaties with the US and Canada. He would also have a 90% tax on people earning more than €400,000.

Earnings: Last week kicked off earnings season with the banks reporting disappointing numbers and sending markets lower. It’s still pretty early in the season, but so far we have had 29 companies in the S&P 500 report earnings for Q1. 76% have reported earnings above analyst expectations and 55% have reported revenues above expectations, according to Thomson Reuters I/B/E/S. Investors will watch to see how this plays out for the quarter. This week has 68 S&P 500 companies and 8 Dow 30 including Johnson & Johnson (JNJ), Goldman Sachs (GS) and Verizon (VZ) announcing earnings. Traders can see individual stocks have huge price swings if a company’s earnings outpace or fall short of what the street expected.

Manufacturing PMI: PMI readings from across the globe are due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.

Treasury Secretary (Street Fighter) Mnuchin: Due to speak at the Institute of International Finance Policy Summit, in Washington DC is Treasury Secretary Mnuchin. Previous comments Mnuchin has made on US policy has affected the pricing of the US dollar. Traders will be listening to any hints Mnuchin gives as to his thoughts on potential fiscal policy moving forward.  

Bank of Japan Governor to Speak: BoJ Governor Haruhiko Kuroda is due to speak at a convention in Tokyo on Monday (4/17). Should Kuroda announce any tightening of monetary stimulus, we can expect to see the Japanese Yen strengthen amongst a basket of currencies, along with markets going lower across the globe.

Existing Home Sales: On Friday (4/21), Existing Homes Sales is scheduled to report. Investors will be looking to see if the report was affected by the recent rise of mortgage rates. If more people than expected went to lock in rates to beat the interest rate hike that happened last month, we will see housing stocks and home improvement companies potentially increase.  

Wag the Dog: How do you get the 24-hour news cycle to stop a wild goose chase? You bomb another country. Last week, the US army dropped the “Mother Of All Bombs” in Afghanistan. In reaction, the markets fell after algos saw the word “bomb” run across the news outlets. The previous week, the US bombed Syria. Over the weekend, North Korea tried testing a new missile but failed almost immediately after launch. Markets will be listening to the latest saber rattling out of North Korea, China, Syria, Russia, and the US to see if we are any closer to WWIII, (I’m gonna go out on a limb and say that’s probably bad for stock markets, good for gold though) or if the situation can get diffused.

Easter Monday: European markets are closed on Monday for Easter Monday. These same markets were closed for Good Friday. Somewhere in Europe last Thursday, Homer Simpson was saying, “WooHoo, 4 day weekend!”

 

This latest blog is brought to you by the MTA. “Hey, at least we don’t bloody you, break your nose and drag you off our trains after you paid.”

War, Huh! What is it Good For? Only Buying Gold

Well, that took long. All that American First banter and it took less than 100 days for Trump to bomb another country.

Investors will spend the week watching to see if the Syria incursion becomes something bigger or if it’s just another blip on the map. Domestically, we have Michigan Sentiment and PPI during the holiday shortened week.

Fed: In the latest Fed minutes released latest week, the Federal Reserve said it expects to reduce its huge investment holdings later this year. Currently, the Fed holds over $4 Trillion in Treasuries and mortgage securities. The markets have already factored in 3 interest rate raises this year, but not the unloading of the balance sheet. Based on its timing, the unloading of the Fed’s portfolio would likely put additional upward pressure on interest rates. This week, investors will be listening to the latest speeches from Fed Chair Janet Yellen (due to speak on Monday, 4/10) as to any hints on the timing of the unwinding of the Fed’s assets. Besides trying to figure out which assets they would sell first, the Fed will also have to decide if they will sell a percentage or a fixed dollar amount of Treasury and mortgage securities. Unfortunately, the big question is, who would be crazy enough to buy $4.5 Trillion, over 1 years’ worth of the US budget.

Earnings: The unofficial start of earnings season commences this week with Alcoa due to report after the close Tuesday (4/11). So far for Q1, we have seen 80 negative EPS preannouncements issued by S&P 500 companies compared to 32 positive EPS preannouncements. It’s pretty early in the season, but so far we have had 23 companies in the S&P 500 report earnings for Q1. 74% have reported earnings above analyst expectations and 52.2% have reported revenues above expectations, according to Thomson Reuters I/B/E/S. Investors will watch to see how this plays out for the quarter.

Syria: Start the war mongering: President Trump, still in his first 100 days promoting America First decided to sound the war drums. After the military strike in Syria last week, algos initially reacted negatively sending futures much lower, but then later recovered. Gold is also higher and any additional strikes will push the precious metal even higher. Aerospace and Defense companies will also shoot higher. Should the war drums become louder, we could see the markets pull back. Besides Syria, the markets will monitor the latest rhetoric from the administration regarding North Korea. This blog is supposed to follow the markets and not really go into geo politics. But here’s a quick history lesson. In the Korean War, the US (along with a UN coalition of countries) sent in a military force to fight the communists and was about to declare victory. Then 300K Chinese military men unexpectedly walked across the border into North Korea fighting the US until a draw was declared. Does anybody not expect a repeat by China if the US comes marching on its border and now there’s a 1.5 BILLION of them?

University of Michigan Consumer Sentiment: Market moving economic data is pretty quiet for the week except for Michigan Sentiment scheduled for Thursday (4/13). Since the election, consumer sentiment has jumped on the hopes that Trump’s policies of reduced regulation and lower taxes will put more money in people’s pockets. In recent readings, the soft data has slightly scaled back, but is still near multi year highs. If the reading comes in above expectations, traders will point to consumers still expecting tax reform (even with the healthcare set back) and many regulations being suspended. If the reading comes in below expectations, traders will point to the healthcare failure and his promise of tax reform dropping.

Good Friday: Markets in the US and across Europe are closed for Good Friday. CPI and Retail Sales are still scheduled to be released on Friday even with the markets closed. That means investors will have to wait until next Monday (4/16) to react to the data.

This week’s edition was again brought to you by the MTA. “Even if your head is stuck in a door, don’t expect us to do something about it.” Their latest motto after a woman’s head was wedged between subway doors and an MTA worker is seen strolling passed the trapped woman in the video taken by a strap hangar. WAY too much to ask for the strap hangar to put their phone down and actually try to help.  The MTA also thanked themselves by cancelling all of your trains on the LIRR for most of the week so they could spend more time at their second vacation house ahead of the Passover and Easter Holidays. 

Waiting for That Reichstag Fire Moment

Investors have a busy week ahead with a string of economic data and our first look at 1Q earnings. On the economic front, we have Manufacturing PMI, the Unemployment Rate, Non-Farm Payrolls, and Average Hourly Earnings.

Non-Farm Payrolls & Unemployment Rate: On Friday (4/7), we have the release of Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for March. Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, we believe the markets will go lower along with the US Dollar. If the number is strong, Sean Spicer will likely say this number is real unlike Obama’s White House fake number while a weak number will continue to be a fake number.   

Earnings Season: 1Q Earnings season kicks off with 14 S&P 500 companies expected to report this week. So far for Q1, we have seen 79 negative EPS preannouncements issued by S&P 500 companies compared to 29 positive EPS preannouncements. Investors will watch to see how this plays out for the quarter.

Brexit: The divorce proceedings begin. Last week, Prime Minister Theresa May officially triggered Article 50. The triggering of Article 50 had been priced in to the market for weeks so we witnessed little reaction. Investors will now turn to the rhetoric of how the negotiations may go in the split. The nastier the split, the more volatility we could witness in European markets and in foreign currency. So far, the statements from the EU have been mixed as to how the negotiations may go. The French elections could play a part in this, which is scheduled for (4/23).

Central Bankers Speak: As central bankers start saying now that we may have 4 rate hikes, or that rates are too low. Investors will watch to see if the US Dollar takes off, which could also see US mortgage rates rise. FOMC Member William Dudley said last week those rates are too low, but then flip flopped his stance 24 hours later stating that “the Fed is in no rush to hike”. Investors (and algos) will look to see if we have more hawkish comments than dovish comments. More hawkish comments will have the projections on rates steepening, sending the Dollar and interest rates higher, along with helping the banking sector. More dovish comments may see interest rate projections flatten, pushing Treasuries higher.    

FOMC Minutes: On Wednesday (4/5) the latest FOMC Minutes are released. Investors will be looking closely at the language of the minutes to see what may have changed from the previous FOMC meeting. After the Fed raised interest rates at their last meeting, investors will closely monitor the wording, but will mainly be listening to FOMC members at the latest speaking arrangements.

Manufacturing PMI: PMI readings from across the globe are due out this week. Traders will watch to see if these readings, which are considered hard data, continue coming in lower compared to soft data (confidence, sentiment) which have been seeing highs not seen in years. Unless we see a huge miss, investors should not expect a market moving event as the soft readings the last few months have been the large drivers compared to hard readings.

Oil: In the past week, oil climbed back above $50 after Kuwait’s oil minister said OPEC is in talks to extend production costs. Investors will be listening to headlines out of OPEC (which algos go crazy off of) to see where oil ends up for the week. We will also be listening to the latest inventory levels as these readings have been at records some weeks, pushing the price of oil lower.  

Witch Hunt: The latest witch-hunt in Washington on who is colluding with the Russians and who is spying on each other has done little to rattle the stock market. As rhetoric continues with Congress and the media pointing fingers with little to show for it, investors will continue not to care. In this man’s opinion, this is the likely scenario that will play out and the market’s reaction:

This leads to nothing and drags on for years. It’s the Democrats version of Republicans useless attack on Hillary’s emails and Benghazi hearings. Nothing is going to change the direction of tax reform or Trump’s agenda. Health reform will happen at some time, just not today, and in a different form. The markets and interest rates will continue to go up. Infrastructure projects will go through helping construction companies. Nothing will come of the witch hunt unless we have a Reichstag Fire moment. For those that don’t have a clue of this reference, below is a history lesson for you. *

Tomb Sweeping Day: This week’s unusual bank holiday comes to us from China. On Monday (4/3) Chinese markets are closed for Tomb Sweeping day. So as you sit at your desk wishing for a bank holiday, here is one that has a custom of (besides the obvious of cleaning a tomb) flying a kite.

 

*The Reichstag Fire was an arson attack on the Reichstag building in Germany in 1933 in which the Nazis stated it was set by the communists plotting against the German government. Hitler, recently sworn is as Chancellor of Germany, urged the President to pass an emergency decree to suspend civil liberties and started instituting mass arrests putting the Nazis completely in power. History has shown us that the Nazis may have actually started the fire as a false flag to seize power. For more https://en.wikipedia.org/wiki/Reichstag_fire