The good news is that the low-volume chop is likely coming to an end, but this calm before the storm could prove equally challenging for traders.  Uncertainty about what comes next will play a significant role in the Monday and Tuesday market as we wait for CPI, PPI, Retails Sales and the big bank reports to kick off on Thursday.  According to the Fed and many talking heads, the consumer is in great shape!  We will soon find out if this is true or if earnings prove this to be another “transitory” tall tale. 

Asian markets closed mostly lower overnight, with the tech-heavy Hang Seng index leading the selling down 2.77%.  Across the pond, as Europe’s natural gas supplies shut down, their markets trade red across the board this morning.  As we wait for a big week of market-moving economic reports and the beginning of the earnings season, U.S. futures point to a bearish open with the uncertainty of what lies ahead. 

Economic Calendar

Earnings Calendar

The official kick-off of 3^rd quarter earnings is Thursday, but we will have a few as we build-up to the big bank reports.  Notable reports include AZZ< PSMT & VOXX.

News & Technicals’

Operator Nord Stream AG confirmed the maintenance works, which are scheduled to run from Monday through to July 21, got underway as planned on Monday morning.  As a result, Russian gas flows to Germany are expected to drop to zero later in the day.  Klaus Mueller, the head of Germany’s energy regulator, believes that the Kremlin may continue to throttle Europe’s energy supplies beyond the scheduled end of the maintenance works.  Johnson formally resigned as leader of the Conservative Party on Thursday but said he would stay in Downing Street until a successor was chosen.  The prime minister’s ousting coincides with a particularly perilous period for the U.K. economy.  Inflation hit a new 40-year high of 9.1% in May, and the country is facing a cost of living crisis.  “The immediate outlook is likely to hinge on whether Johnson manages to stay on for the next two months – in which case markets risk a period of additional volatility going into the summer,” AXA IM’s Adegbembo said.  Shares of the company fell nearly 9% in the U.S. premarket before paring some losses to trade around 7% lower.  Musk’s attorney notified Twitter’s board on Friday that he wanted to cancel the deal.  Musk on Monday posted a meme mocking Twitter management over the botched deal.  “They said I couldn’t buy Twitter.  Then they wouldn’t disclose bot info.  Now they want to force me to buy Twitter in court.  Now they have to disclose bot info in court,” the meme read.  Bret Taylor, Twitter’s chairman, said he intends to see the deal through and said the company plans to take legal action against Musk.  If Twitter files a lawsuit against Musk, the parties will likely face a long legal battle ahead.  Chinese manufacturers are starting to see demand for consumer goods in developed economies tail off after a strong rebound from pandemic shocks.  Spot ocean freight rates between China and major U.S. and European markets are falling as consumer demand retreats.  Goods demand is “normalizing,” leading to significant global growth and slow trade but not quite a recession yet.  Treasury yields eased slightly in the early Monday trading, with the 10-year dipping to 3.07% and the 30-year slipped to 3.24%. 

Uncertainty is likely in abundance in Monday and Tuesday’s market, which could be described as the calm before the storm.  Market moving reports such as CPI, PPI, Retail Sales, and the beginning of 3^rd quarter earnings with the big banks starting on Thursday morning.  We can expect considerable price volatility peppered with intraday whipsaws and full overnight reversals in the days and weeks ahead.  How have companies performed in the current economic downturn facing a possible recession?  We have been told repeatedly that the consumer is in good shape, but now we find out if that’s true or just another “transitory” moment.  The good news is that the low-volume chop will likely end soon but expect the price action to remain highly challenging as the drama unfolds.

Trade Wisely,

Doug