Markets whipsawed on Friday after the strong jobs report pushed bond yields to their highest level of the year. However, the overdue relief bounced indexes sharply off the morning lows as a strong short squeeze took hold. Unfortunately, a new conflict erupted this weekend after a surprise Hamas attack on Israel prompted a declaration of war spiking oil prices and adding another geopolitical worry to the world. With a PPI, FOMC Minutes, CPI, and the beginning of 4th quarter earnings on Friday traders will have to be prepared for just about anything. Keep in mind that more than 90% of companies within their blackout period volume could be anemic with bursts of wild data-driven volatility.
Asian markets closed their Monday session mixed after Hong Kong canceled the morning session and Shanghai resumed trading after their Golden Week. European markets trade mixed but mostly lower in a choppy morning session as they monitor the new Middle East war. U.S. futures point to a lower open with rising bond yields, higher oil prices, and more geopolitical concerns worrying investors.
Economic Calendar
Earnings Calendar
There are no noteworthy earnings reports for Monday.
News & Technicals’
The recent attacks in Israel have caused several airlines to cancel their flights to and from the country. American, Delta, and United, which are the three major U.S. airlines, announced that they have suspended their flights to Israel this weekend, citing security concerns. British Airways and Lufthansa, which are the largest airlines in the UK and Germany, respectively, also followed suit and canceled their service. The flight cancellations come amid the escalating violence between Israel and Hamas, the militant group that controls Gaza. The conflict has resulted in hundreds of deaths and injuries, as well as widespread damage to buildings and infrastructure. The airlines said that they will monitor the situation and resume their flights when it is safe to do so.
The ongoing conflict between Israel and Hamas has raised concerns about the stability of oil markets in the Middle East. Oil prices surged on Monday as the violence escalated for the third consecutive day, with Hamas launching rockets at Israel and Israel responding with airstrikes on Gaza. However, analysts say that the impact of the conflict on oil supply and transport is likely to be limited unless it spreads to other countries in the region or disrupts major oil facilities. According to Vivek Dhar, Commonwealth Bank’s director of mining and energy commodities research, “For this conflict to have a lasting and meaningful impact on oil markets, there must be a sustained reduction in oil supply or transport”.
Thousands of workers with Mack Trucks, a subsidiary of Volvo Group, are set to go on strike Monday after rejecting a proposed contract from the company. The United Auto Workers (UAW) union, which represents about 3,900 Mack Trucks employees, announced that 73% of its members voted against the tentative deal that was reached last week. The union said that the deal did not meet its expectations on issues such as wages, health care, job security, and retirement benefits. The union is also negotiating with the Detroit automakers, and some workers said they were influenced by the higher standards set by those talks. The strike will affect Mack Trucks plants in Pennsylvania, Maryland, and Florida.
Equity markets whipsawed on Friday after a strong jobs report boosted the yields to the highest level of the year, but stocks reversed finally beginning a relief rally with a substantial short squeeze. However, the data increased the chances of another rate hike this year and unfortunately, the bond yields are higher this morning. Sadly a new war erupted this weekend when Hamas launched a surprise attack on Israel spiking oil prices and adding more geopolitical uncertainties setting the stage for a lower open this morning. Now with more than 90% of companies within their blackout period volume could be anemic as we wait for PPI, FOMC minutes, CPI, and the kickoff to the 4th quarter earnings season with big bank reports on Friday. Challenging and volatile may prove to be an understatement with all the uncertainty clouding the path forward.
When I hear the word engulfing, I imagine a wave washing over a shore or a building being consumed by flames. To engulf means to sweep over something, to surround it, or to cover it completely. Thus, it should come as no surprise that a Bullish Engulfing pattern features one candlestick covering (or engulfing) another. This two candlestick pattern occurs after a downtrend and is formed by one bearish candlestick (which is covered) and one bullish candlestick (which does the covering). It occurs frequently, so it is important that you learn to identify and interpret it. Ready for a quick lesson? To learn more about the Bullish Engulfing pattern’s formation and meaning, simply scroll down.
Markets started the day flat Thursday, down 0.02% in the SPY, down 0.03% in the QQQ, and down 0.05% in the DIA. However, the SPY and QQQ immediately sold off, reaching the low of the day shortly after 11 a.m. Then both began a slower rally that took them back to their highs (high of the day in SPY) about 2:45 p.m. From there, the pair of index ETFs traded sideways with a very modest bearish trend for the last 75 minutes. Meanwhile, DIA traded sideways in a very tight range for an hour after the open. Then it followed the other major index ETFs lower, finding its lows at about 11:50 a.m. At that point, DIA traded sideways until 1:15 p.m. before following the SPY and QQQ higher until 2:45 p.m. From there, DIA traded sideways in a tight range for the rest of the day.
On the day, six of the 10 sectors were in the red with Consumer Defensive (-1.67%) way out in front (by almost a full percent) leading the way lower. Meanwhile, Financial Services (+0.76%) held up better than the other sectors. At the same time, the SPY lost 0.04%, DIA gained 0.06%, and the tech-heavy QQQ lost 0.29%. VXX fell 1.28% to close at 23.97 and T2122 climbed but still remained well into the oversold territory at 9.09. 10-year bond yields basically bobbed along sideways after Wednesday’s “fall” to close at 4.714% while Oil (WTI) dropped another 2.10% to end the day at $82.45 per barrel.
This action gave us very indecisive candles in all three major index ETFs. The DIA and SPY printed Dojis that remain below their T-line all day. At the same time, QQQ printed more of a black-bodied Spinning Top which retested its T-line before closing just below it again. This all happened on below-average volume in all three major index ETFs. So, we saw a flat open followed by a selloff, a rebound, and finally a lack of conviction in the last hour. That probably tells us Mr. Market is just waiting on the next shoe to drop this morning (September Payrolls and Unemployment data in the premarket).
The major economic news reported Thursday included August Exports, which came in higher than the previous month at $256 billion (compared with $251.9 billion in July). At the same time, August Imports were down slightly to $314.3 billion (versus July’s $316.6 billion). Together this gave us an August Trade Balance (Deficit) of $58.3 billion which was better than expected (compared to a forecast of -$62.3 billion and July’s -$64.7 billion. After the close, the Fed’s Balance Sheet came in below $8 trillion for the first time in over two years at $7.956 trillion (down $46 billion on the week). Much of the drop was attributed to a big drop in the credit being given to deal with bank failures.
In Fed speak, Chicago Fed President Goolsbee told Bloomberg he doesn’t see treasury yields threatening a soft landing. (To be fair, the interview was recorded before rates hit 7.5%.) Goolsbee said “On the real side I feel like nothing has happened so far that is convincing evidence that we are off the golden path.” (Goolsbee has been referring to the Fed path to a soft landing as “the golden path.”) Later San Francisco Fed President Daly hinted at keeping rates steady at the next Fed meeting. Daly said, “If we continue to see a cooling labor market and inflation heading back to our target, we can hold interest rates steady and let the effects of policy continue to work.” Finally, Richmond Fed President Barkin said that surging Treasury yields reflect the strong economic data we’ve seen lately along with a heavy supply of bonds in the market. (More bonds available drive down bond prices, which automatically drives up the bond yields.)
In Autoworker contract talks and strike news, GM revealed Thursday that it has made a counter-offer to the UAW. (No details were released.) Elsewhere, Reuters reported details of the tentative deal between the UAW and VLVLY (Volvo Mack Trucks). The report showed a 19% hike over 5 years (10% immediately) plus a $3,500 “ratification bonus,” improved benefits (including a $1,000 annual addition to each 401K plan), additional vacation days, and a reduction in the tier-structure (the time it takes to get to top pay scale). The deal must still be ratified by 4,000 hourly UAW workers. Meanwhile, UAW President Fain announced he will hold another 2 p.m. Eastern streaming event to update workers on the progress of the talks. In his post-scheduling the event, he hinted there might be an expansion of the strike but that all three of the automakers may not be hit.
In stock news, BHP told Reuters Thursday that it intends to focus on cost-cutting rather than M&A to improve results over the next year. Without setting a goal or forecast, the CEO said “If we can cut our cost base by 10%, that’s $20 billion in value…the last time someone created $20 billion with an M&A – I’d like them to tell me when it was.” At the same time, XOM raised its Q3 profit forecast by $1 billion, citing escalated oil prices. Elsewhere, a study published in the JAMA Medical Journal showed a link to increased stomach paralysis and other rare gastrointestinal issues for NVO’s wildly popular diabetes drugs Ozempic, Wegovy, and Saxenda which are all widely used for significant weight loss. Bloomberg said the study found patients on one of those drugs are nine times more likely to develop swelling of the pancreas than a competing diabetes drug. At the same time, C outlined its layoff process for eliminating layers of management in a brief internal meeting on Thursday. No specifics were given, but Reuters reports the next layoffs will hit in November. A bit later, CLX announced that its sales took a hard hit from a cyber-attack but also acknowledged a “challenging consumer environment.” In the early afternoon, GSK announced it had raised $1.1 billion by selling 270 million shares of Haleon Plc in the UK. The funds will reportedly be rolled back into its Pharma business unit (Haleon is just an investment). Meanwhile, STLA announced a $90 million investment in Argentina Lithium & Energy. STLA will hold 19.9% ownership as a result of the deal. Late in the day, MRTX shares jumped after Bloomberg reported rumors that French Pharma giant SNY is exploring an acquisition of MRTX. After the close, MGM announced it expects operational disruptions from its September cyber-attack to negatively impact Q3 results.
In stock government, legal, and regulatory news, the UK announced Thursday morning that it will investigate the AMZN and MSFT dominance of the cloud computing market. (The two combined have 80% market share with GOOGL being the closest competitor with 5%-10% of the market.) Later, the Commerce Dept. said it is examining TSM, whose $40 billion AZ plant is a crucial planned recipient of US CHIPS Act funds. Recent information indicates that nearly half of the project’s workforce comes from Taiwan. This is, of course, contrary to the act’s goal of increasing US employment and chip manufacturing capability. (TSM has had a very hard time filling jobs with qualified, i.e., experienced, US workers and has found it most expedient to bring in staff from the Taiwanese facility, of which the AZ fab is designed to be a mirror image.) Elsewhere, GIFI announced a settlement of a lawsuit with Hornbeck Offshore Services. After the settlement, the court dismissed the suit. (No terms were released.) At the same time, principally INTC, NVDA, and QCOM (but including others) launched a large-scale lobbying campaign in Washington in a bid to defeat semiconductor sales to China. (NVDA was particularly vocal with the trio above claiming the restrictions could cost their firms $50 billion in lost sales per year from China.) The three companies also testified before a House committee hearing Thursday. Later, TSLA asked the Mexican government to build new infrastructure in the Northern Mexican state where the company intends to construct a new car plant. (These improvements included upgrades to the region’s electric grid and railway system.) In the afternoon, the NHTSA held a public hearing and recommended the government mandate a recall of 52 million air bag inflators (11 million of those produced under license by ALV). These inflators were used between 200 and 2018 by 12 different car makers. At the close, the SEC sued TSLA CEO Musk related to his X (Twitter) purchase. The SEC is attempting to force Musk to testify in the agency’s probe of his purchase of the company. (Musk defied a subpoena to appear on Sept. 15 from the agency.)
After the close, LEVI missed on revenue while beating on earnings. The company also cut its full-year guidance again. (It cut forward guidance just 3 months ago as well.)
Overnight, Asian markets were mostly green. Thailand (-0.97%) was the only major outlier to the downside while Hong Kong (+1.58%) was an outlier to the upside. Singapore (+0.61%) and India (+0.55%) were the more typical leaders to the upside. In Europe, we see the same picture taking shape at midday with only two of the 15 bourses showing red. The CAC (+0.69%), DAX (+0.83%), and FTSE (+0.40%) lead the region higher in early afternoon trade. In the US, as of 7:30 a.m., markets are now looking to start the day on the upside. (Of course, this is pre-Payrolls data.) The DIA implies a +0.20% open, the SPY is implying a +0.21% open, and the QQQ implies a +0.27% open at this hour. At the same time, 10-year bond yields are higher at 4.744% and Oil (WTI) is just on the green side of flat at $82.43 per barrel in early trading.
The major economic news scheduled for Friday includes Sept. Avg. Hourly Earnings, Sept. Nonfarm Payrolls, Sept. Private Nonfarm Payrolls, Sept. Participation Rate, Sept. Unemployment Rate (all at 8:30 a.m.). We also hear from a Fed speaker (Waller at noon). The major earnings reports scheduled for before the open are limited to. There are no major earnings reports scheduled for Friday (either before the bell or after the close).
In miscellaneous news, Nat Gas hit a price not seen since January as the commodity broke $3 to close at $3.184. After hours, AMC announced that cultural phenom Taylor Swift is helping it rake in money. A film of Swift’s recent Eras tour will open on Oct. 13 and has already surpassed $100 million in advance ticket sales. Meanwhile, Politico reports that in the wake of the GOP mess in Congress, the Biden Administration is now looking at using State Dept. grants as a way to send more weapons to Ukraine. The idea seems to be grating the money to Ukraine who would use the funds to buy arms from US weapons manufacturers such as GD, NOC, and RTX. (The same mechanism has been used to transfer weapons to Taiwan in the past.) At the same time, the National Assn. of Realtors said the average US mortgage rate has now hit a 22-year peak of 7.49% for a 30-year, fixed-rate loan.
In late-breaking news, TSLA announced it will cut its US prices again on its Model 3 and Model Y cars. (A 3%-4% cut in Model 3 prices and a 3.7% cut in Model Y.) The move comes after TSLA vehicle deliveries for Q3 missed the market expectations. At the same time, PHG (Philips) took a hit overnight as the FDA said it does not believe the data shared by the medical device maker is sufficient to evaluate the risks posed by the company’s recalled sleep apnea ventilators. (More than 10 million of those devices were recalled after a number of deaths were attributed to breathing toxic materials produced by the breakdown of some silicone components of the device.) Elsewhere, Bloomberg reports this morning that XOM is in “advanced talks” on buying PXD in a $60 billion deal. It would be the oil giant’s biggest acquisition since Mobil back in 1999. (The CEO of PXD had previously announced his retirement at year end.) Finally, a meeting between President Biden and Chinese President Xi next month is looking more likely. The meeting would take place on the sidelines of an APEC (Asia-Pacific Economic Cooperation) summit in San Francisco in Mid-November.
With that background, it looks like the Bulls are tentatively and indecisively in charge prior to today’s data drop. All three major index ETFs are easing closer to their T-line (8ema) from below. All three are also printing very small, white-body, Spinning Top type candles very early. In terms of extension, none of the three major index ETFs are far below their T-line (8ema) but the T2122 indicator is now in the middle of its oversold range. So, we are not extremely oversold and have some slack to run with if either the Bulls or Bears can find energy. Expect some volatility at 8:30 a.m. and again at the open (and possibly when the UAW streams its news mid-afternoon). Also remember that this is Friday, payday, and time to get your account ready for the weekend news cycle. Just remember, the first rule of making big money in the market is to not lose big money in the market.
As always, be deliberate and disciplined…but don’t be stubborn. If you have a loss, admit you were wrong and take that loss before it gets out of hand. And when the price does move in your direction, always move your stops in your favor and take a little profit off the table. You have to keep the “Legend of the man in the green bathrobe” in mind. In a winning situation, it is NOT HOUSE MONEY you’re betting, it’s YOUR MONEY! There is absolutely no reason to keep raising your bet (risk) size just because you’ve had a win. Finally, remember that trading is not a hobby. It’s a job. The money is real and so is the risk. So, treat it that way. Do the work and follow the process. Stick to your trading rules, trade with the trend, and take those profits when you have them. Do the work!
See you in the trading room.
Ed
🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.
🎯 DickCarp: the scanner paid for the year with HES-thank you
🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.
🎯 Bob S: LTA is incredible…. I use it … would not trade without it
🎯 Malcolm .: Posted in room 2, @Rick… I used the LTA Scanner to go through hundreds of stocks this weekend and picked out three to trade: PYPL, TGT, and ZS. Quality patterns and with my trading, up 24%, 7% and 12%…. this program is gold.
🎯 Friday 6/21/19 (10:09 am) Aaron B: Today, my account is at +190% since January. Thanks, RWO HRC Flash Malcolm Thomas Steve Ed Bob S Bob C Mike P and everyone that contributes every day. I love our job.
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The price action Wednesday produced a sputtering relief rally that provided some hope through the lack of momentum kept uncertainty high. The sharp decline in the ADP signaled a weakening jobs market while at the same time suggesting the rising rate increases may be coming to an end. Big tech names enjoyed the majority of the bullish energy while the energy sector sector pulled back sharply on worries of consumer demand declines. Today we face data from International Trade, Jobless Claims, Natural Gas figures, as well as several Fed speakers to find bullish or bearish inspiration. Plan your carefully with the likely market-moving Employment Situation report before the bell on Friday.
Overnight Asian markets closed mixed but mostly higher inspired by the pullback in treasury yields. European markets are also showing some relief with modest gains across the board this morning despite the plunge in Metro Bank. Though U.S. Future has recovered some of its overnight lows they still suggest a modestly lower open ahead of trade and jobless numbers. Buckle up for another day of uncertainty as we wait on the big Friday jobs report.
Economic Calendar
Earnings Calendar
Notable reports for Thursday include CAG, LW, STZ, LEVI.
News & Technicals’
Metro Bank, a British retail bank, saw its shares plunge by more than 29% on Thursday before trading was suspended by the London Stock Exchange. The reason for the sharp drop was the news that the bank was trying to raise £600 million ($727 million) in debt and equity, amid its financial troubles. The bank has been struggling since 2019 when it revealed a major accounting error that damaged its reputation and profitability. The bank has been trying to improve its balance sheet and reduce its costs, but it has faced challenges from the pandemic, the low-interest rate environment, and the intense competition in the UK banking sector. The bank said that it was in talks with existing and new investors to raise the funds, but it did not provide any details or confirmations. The London Stock Exchange, which lists the stock, confirmed to CNBC that the trading was briefly suspended due to its circuit breaker mechanisms, which are designed to prevent excessive volatility.
Ofcom, the UK’s communications regulator, has expressed its concern that the cloud computing market is dominated by a few large players, known as “hyperscalers”. These are companies like Amazon Web Services (AWS) and Microsoft Azure, which provide cloud services such as storage, computing, and networking to other businesses. According to Ofcom’s estimate, AWS and Microsoft Azure together account for about 60% to 70% of the total cloud spending, leaving little room for other competitors. Ofcom said that this could limit the choice, innovation, and quality of cloud services for consumers and businesses in the UK. Ofcom also said that it is monitoring the cloud market and exploring potential regulatory interventions to promote competition and protect consumers.
LG Energy Solution, a South Korean company that makes batteries for electric vehicles (EVs), has announced that it will supply EV batteries to Toyota, the Japanese automaker, for its cars that will be produced in the U.S. LG Energy Solution’s CEO, Youngsoo Kwon, said in an exclusive interview that the company will invest about $3 billion to build new factories for battery cells and modules exclusively for Toyota and that the factories will be completed by 2025. He also said that the company decided to invest in the U.S. market because of the high inflation, labor costs, and tax incentives in the country. He said that the IRA tax credit, which is a federal tax credit for EV buyers, is a big factor that offsets the costs and boosts the demand for EVs in the U.S. He said that LG Energy Solution is aiming to become a global leader in the EV battery market by partnering with Toyota and other automakers.
Indexes Wednesday began a sputtering relief rally after finding some encouragement in the ADP payroll data showed some signs of a slowing labor market, which could ease the inflation pressure. The bond yields helped ease rate pressures declining modestly giving stocks a little breathing room The sectors that have been lagging, such as consumer discretionary and technology, performed better on Wednesday. However, the energy sector was a big loser, as the oil prices dropped by more than 5%, their worst daily decline in a year. Today we have a few notable earnings, International Trade, Jobless Claims, Natural Gas figures as well as several more Fed speakers to inspire the bulls or bears. Keep in mind the next big market-moving report is Friday before the bell with the release of the Employment Situation numbers so plan your risk carefully because the sputtering relief could continue as we wait.
Surging bond yields and the sharply rising dollar kept the bears engaged Tuesday in a painful selloff that added to the technical damage of the index charts. The T2122 indicator is in an extreme short-term oversold condition suggesting a relief rally could begin at any time. However, bond yields are still rising this morning with a parade of Fed speakers today, adding to the uncertainty. Investors will look for inspiration in Mortgage, ADP, PMI, Factory Orders, ISM Services, and Petroleum Status figures as well as a handful of notable earnings reports today. Expect the price action to remain challenging as we head toward the Friday, Employment Situation report.
Asian markets were mostly lower overnight as Australia kept interest rates unchanged with China closed for a holiday. European markets are however working to relieve the recent selling pressure with modest gains this morning in a cautious session. U.S. futures recovered from overnight lows pointing to a modestly bullish open ahead of earnings and economic data that could provide fuel to the bulls or bears so plan your risk carefully.
Economic Calendar
Earnings Calendar
Notable reports for Wednesday include ANGO, HELE, RGP, RPM, & TLRY.
News & Technicals’
The U.S. bond yields surged higher on Wednesday, as investors were worried about the possibility of the Fed keeping the interest rates high for a longer period than expected. The Fed’s interest rate policy affects the bond yields, which are the returns that investors get from buying bonds. The higher the interest rates, the lower the bond prices and the higher the bond yields. The Fed has been raising the interest rates since 2015, to control inflation and support economic growth. The Fed’s latest meeting in September signaled that it may raise the interest rates one more time this year and three more times next year. This has caused the bond yields to rise to their highest levels in more than a decade. The 10-year Treasury yield, which is the most widely watched indicator of the bond market, was slightly up at 4.81% on Wednesday. It had reached a high of 4.884% earlier in the day, after crossing the 4.8% mark on Tuesday for the first time since 2007. The 30-year Treasury yield, which is another important indicator of the bond market, was slightly down at 4.934% on Wednesday. It had briefly traded above 5% earlier in the session, also reaching levels last seen in 2007.
The United Nations Conference on Trade and Development (UNCTAD) has released a new forecast for global economic growth in 2024. The forecast predicts that the world economy will grow by 2.5% in 2024, slightly higher than the 2.4% growth in 2023. However, the forecast is based on several assumptions and uncertainties, and UNCTAD warns that the growth outlook is fragile and uneven. UNCTAD is particularly cautious about the U.S. economy, which is expected to slow down from 3.1% in 2023 to 2.1% in 2024, due to the fading effects of the fiscal stimulus and the rising interest rates. A UN director told CNBC that the forecast is “optimistic” given the “pretty weak” state of the global economy. He said that the main risk for global growth is the eurozone, which is on the verge of a recession. The eurozone is expected to grow by only 0.9% in 2024, after a meager 0.7% in 2023. UNCTAD urges the eurozone to adopt more expansionary fiscal and monetary policies and to address the structural problems of its banking sector and its trade surplus.
ntel, the world’s largest chipmaker, announced that it will spin off its Programmable Solutions Group (PSG) as a separate business, with the intention of taking it public in the next two to three years. PSG is the division that makes programmable chips, also known as field-programmable gate arrays (FPGAs), which can be customized for specific applications. Intel acquired PSG in 2015 when it bought Altera for $16.7 billion. Intel said that it will continue to support PSG and will retain a majority stake in the business, but it will give PSG more autonomy and flexibility to pursue its growth strategy. Intel’s stock price rose by 2.3% in after-hours trading following the announcement.
The stock market dropped sharply on Tuesday, as the bond yields and dollar kept rising as investors now seem to be aware that rates will be higher longer as the Fed has been saying. The S&P 500 fell by more than 1% and the Dow lost over 400 points. The sectors that did better were the ones that provided essential goods and services, such as utilities and consumer staples. The sectors that did worse were the ones that depended on innovation and spending, such as technology and consumer discretionary. Today we have ADP, PMI, Factory Orders, ISM Services, Petroleum Status, and a slew of Fed speakers to provide inspiration and volatility in the extreme short-term oversold condition. Although we have a few notable earnings it’s unlikely they will market-moving so instead keep an eye on those bond yields that are continuing to rise this morning. A relief could begin at any time but if bad data continues to pile on be prepared for more selling, whipsaws, and challenging price volatility.
Monday kicked off the fourth quarter with an uncertain mixed start as the so-called magnificent seven tech giants rallied while small caps moved sharply lower. Bond yields were once again higher across the board as the dollar continued to surge higher adding selling pressure to commodities such as gold, silver, and oil. Unfortunately, we have another light day of earnings and economic reports for the bulls or bears to find inspiration likely making for another challenging day of choppy price action and whipsaws. The JOTLS report could be market-moving as the start to a big week of employment figures.
Asian markets traded mixed but mostly lower overnight with Hong Kong leading the way selling off 2.69%. European markets also trade mostly lower this morning as world sentiment continues to decline even as data shows U.K. food prices declined slightly. The U.S. futures fluctuated during the night but currently point to a bearish open ahead of light-day data.
Economic Calendar
Earnings Calendar
Notable reports for Tuesday include CALM & MKC.
News & Technicals’
Satya Nadella, the CEO of Microsoft, testified in the federal antitrust trial against Google in Washington, D.C. He told the court that Google has an unfair advantage in online search, as it controls more than 90% of the market share. He said that this means that publishers and advertisers have to follow Google’s rules and standards, which makes it difficult for other search engines, such as Microsoft’s Bing, to compete and attract users. He also revealed that Microsoft offered to pay billions of dollars to Apple to make Bing the default search engine on its devices, such as iPhones and iPads. However, Apple rejected the offer and chose to stick with Google, which pays Apple an estimated $15 billion a year for the same deal. Nadella argued that Google’s payments to Apple are another way of maintaining its dominance and excluding its rivals.
The Russian ruble has been facing a severe depreciation against the U.S. dollar, as the country’s economy suffers from the impact of Western sanctions, falling oil prices, and the Covid-19 pandemic. The ruble reached its lowest level in more than six years in August when it traded at more than 100 rubles per dollar. The Bank of Russia, the country’s central bank, reacted by raising its key interest rate, which is the rate at which it lends to commercial banks, by 3.5 percentage points to 12% in an emergency meeting. The central bank hoped that this would stabilize the ruble and curb inflation, which is the increase in the prices of goods and services. However, the measure did not have the desired effect, as the ruble continued to weaken and inflation remained high. In September, the central bank increased its key rate again by another percentage point to 13%, citing the persistent inflationary pressure in the economy. The central bank said that it would continue to monitor the situation and take further actions if necessary.
The U.S. stock market has been showing signs of divergence, as the Russell 2000 index, which tracks the performance of small-cap stocks, turned negative for the year on Monday. The index fell by 1.6% on Monday, bringing its year-to-date return to a loss of 0.2%. It is also down by 12.5% from its highest level in the past 52 weeks. This contrasts with the performance of the S&P 500 and the Nasdaq Composite, which track the performance of large-cap stocks, especially in the technology sector. The S&P 500 and the Nasdaq Composite are up by 11% and 26%, respectively, for the year. The gap between the small-cap and large-cap stocks reflects the concerns that the 2023 market rally has been driven by a few big tech companies, such as Apple, Microsoft, and Amazon while ignoring the rest of the market. The Russell 2000 index is often seen as a better indicator of the health of the U.S. economy, as it represents smaller businesses that are more sensitive to economic conditions, such as consumer spending, inflation, and interest rates.
The stock market had a mixed start to the fourth quarter on Monday. The small-cap stocks, lagged, losing almost 2%, and the NASDAQ, gained about 0.7%. The ISM manufacturing report showed that the factory activity was stronger than expected in September while still indicating the sector is in contraction. The construction-spending data came in flat from last month as higher rates restrict home sales. The bond yields rose across the board, with the 10-year Treasury yield ending around 4.7% and the 2-year yield around 5.1%. The rest of this week will be focused on the labor-market reports, which could have a significant impact on monetary policy decisions. We begin with the JOLTS report today with a bit more Fed speak and just a couple of notable earnings for the bulls and bears to try and find inspiration.
