Markets were rattled as they digested CPI falling in the largest drop since the 2008 financial crisis. (Fear being that the Fed may feel the need to act to curb deflation, thus turning off the faucet.) The SPY also failed at previous high resistance for the third straight day. By day end, all 3 major indices printed large, ugly Bearish Engulfing candles. On the day the SPY fell 2.03%, the DIA fell 1.90%, and the QQQ fell 2.09%. The VXX jumped 10% as you’d expect to close at 35.95. At the same time, 10 10-year bond yield fell to 0.667 and Oil (WTI) climbed to $25.34/barrel.
During the day there was a fair bit of news out of Capitol Hill. St. Louis Fed President Bullard warned of business failures on a grand scale (if the shutdown persists) and Dallas Fed President Kaplan said there will be a need for more fiscal stimulus as jobless rates continue to rise. On cue, House Democrats put forward another $3 trillion relief bill, which includes $1 trillion for state and local governments, $1,200 more per person in family relief, $200 billion for essential worker hazard pay, etc. However, this bill was known to be dead on arrival in the Senate and was primarily meant to force Republicans to put their own ideas on paper to start negotiations. Dr. Fauci (NIH) also testified that he is concerned that if states open too quickly the country risks multiple outbreaks and a setback in the economic recovery.
In business news, BA released word that customers had canceled orders for another 108 of their 737 Max planes in April. The company still has a 4,800-plane backorder list, but cancellations are accelerating and BA said they expect one of the major US Airlines (their customers) to declare bankruptcy before year-end (likely voiding that carrier's orders). Elsewhere, 13 state Attorneys General have called for AMZN to provide data on employees who have tested positive or died, while asking the company to reinstate its policy of unlimited unpaid time off and sick leave related to the virus.
On the Virus front itself, the global headline numbers are 4,361,654 confirmed cases and 293,287 deaths. In Europe, Italy reported a second straight day of uptick in new cases. Spain announced it will keep borders closed until July. France also extended its state of emergency through July 10, but easing measures remain in place. In the UK, Finance Minister told Parliament that they project the country will fall into a significant recession this year but also reported a contraction that was less than expected last month. Meanwhile, in Asian, India has passed a $266 billion virus relief bill and released 17,000 prisoners to curb prison outbreaks. Finally, China is scrambling to retest the entire city of Wuhan to curb its new outbreak. They said they will test all 11 million residents over the next 10 days. They have also locked down cities in the North (near North Korea) where clusters of new cases have been found.
In the US, we have 1,408,636 confirmed cases and 83,425 deaths. New Orleans announced that face coverings will be mandatory when they start to reopen on Saturday. Meanwhile, Los Angeles announced it expects to remain under lockdown for at least a few more months. Finally, Illinois reported over 4,000 new cases on Tuesday, a record high. However, this may be due to also performing a record number of tests (29,000) on the day.
Overnight, Asian markets were again mixed. The moves were smaller again as well, with the exception of India which was up 2% on their stimulus news. In Europe, markets are strongly red across the board at this point in the day. As of 7:30 am, US futures are on the green side of flat, now pointing to a 0.20%-0.50% gap higher at the open.
Fed Chair Powell speaks today (9 am) and is expected to shut down any talk of negative rates even after the President tweeted again that the US should have negative rates. However, the other major economic news for Wednesday is limited to Apr. PPI (8:30 am) and Oil Inventories (10:30 am). Major earnings reports are also light with SNE and ARCO reporting before the open and CSCO, FLO, STE, and OII reporting after the close.
The trend remains bullish, but ugly candles Tuesday prove that overhead resistance is significant. Markets seem to be pausing as analysts and experts continue to express fear over the strength of the economic recovery and the risks reopening poses. So, a pullback may be in order short-term. Either way, we are likely to keep seeing volatility every day. So, focus on the short-term chart in front of you. Don’t chase and remain cautious about longer-term swing trades, unless you can take some short-term pain.
Trade Ideas for your consideration and watchlist today: No trade ideas for Wednesday. Trade smart, take profits along the way and trade your plan. Also, don't forget to check for upcoming earnings. Finally, remember that the stocks/etfs we mention and talk about in the trading room are not recommendations to buy or sell.
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