A bit of profit-taking began with the bear’s more active on Friday as the rising bond yields raised concerns to suggest the Fed may remain aggressive. However, don’t count out the bulls just yet because by Friday’s close, the bullish trend remained intact, and price supports were not at risk of failing. Unfortunately, the bears are showing their teeth in the premarket, so expect a bit more price volatility, and the battle to hold at price support begins. In addition, with little on the earnings and economic calendar to inspire, markets could be more sensitive to the news cycle.
Asian markets traded mostly lower during the night as China once again surprised the market with another rate decrease just one week after the last cut. European markets also trade in the red this morning as rate hikes fears grow with the Euro at parity with the dollar again. With a light day of earnings and economic news, the bears seem hungry, with futures pointing to a gap-down open testing trend and price support levels. Plan for an extra dose of price volatility this morning.
Economic Calendar
Earnings Calendar
To begin the week, we have over 30 companies listed but only 20 or so confirmed, most of them coming from small-cap names. Notable reports include NDSN, PANW, & ZM.
News & Technicals’
China trimmed its key lending rates again on Monday, one week after it cut two interest rates in a surprise move. The People’s bank of China trimmed its five-year loan prime rate to 4.30% from 4.45% and its one-year- prime loan rate to 3.65% from 3.70% on Monday. Last week, the Chinese central bank lowered the one-year medium-term lending facility (MLF) loan rate for some financial institutions by ten basis points. The U.K. faces substantial energy bill increases. As a result, a cap on annual energy prices is set to rise to more than £3,500 this fall and over £4,000 next year, a level considered unaffordable for most households. The current package of government support is widely viewed as inadequate, but further plans look set to be delayed until a new prime minister is elected on Sept. 5th. Proposals include an increase in windfall taxes on energy companies, tax cuts, a commercial bank financing package for suppliers, and the temporary nationalization of some firms. Alibaba and Tencent executives have been focusing on cutting costs across the business, from headcount to exiting non-core businesses. It comes after both Alibaba and Tencent posted a set of second-quarter results confirming that these once free-wheeling and high-flying behemoths are not growing anymore. Alibaba and Tencent have felt the effects of a Covid-induced economic slowdown in China which is hitting areas from consumer spending to advertising budgets. Officials said that South Korea and the United States began their largest joint military drills in years on Monday with a resumption of field training as the allies seek to tighten readiness over North Korea’s potential weapons tests. The annual summertime exercises, renamed Ulchi Freedom Shield this year and scheduled to end on Sept. 1st, came after South Korean President Yoon Suk-yeol, who took office in May, vowed to “normalize” the combined exercises and boost deterrence against the North. South Korea launched the four-day Ulchi civil defense drills on Monday, designed to boost government readiness, for the first time since the pandemic’s start. Treasury yields ticked slightly lower early Monday, with the 12-month at 3.18%, the 2-year at 3.29%, the 5-year at 3.11%, the 10-year at 2.98%, and the 30-year at 3.22%.
Friday saw the bear’s more active, with the indexes pulling back with a morning gap down with only a modest selling pressure through the rest of the day. However, by the close bullish trends and price supports remained intact. Bond yields rose throughout the day on Friday, suggesting the Fed will continue to remain hawkish while the yield inversion points to a deepening recession possibility. In addition, the rising rate of auto repossessions remains worrisome as consumers struggle with rising housing and food prices. With a very light day on the earrings and economic calendar, the bears are showing some aggression in the premarket that may break uptrends and test support levels at the open. As a result, expect an extra dose of price volatility but don’t expect the bulls to give up easily. A bounce back to resistance is not out of the question.
Trade Wisley,
Doug
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