Possible War? Buy the Dip!!!

As Labor Day weekend in the US is the official end of summer, we should start to see volumes pick up again in the stock markets over the next few months. On the economic front, we have a quiet week with ISM Non - Manufacturing PMI. Investors will also look to see if we have another hurricane brewing in the Atlantic and what path of destruction it may take it as insurance companies start to close their eyes. North Korea may also come into the forefront.

Holiday, celebrate: Markets will be closed in the US and Canada on Monday (9/4) for Labor Day. 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.

North Korea: Over the weekend, North Korea supposedly detonated a hydrogen bomb and spoke of an EMP. In reaction, futures went lower with safe havens such as Gold, Treasury’s and the Japanese Yen go higher. But since it continues to be a war of words, once the initial reaction sends markets lower, people keep buying the dip and we see stocks go higher. As we continue to see rhetoric out of North Korea and Trump, markets will likely go lower on headlines, and then recover.

Hurricane Aftermath: 50 inches of rain takes a long time to recede and Texas has a lot to do as it continues to recover and assess the damage from Hurricane Harvey. In the aftermath, insurance companies will continue to determine how much this will affect their bottom line. But as we are learning, a lot are in the clear as a substantial amount of homeowners do not have flood insurance. In reaction, liquor companies will likely scale back as some people will not be able to spend the insurance money on booze, drugs and maybe, a vacation. We should also pay attention to manufactures and see how long the supply chain is disrupted with a potential to halt production sending that sector trend lower.

Got gas? We aren’t likely to see the gas shortages of the 70’s, but in some areas of Texas, there is no gas to go around. This shortage will obviously affect energy companies stocks as they have no product to sell. But energy companies will potentially go higher using the storm as a reason to shoot up gas prices over night, and then take a significantly longer time to drop prices back to pre-storm levels. We are also waiting to see how long until some rigs are back online and when they will be able to ship oil since roads are still flooded. 

ECB Interest Rate Statement: On Thursday (9/7), Super Mario Draghi will be speaking at the ECB for their interest rate statement. These are scheduled 8 times per year. Investors will be looking for any hints as to the unwinding of the ECB’s asset purchases. Any scaling back announcement would see a spike in the Euro, which would negatively affect exports from Europe, sending European stocks lower.

US Default: With the debt ceiling about to expire in a few weeks, we are seeing a jump in US Treasury bills that mature before the end of September, and a dumping of US Treasury bills that mature in October. From this activity, we are seeing a spike in the short term yield curve. Investors will watch for statements from Republicans as to how the negotiations are going as the government could also shut down at the end of the month without a new budget. It is still highly unlikely that the US would default on its own obligations. However, investors will keep a watch on Treasury bills as a leveling of the yield curve would signal that they are more likely to come to an agreement on the debt ceiling. 

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.    

Greece Lightning

Highlights This Week

+  Investors will continue to watch the outcome of the Greek negotiations. Traders will also be looking to the latest FOMC Minutes, while earnings season continues to wind down with only 1 of the 30 Dow components reporting during the holiday shortened week

+  Meetings between Greece and European Finance Minister’s will conclude on Monday (2/17). The latest on the meetings are that the sides are deadlocked as to renegotiating Greece’s debt. With Greece’s current bailout ending at the end of the month, we will have to wait to see which side budges on their demands  

+  On Tuesday (2/17), firms with assets over $100M have to file their December 31st positions. With this, large institutions and well known activists firms have to disclose their position. If an activist discloses an unexpected position in an individual stock, expect a potential move in reaction to the disclosure

+  On Wednesday (2/18), the latest FOMC Minutes are released. Investors will be looking closely at the language to see what may have changed from the previous FOMC minutes. In particular, investors will be focusing on any hints at the Fed’s schedule for raising interest rates

+  On Friday (2/19) multiple countries around the globe report Flash Manufacturing PMI which includes China, Japan, Germany, and France. The results of these reports could put further strain on oil and other commodities which have fallen drastically in recent months

+  Chinese markets will be closed from Wednesday, February 18th to Tuesday, February 24th in observance of the Spring Festival or Chinese New Year. Expect businesses in China to come to a crawl over this period. Additionally, no economic data will be released during this time affecting global markets

+  We have a heavy economic data filled week with Housing Starts, Building Permits, Philadelphia Fed and Industrials Production among the key data driven points

 

MONDAY (2/16)

  • US banks will be closed in observance of Presidents' Day
  • Japan Preliminary GDP
  • Eurogroup Meetings

 

TUESDAY (2/17)

  • 8:30 AM ET – Empire Manufacturing - Feb  
  • Great Britain CPI
  • German ZEW Economic Sentiment
  • Swiss National Bank Chairman Thomas Jordan speaks
  • Earnings: Devon Energy, Waste Management, Vornado Realty Trust

 

WEDNESDAY (2/18)

  • 8:30 AM ET – Housing Starts – Jan
  • 8:30 AM ET – Building Permits – Jan
  • 8:30 AM ET – PPI – Jan
  • 8:30 AM ET – Industrial Production – Jan
  • 8:30 AM ET – Capacity Utilization – Jan
  • 2:00 PM ET – FOMC Minutes – Jan
  • New Zealand GDT Price Index
  • Bank Of Japan Monetary Policy Statement
  • Bank of England Monetary Policy Committee Bank Rate Votes
  • Canada Wholesale Sales
  • Federal reserve Governor Jerome Powell speaks
  • Chinese banks will be closed in observance of the Spring Festival
  • Earnings: Actavis, Duke Energy, Hilton

 

THURSDAY (2/19)

  • 8:30 AM ET - Weekly Jobless Claims
  • 10:00 AM ET – Philadelphia Fed - Feb
  • 10:00 AM ET – Leading Indicators - Jan
  • 11:00 AM ET – Crude Oil Inventories 
  • Deutsche Bundesbank President Jens Weidmann speaks
  • Chinese banks will be closed in observance of the Spring Festival
  • Switzerland Trade Balance
  • Earnings: Wal-Mart, Priceline, DIRECTV, Intuit

 

FRIDAY (2/20)

  • Chinese banks will be closed in observance of the Spring Festival
  • Japan Flash Manufacturing PMI
  • European Flash Manufacturing PMI
  • European Flash Services PMI
  • Great Britain Retail Sales
  • Canada Core Retail Sales
  • Earnings: Enbridge, Deere