Building on the Gains

Indexes advanced slightly on Wednesday building on the gains as the relief rally continued on a low-volume day.  The hesitation likely has a lot to do with the wait on the Core PCE numbers coming out before the bell this morning and what that might mean for future Fed decisions.  Along with several notable earnings reports we also have Jobless Claims, Chicago PMI, and Natural Gas numbers to provide buy or sell inspiration.  Keep in mind we have the Employment Situation number Friday morning as we slide into a busy travel 3-day weekend.

While we slept Asian markets closed mixed as China’s factory activity contracts for the 5th month in a row.  European markets also trade mixed this morning as they try to celebrate the UBS earnings while dealing with higher inflation data.  The U.S. futures also trade mixed this morning as we wait on potential market-moving jobs and inflation data.

Economic Calendar

Earnings Calendar

Notable reports for Thursday include ASO, AVGO, DELL, DOOO, CAL, CPB, DG, GCO, LULU, MOMO, HRL, MDB, NTNX, OLLI, GIS, TITN, VMW, UBS.

News & Technicals’

China’s manufacturing sector continued to shrink in August, indicating that the world’s second-largest economy is facing persistent headwinds from both domestic and external factors. According to the official data released by the National Bureau of Statistics (NBS), the manufacturing purchasing managers’ index (PMI) rose slightly to 49.7 in August, from 49.3 in July, but remained below the 50-point threshold that separates expansion from contraction. This was the fifth consecutive month that the index showed a contraction, and worse than the median forecast of 49.2 by economists surveyed by Bloomberg. The NBS attributed the weak performance to the impact of floods, typhoons, and COVID-19 outbreaks in some regions, as well as the slowdown in global demand and supply chain disruptions. The sub-indexes for production, new orders, and new export orders all improved slightly from July but still stayed in the contraction zone. The sub-index for employment also fell further to 48.1, suggesting that manufacturers were cutting jobs amid the downturn. The NBS said that the manufacturing sector faced “increased difficulties and pressures” and called for more policy support to stabilize production and market expectations.

The euro zone’s inflation rate remained at a 10-year high in August, exceeding the analysts’ expectations and posing a challenge for the European Central Bank (ECB). According to the preliminary data released by Eurostat on Thursday, the annual inflation rate was 5.3% in August, the same as in July. This was higher than the 5.1% forecast by a Dow Jones poll of economists. The inflation rate was also far above the ECB’s target of below but close to 2%. The main drivers of inflation were energy, food, and services prices, which rose by 15.4%, 2.7%, and 3.1% respectively. The core inflation rate, which excludes energy, food, alcohol, and tobacco, was 2.6% in August, up from 2.5% in July. The high inflation rate puts pressure on the ECB to consider tapering its massive stimulus program, which has been supporting the euro zone’s economic recovery from the pandemic. However, the ECB has repeatedly said that it expects the inflation spike to be temporary and that it will look through it until the medium-term outlook improves. The ECB will hold its next monetary policy meeting on September 9, where it will update its economic projections and discuss its policy stance.

The trade relationship between China and the U.S. deteriorated in the first half of the year, as the U.S. imposed tariffs and export controls on Chinese goods and technology. According to Xie Feng, China’s ambassador to the U.S., the bilateral trade volume dropped by 14.5% year on year in the first six months of 2021. He said that the U.S. measures were harmful to both countries and the global economy, and urged for a path to expand mutually beneficial economic cooperation and trade. He also criticized Biden’s executive order that restricts U.S. investments in Chinese companies that are involved in semiconductor and AI industries, calling it “a violation of the principle of free trade”. He said that China and the U.S. should respect each other’s core interests and avoid confrontation and conflict.

Stock markets ended slightly higher on Wednesday, building on the gains made earlier this week as volume weakened. The focus on job numbers and the implications of the data for the next Fed decision continues today. However, the Personal Income and Outlays data including the Core PCE which is the favorite number of the Fed for reading inflation can move the market substantially this morning. On the last trading day of August, plan for just about anything as investors deal with China, European, and Fed uncertainty contributing to the challenging price volatility while the so-called magnificent seven dominate the indexes.

Trade Wisely,

Doug

Bullish Follow-Through

The relief rally expanded with a big bullish follow-through after seeing a sharp decline in the JOLTS report hoping that will ease the hawkish Fed.  However, we also ignored the sharp decline in consumer confidence suggesting that consumers are likely changing spending habits due to their weariness of high prices.  This morning expect price volatility with ADP, GDP, International Trade, and inventories data before the bell.  We also have Pending Home Sales and Petroleum numbers and several notable earnings reports to inspire the bulls or bears. 

Asian market closed mostly higher drawing on the bullish energy of the U.S. rally with only Hong Kong closing flat on the day.  European markets gave up some early gains after Germany and Spain released data that brought out the bears.  U.S. futures gave back overnight gains suggesting a flat to slightly bearish lean as the GDP data looms.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include BF.B, CHWY, CONN, COO, CRM, CRWD, FIVE, MCFT, OKTA, PDCO, VEEV, & VSCO.

News & Technicals’

The Bank of England (BoE) is facing a significant increase in losses on its bond-buying program, which is aimed at supporting the U.K. economy during the pandemic. According to Deutsche Bank, a leading financial institution, the BoE’s losses on its asset purchase facility (APF) will be “materially higher than projected” by the BoE itself. The APF is a scheme that allows the BoE to buy government and corporate bonds from the market, injecting money into the economy and lowering borrowing costs. However, as interest rates rise, the value of these bonds falls, resulting in losses for the BoE. The BoE estimated in late July that it would need the U.K. Treasury to cover £150 billion ($189 billion) of losses on its APF. However, Deutsche Bank Senior Economist Sanjay Raja said that this figure is too low and that the actual cost to the Treasury will be around £173 billion ($218 billion) over the next two fiscal years. This is £23 billion higher than the forecast made by the Office for Budget Responsibility (OBR) in March. This means that the Treasury will have to borrow more money or raise more taxes to compensate for the BoE’s losses, which could have implications for the U.K.’s fiscal policy and public debt.

Spain and Germany, two of the largest economies in the eurozone, have reported contrasting inflation and trade data for August and July respectively. Spain’s inflation rate rose to 2.6% year on year in August, matching the analysts’ expectations, according to the flash estimate released by the National Statistics Institute (INE). This was the highest inflation rate since October 2012, driven by higher energy and food prices. The inflation rate was also above the European Central Bank’s (ECB) target of close to but below 2%. Meanwhile, Germany’s imports fell by 13.2% year on year in July, the biggest decline since January 1987, according to the data published by the Federal Statistical Office (Destatis). This was much worse than the analysts’ forecast of a 4.5% drop, reflecting the impact of supply chain disruptions and labor shortages on the German economy. The trade surplus also narrowed to 12.3 billion euros ($14.5 billion) in July, from 15.6 billion euros ($18.4 billion) in June.

Indexes logged a big day of bullish follow-through after seeing a sharp decline in the JOLTS report but unfortunately, we also recorded a substantial miss in Consumer Confidence that the market chose to ignore. The bullish surge broke back above the daily 50-moving averages on the DIA, SPY, and QQQ while the IWM lagged. The big test for today, Can we follow through and prove to hold these key technical support levels?  The answer will likely come down to the data we receive in the GDP.  We will also deal with ADP, International Trade, Pending Home Sales, and a Petroleum number as well as some notable earnings reports to find inspiration.  Plan for price volatility to remain challenging with a focus on job numbers for the rest of the week.

Trade Wisely,

Doug

Relief Rally

Markets around the world enjoyed a relief rally with choppy price action in the U.S. with overhead resistance levels holding with bond yields adding worries to future rate increases.  Today traders will have much more earnings and economic data to inspire with Case-Shiller, Consumer Confidence, and JOLTS figures pending.  Light choppy price action could be possible as we wait for the Wednesday release of the GDP providing the uncertainty.

Overnight Asian markets continued their relief rally led by Hong Kong up 1.95% at the close as Japan reported higher than expected unemployment.  European markets also advance building on the bullish momentum.  Ahead of earnings and economic data, U.S. futures point to a bullish open with the uncertainty of the GDP report looming Wednesday.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include AMBA, AMWD, BBY, BIG, BOX, CTLT, DCI, HPE, HPQ, SJM, MBUU, NIO, PDD, PVH, & ZTO.

News & Technicals’

Lithium is a metal that is used in various applications, such as batteries, electric vehicles, aerospace, and medicine. It is considered a critical mineral for the transition to a low-carbon economy. However, the supply of lithium may not be able to keep up with the growing demand, as a research unit of Fitch Solutions warned. According to BMI, “Global lithium supply is expected to enter a deficit relative to demand by 2025”. This means that there could be a worldwide shortage of lithium soon, which could affect the prices and availability of lithium products. The main factors that contribute to the supply-demand imbalance are the limited production capacity, the environmental and social challenges, and the geopolitical risks of lithium mining and processing. Therefore, it is important to find alternative sources of lithium, such as recycling, seawater extraction, and geothermal brines.

Toyota Motor, the world’s largest automaker by sales, has faced a major disruption in its production system due to a technical glitch. The company announced on Tuesday that it has halted operations at all 14 of its assembly plants in Japan, affecting its domestic output of about 30,000 vehicles per day. The company said that the malfunction occurred in its information system that connects the production lines and the parts suppliers, causing delays and errors in the delivery of components. The company apologized for the inconvenience and said that it is working to restore the system as soon as possible. The suspension of operations could have a significant impact on Toyota’s sales and profits, as well as on its global supply chain and customers.

Artificial intelligence (AI) is a powerful technology that can have both positive and negative impacts on humanity. Brad Smith, president and vice-chairman of Microsoft, one of the leading companies in AI development, said that AI has “the potential to become both a tool and a weapon”. He stressed the need for human control over AI to “slow things down or turn things off” in case of any harmful or unethical outcomes. His statement came amid the growing popularity and controversy of ChatGPT, a generative AI-powered chatbot that can produce humanlike responses to any input. ChatGPT has been praised for its creativity and versatility, but also criticized for its potential risks of spreading misinformation, manipulation, and violence. Some tech leaders have warned that AI poses a human extinction risk on par with nuclear war if it becomes too intelligent and autonomous. Therefore, it is important to establish ethical principles and regulations for AI to ensure its safe and beneficial use for humanity.

Indeses enjoyed a relief rally in the U.S. on light choppy price action with bond yields rising during government auctions. Today investors have more data on the earnings and economic calendars for the bulls or bears to find inspiration.  Asian and European relief rallies are helping to lift premarket bullish spirits despite their weakening economic figures.  Keep a close on overhead resistance levels in price and technicals such as the 50-moving averages that could harbor entrenched bears.  Don’t be too surprised by light volumes and choppy price action with the uncertainty of the GDP report coming Wednesday morning.

Trade Wisely,

Doug

Interpret Fed Chair

Markets whipsawed as investors tried to interpret Fed Chair Powell’s comments. Although the indexes enjoyed a late day relief rally from the short-term oversold conditions bond yields on the short end of the curve continued to rise.  This week’s plan for the price action instability continue with a slew of jobs data, GDP, PMI and manufacturing data for the bulls and bears to find inspiration. 

Asian markets followed the U.S. markets overnight reliving recent selling pressure even as real estate issues in China expanded with Evergrande shares plunging.  European markets are also trading higher this morning in a modest relief rally as China uncertainty expands.  Ahead of a light day of earnings and economic data U.S. futures point to bullish open hoping to continue the relief rally started Friday afternoon to test overhead resistance levels.

Economic Calendar

Earnings Calendar

Notable reports for Monday include HEI.

News & Technicals’

China Evergrande Group, one of the largest real estate developers in China, has been facing a severe liquidity crisis that has shaken the confidence of its investors and creditors. The company’s shares have been suspended from trading on the Hong Kong exchange since March 21, 2023, after closing at a record low of 1.65 Hong Kong dollars ($0.13) per share on March 18. The suspension came as the company reported a massive loss of 39.25 billion yuan ($5.38 billion) for the first half of 2023, with total liabilities reaching a staggering 2.39 trillion yuan. The company has been struggling to repay its debts and avoid default, as it faces regulatory pressure, legal challenges, and public protests from its customers and suppliers.

The labor market in the United States has witnessed a surge of strikes and protests by workers who demand better pay and working conditions from their employers. According to data from the Cornell University School of Industrial and Labor Relations, more than 320,000 workers have participated in at least 230 strikes so far this year, affecting various industries such as health care, education, hospitality, and manufacturing. Some of the workers have successfully negotiated favorable labor deals, such as UPS workers and airline pilots, while others are still in the process of bargaining or threatening to walk out, such as Hollywood writers and actors and auto workers. The wave of labor unrest reflects the growing dissatisfaction and frustration of workers who feel underpaid, overworked, and unsafe amid the pandemic and the economic recovery.

Microsoft, the tech giant and the owner of Xbox, has made a renewed bid to acquire Activision Blizzard, the American game publisher behind popular titles such as Call of Duty, World of Warcraft, and Candy Crush. The company has submitted a fresh takeover proposal of $69 billion to the U.K. regulators, who rejected its initial offer on the grounds of anti-competitive concerns in the nascent cloud gaming market. Brad Smith, Microsoft’s vice-chairman and president, told CNBC that the company “really tried to take concerns to heart” and addressed the issues raised by the regulators in its new proposal. He also said that the deal would benefit both gamers and developers by creating more diverse and innovative games. However, he acknowledged that the final decision rests with the regulators and that “it will be up to them to decide whether that path is clear”.

On Friday, stock markets rose as they tried to interpret Fed Chair Powell’s speech at the Jackson Hole symposium for any hints about future interest-rate moves. Chair Powell struck a balanced tone, saying that the Fed would base its decisions on the data but said rate increases may not be over. Global markets had mixed results, and Treasury yields as shorter-term rates went up.  Today we have a light day on both economic and earnings calendar, however, later this week will be filled with jobs data and a key GDP report.  Plan for price volatility to remain high with investors hoping for a relief rally with the uncertainty of the weaking China economy as there real estate crisis expands and the consumer in the U.S. consumer shows signs of inflation impacts with record credit card and household debt burdens.   

Trade Wisely,

Doug

Retail Earnings

Retail Earnings

Mixed results from the retail sector suggest that consumers are inflation worry and beginning to make different choices in their spending fading premarket gains and ending the day lower.  The T2122 indicator continues to signal a short-term oversold condition on a light volume day as investors dealt with more banking downgrades and higher bond yields adding to the pressure.  However, the highly anticipated NVDA earnings and the talking head marketeering from Jackson Hole could quickly shift sentiment for a relief rally.  Of course, the results from today’s earnings and economic reports will have something to say about direction and could keep volatility high.

Asian market traded mixed after business activity reports from Australia and Japan.  European markets look to extend yesterday days gains with gains across the board this morning despite lower PMI numbers.  U.S. futures once again push for a bullish open but have already faded slightly after early retail earnings results.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include ANF, AAP, ADI, ADSK, BBWI, DY, FL, GES, KSS, NTAP, NVDA, PTON, SNOW, SPLK, & WSM.

News & Technicals’

The eurozone economy showed signs of recovery in the second quarter of 2021, despite the impact of the Covid-19 pandemic. According to the latest data, the region’s gross domestic product (GDP) grew by 0.3% in the April-June period, compared to 0.1% in the previous quarter. However, this growth rate was still lower than the pre-pandemic level, as the data excluded the months when most countries imposed lockdowns and restrictions to contain the virus. If the pandemic months are excluded, the latest numbers point to the lowest reading since April 2013. The European Central Bank (ECB) is expected to maintain its accommodative monetary policy stance, as analysts predict that it will leave its main interest rate unchanged at 3.75%. The ECB has been providing stimulus to the eurozone economy through its quantitative easing program and its pandemic emergency purchase program. The bank will announce its next policy decision on September 7, 2021.

FedEx pilots are facing uncertainty about their future as the company struggles with a sharp decline in package volume. According to the latest statistics, FedEx Express delivered 3.19 million packages a day within the US during its fiscal year 2022, down from 3.283 million in fiscal 2021. This drop in demand is partly due to the impact of the Covid-19 pandemic, which disrupted global trade and travel, as well as the loss of some major customers, such as Amazon and Walmart. FedEx has been trying to cut costs and improve efficiency by consolidating its operations and offering voluntary buyouts to some employees. However, some pilots fear that these measures may not be enough to avoid layoffs or furloughs in the near future.

Japan is preparing to release more than a million tons of treated radioactive water from the Fukushima Daiichi nuclear power plant into the Pacific Ocean, a controversial decision that has sparked protests and criticism from its neighbors. The water release, which is expected to start in 2023 and take decades to complete, comes more than 10 years after a massive earthquake and tsunami triggered the second-worst nuclear disaster in history, causing meltdowns at three reactors and forcing the evacuation of thousands of people. Japan’s government has argued that the discharge of the water, which has been filtered to remove most of the radioactive elements except for tritium, is safe and necessary to make room for more contaminated water accumulating at the site. The U.N.’s nuclear watchdog, the International Atomic Energy Agency (IAEA), has endorsed the move, saying Tokyo’s plans are consistent with international standards and will have a “negligible” impact on people and the environment. However, neighboring countries such as China, South Korea, and Taiwan are far from happy, as they fear the water release will harm their marine ecosystems, fisheries, and public health.

U.S. stocks ended the day in the red after retail earnings showed mixed results and consumers changing spending habits. Macy’s, a major retailer, reported that it had more credit card defaults than expected in the second quarter, which made investors worry about the U.S. consumer’s spending power. The financials sector also suffered a hit, as S&P Global lowered the ratings of five U.S. regional banks on Monday and bond yields continued to rise adding additional pressure. Today we have a busier earnings calendar with the highly anticipated report from NVDA after the bell with PMI, New Home Sales, and Petroleum Status data pending on the economic calendar. 

Trade Wisely,

Doug

Nasdaq Rebounded

The highly anticipated earnings from NVDA on Wednesday brought out the speculators surging the stock price that drove a Nasdaq rebound on Monday.  However, the DIA and IWM struggled to find footing making for a choppy day even as the short-term oversold condition suggests a relief rally to at least test overhead resistance levels.  With a bit more potential inspiration on the earnings and economic calendar perhaps the relief can continue to gain strength today but keep an eye on the rising bond yields that hint the Fed may not be done with rate increases.

Asian markets enjoyed a relief rally overnight shaking off the rising bond yields and worries over the Chinese economy.  European markets look to extend the relief started yesterday with the tech sector leading the way.  U.S. futures also point to a bullish open ahead of earnings and economic reports as bond yields push to levels not seen since 2007.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include BJ, SCIQ, COTY, DKS, LZB, LOW, M, MDT, TOL, and URBN.

News & Technicals’

The U.S. banking sector is facing increased pressure from the global rating agency S&P Global, which downgraded the credit ratings and outlooks of several major banks on Monday. The agency cited the challenges posed by the ongoing pandemic, low-interest rates, and heightened competition as the main factors that could erode the banks’ profitability and credit quality. S&P Global followed the footsteps of Moody’s, which also lowered its ratings and outlooks for some U.S. banks last week. Both agencies warned that the banks could face higher funding costs and lower earnings in the near future.

Lowe’s announced its second-quarter results, showing a solid performance amid the high demand for home improvement products and services. The company reported a net income of $3.02 billion, or $4.25 per share, up from $2.83 billion, or $3.74 per share, a year earlier. This beat the consensus estimate of $4.01 per share. However, the company’s revenue fell slightly short of expectations, as it recorded total sales of $27.57 billion, compared to the forecast of $27.75 billion. Lowe’s attributed the revenue miss to the supply chain disruptions and labor shortages that affected its ability to meet customer demand. Despite the challenges, the company reaffirmed its full-year guidance, expecting a sales growth of 4.5% and an operating margin of 12.2%.

Zoom continued to enjoy strong growth in the second quarter, as more people and businesses relied on its services for remote work and communication. The company reported a revenue of $1.02 billion, up 54% year-over-year, and surpassing the analysts’ estimate of $991 million. The company also posted a net income of $317 million, or $1.08 per share, compared to $186 million, or $0.63 per share, a year ago. This exceeded the consensus forecast of $0.99 per share. Zoom also raised its full-year guidance, expecting revenue of $4.01 billion to $4.02 billion, and earnings per share of $4.75 to $4.79. Zoom also introduced a new feature that allows customers to start free trials for automated meeting summaries without recording calls, enhancing its product offerings and customer experience.

The S&P 500 and the Nasdaq rebounded from a three-week slump, led by a surge in NVDA heading into its highly anticipated earnings report on Wednesday. European stocks also rose, while Asian markets were mixed amid ongoing worries about China. Government bond yields climbed to multiyear highs ahead of the Fed’s annual Jackson Hole meeting. The 10-year Treasury yield reached 4.33%, the highest since 2007, and the 30-year yield hit 4.45%, the highest since 2011 putting more pressure on the banking sector and consumers. Today we face reports on Existing Home Sales, Richmond Fed Mfg. along with a couple of Fed speakers.  We also have several notable earnings reports for the bulls or bears to find inspiration with a retail theme.  Plan for volatility to continue with higher rates worries about the Chinese economy and banking downgrades.

Trade Wisely,

Doug

Third Week Down

Worries about the Chinese economic decline and higher rates and pressure it creates in the financial sector left markets little changed on Friday in a very choppy session.  However, the short-term oversold condition suggests a relief rally to challenge overhead resistance could begin at any time.  Uncertainty and price volatility are likely as we wait on the Fed speakers and talking head marketeering coming our way later this week from Jackson Hole. 

Asian markets finished the day mixed after China cut their 1-year prime rate but surprisingly left the 5-year rate unchanged as their real estate crisis continues to expand.  European markets trade higher across the board this morning as investors look to relieve some of last week’s selloff.  U.S. market ahead of a light day of earnings and economic reports also point to some bullish relief with futures suggesting a gap up open though substantial overhead resistance awaits the challenge.

Economic Calendar

Earnings Calendar

Notable reports for Monday include FN, NDSN & ZM.

News & Technicals’

China has lowered its one-year loan prime rate (LPR) by 10 basis points to ease the financing costs for businesses and households amid the economic slowdown caused by the coronavirus pandemic. The one-year LPR, which is the benchmark for most consumer and corporate loans in China, was reduced from 3.55% to 3.45%, according to the announcement by the People’s Bank of China on Monday. However, this cut was smaller than the 15 basis points that most economists had expected, according to a Reuters poll. On the other hand, China kept its five-year LPR, which is the reference for most mortgages, unchanged at 4.2%, despite the market anticipation of a 15-basis point reduction. This suggests that China is still cautious about stimulating the housing market, which has shown signs of recovery in recent months.

A former regional manager of Starbucks has won a legal victory against the coffee giant, after claiming that she was discriminated against because of her race. Shannon Phillips, who is white, sued Starbucks for wrongful termination, alleging that she was fired in 2018 for opposing the company’s policy of punishing white employees more harshly than Black employees following the controversial arrests of two Black men at a Philadelphia store. Phillips said that she was singled out and treated differently from other managers who were not white. In April, a jury awarded Phillips more than $25 million in damages for lost earnings and emotional distress. On Friday, a judge ordered Starbucks to pay an additional $2.7 million in lost wages and tax damages to Phillips, bringing the total amount to nearly $28 million. Starbucks said that it was disappointed with the verdict and planned to appeal.

The U.S. Treasury market saw a rise in yields on Monday, as investors prepared for a busy week of economic data and speeches from Federal Reserve officials. The yield on the 10-year Treasury note, which moves inversely to its price, climbed 4 basis points to 1.62%, while the yield on the 30-year Treasury bond rose 3 basis points to 2.32%. The higher yields reflected the expectations of stronger economic growth and inflation in the U.S., as well as the uncertainty about the Fed’s monetary policy stance. Investors were looking forward to hearing from Fed Chair Jerome Powell and other Fed policymakers, who were scheduled to speak at various events throughout the week. They were also awaiting the release of key economic reports, such as the consumer price index, retail sales, and industrial production, which could provide more clues about the state of the U.S. economy and the outlook for interest rates.

The S&P 500 ended the week with little change on Friday, but it was still down for the third week in a row due to worries about China and rising interest rates. The Nasdaq, which is more sensitive to interest rates, also suffered from the high level of the 10-year Treasury yield, which dropped slightly Friday but stayed close to its highest point in 11 years. Global markets also fell, as investors were concerned about the troubles in China’s property sector. The months of August and September tend to be more challenging for stocks, with bigger swings and deeper corrections but the short-term oversold condition now suggests a relief rally could begin at any anytime.  With very little on earnings and an economic calendar expect volatility as we wait for all the talking head speeches from Jackson Hole later in the week. 

Trade Wisely,

Doug

Continued to Slide

Indexes continued to slide on Wednesday after a miss from Target and Fed minutes revealed that policymakers were concerned about higher inflation.  Technical damage grew with the SPY, QQQ, and IWM failing below their 50-day averages and the VIX-X confirmed its lower high following though.  However, the T2122 is signaling a short-term oversold condition suggesting a relief rally could occur at any time if the pending data can give the bulls some encouragement.  Today we have several notable earnings reports with Wal-Mart leading the way this morning fullered shortly after with numbers on Jobless Claims and the Philly Fed MFG. 

Asian markets closed mostly lower overnight as Fed minutes add investor worry about further rate increases. European markets trade mixed and relatively flat in a cautious morning session.  With earnings and economic numbers pending the U.S. futures are trying to show confidence in a relief rally beginning but that could fade quickly if the data doesn’t support the hope.  Plan for more volatility as uncertainty grows.

Economic Calendar

Earnings Calendar

Notable reports for Thursday include AMAT, BILI, DOLE, FTCH, KEYS, LITE, ROST, TPR, & WMT.

News & Technicals’

The U.S.-China trade tensions escalated on Wednesday when President Biden signed an executive order to ban American investments in 59 Chinese companies that are allegedly involved in developing advanced technologies for military purposes. The order, which will take effect on August 2, aims to protect the national security and interests of the U.S. and its allies from the threats posed by China’s military-industrial complex. However, China’s Ministry of Commerce expressed its strong opposition to the move and warned that it would take necessary countermeasures to safeguard its legitimate rights and interests. The ministry’s spokesperson also said that China and the U.S. were in close contact on trade issues, but did not confirm the date of a possible visit by U.S. Commerce Secretary Gina Raimondo to Beijing. The spokesperson urged the U.S. to respect the market principles and the rule of law and to stop interfering in China’s internal affairs.

Russia’s central bank surprised the markets on Tuesday by raising its key interest rate to 12% from 8.5%, in an attempt to stop the free fall of the ruble, which has lost more than 40% of its value against the dollar this year. The decision came after sharp criticism from President Putin’s economic advisor, who blamed the bank’s “loose monetary policy” for fueling inflation and weakening the currency. The advisor argued that the bank should focus on stabilizing the exchange rate rather than supporting economic growth, which has been hit hard by Western sanctions and falling oil prices. However, the bank’s governor had previously defended her policy, saying that the main causes of the ruble’s decline were external factors, such as the shrinking trade surplus and the increased demand for foreign currency by Russian companies. She also warned that a higher interest rate could further damage the already fragile economy, which is expected to contract by 4.5% next year.

The stock market continued to slide in August, as the Fed’s minutes from its last meeting revealed that policymakers were concerned about higher inflation. Some investors took this as a sign that the Fed might tighten its monetary policy sooner than expected, but we note that inflation and wage growth have slowed down since the meeting. Global stocks also suffered from fears about China’s slowing economy. On a positive note, U.S. industrial production increased in July for the first time in three months, thanks to a boost in auto production. This suggests that the economy is starting the third quarter on a strong footing. The 10-year Treasury yield climbed to 4.27%, matching its highest level since last October*.

Trade Wisely,

Doug

Credit Rating Cuts?

Credit Rating Cuts

Despite the better-than-expected retail sales figures the Tuesday market reacted negatively to the slowing China economy and the possible bank ratings cuts that Fitch warned could be on the way.  The VIX made its first higher low in months as sentiment shifted as the SPY, QQQ & IWM dipped below their 50-day moving average at the close.  Today we will continue with the big box retailers with TGT kicking off the notable reports this morning along with Housing, Industrial Production, Oil Status, and the FOMC minutes to inspire.  Expect price volatility watching for the possibility of a relief rally that begins at any time if the data can allow the bears to relax.

Overnight Asian markets closed red across the board reacting to the warning of U.S. banks facing possible credit downgrades from Fitch. However, European markets trade mixed as the U.K. continues to deal with inflation with house prices rising 1.7%.  Ahead of earnings and economic data U.S. futures point flat open as the recent confidence fades to uncertainty.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include ZIM, JD, TGT, TJX, STNE, and CSCO.

News & Technicals’

Tencent, one of the largest technology companies in China, announced its second-quarter earnings on Wednesday, revealing a strong increase in profit but a disappointing revenue growth. The company said that its net profit rose by 29% year-on-year to 42.6 billion yuan ($6.6 billion), beating analysts’ estimates. However, its revenue only grew by 20% to 138.3 billion yuan ($21.4 billion), missing the market expectations of 143.4 billion yuan ($22.2 billion). The mixed results reflect the impact of Tencent’s cost-cutting measures and the challenging economic environment in China amid the pandemic recovery.

Intel, the world’s largest chipmaker, announced on Wednesday that it has called off its deal to acquire Tower Semiconductor, an Israeli company that specializes in contract chip manufacturing. The reason for the termination was the failure to obtain the necessary regulatory approval from various authorities. Intel will pay a break-up fee of $353 million to Tower, as per the terms of the agreement. The deal, which was valued at $5.4 billion, was announced in February 2022 and aimed to boost Intel’s production capacity and diversify its product portfolio. However, the deal faced scrutiny from regulators amid the global chip shortage and geopolitical tensions.

Disney, the entertainment giant, is facing a lawsuit from TSG Entertainment, a film financing company that has backed many of its 20th Century Fox movies. The suit, filed on Tuesday in Los Angeles Superior Court, claims that Disney breached its contract with TSG by withholding profits from the films and diverting them to its streaming platforms, such as Disney+ and Hulu. The suit also accuses Disney of manipulating its accounting and reporting practices to inflate its stock price and reduce its obligations to TSG. TSG alleges that Disney’s actions have harmed its ability to invest in new films and to sell its stakes in existing films, causing it significant losses.

The stock market ended the day with losses on Tuesday, as investors were worried by weak economic data from China and the possibility of U.S. banks facing credit rating cuts by Fitch. These negative factors outweighed the positive news of higher U.S. retail sales and pushed the stocks further down in August. The 10-year Treasury yield also rose again, reaching 4.2%, the highest level in 2023 and close to the peak seen last fall. Oil prices also fell by more than 1.5% due to concerns over China’s economic slowdown. The T2122 indicator fell into the short-term oversold area as the VIX made its first higher low in months raising some concerns.  The bull or bears will be looking for inspiration today in Mortgage Apps, Housing Starts, Industrial Production, Petroleum Status, and FOMC minutes.  Of course, we also have several notable earnings with the theme of big box retailer Target kicking it off this morning.

Trade Wisely,

Doug

Mixed Results

On Friday the producer price data failed to reassure investors concerning the Fed’s next rate move creating a choppy low-volume session that produce mixed results in the index charts.  The struggling Chinese economy with a worsening real estate crisis added to the uncertainty as the tech titans continued to slide south.  With a very light day on both the earnings and economic calendar expect more choppy price action as we wait for the Tuesday Retail Sales figures.  The wide range between the support and resistance levels suggests big point swings are possible so plan your risk carefully.

Asian markets continued moving lower as the real estate giant Country Garden dropped 17% as China’s real estate crisis worsens.  However, European markets trade mixed but mostly higher this morning trying to relieve last week’s selling.  U.S. futures continue the practice of pumping higher in the premarket despite the growing economic uncertainties.   

Economic Calendar

Earnings Calendar

Notable reports for Monday include ALC, HRTX, JKS, & MNDY.

News & Technicals’

The Russian currency is facing a sharp decline as it reached a new low against the U.S. dollar on Monday. The ruble traded at more than 100 per dollar, the weakest level since March 2020, when the coronavirus pandemic and an oil price war triggered a massive sell-off. The ruble has lost about 30% of its value since January, as Russia’s economy suffers from lower oil revenues, Western sanctions, and rising inflation. President Vladimir Putin’s economic advisor, Andrey Belousov, blamed the central bank for the ruble’s woes, saying that its loose monetary policy and high-interest rates have discouraged investment and growth. However, the Bank of Russia has defended its stance, saying that it is necessary to curb inflation and support financial stability. The bank has also attributed the ruble’s depreciation to the shrinking balance of trade, as Russia’s current account surplus fell 85% year-on-year from January to July.

China’s credit and economic activity data for July showed signs of a slowdown in the world’s second-largest economy, as businesses and households faced tighter liquidity conditions and regulatory pressures. The demand for new loans fell sharply in July, as the central bank kept its policy stance unchanged and cracked down on risky lending practices. The total social financing, a broad measure of credit and liquidity in the economy, dropped to 1.06 trillion yuan ($163.5 billion) in July, down 63% from June and well below market expectations. The money supply growth also slowed to a record low of 8.3% year-on-year. On Tuesday, China is expected to release other economic indicators for July, such as industrial production and fixed asset investment, which are forecasted to remain unchanged from June at 8.8% and 12.6% year-on-year, respectively. However, some analysts warn that the actual figures could be lower than expected, as power shortages, floods, and Covid-19 outbreaks have disrupted the economic activity in some regions. Meanwhile, the Chinese property sector, a key driver of growth and demand, is facing increasing challenges as the government tightens its grip on the industry. Over the weekend, one of the largest developers in China, Country Garden, announced that it was suspending trading in at least 10 of its mainland-China traded yuan bonds, citing “abnormal price fluctuations” and “recent market conditions”. The move sparked concerns over the financial health of the company and the sector as a whole, as many developers are struggling with high debt levels and regulatory curbs.

The combination of consumer and producer price data failed to reassure investors about the Fed’s next move creating mixed results on Friday with another choppy low volume session. Record short taking on the 10-year bond continued to pressure the security higher pushing the dollar higher while the VIX oddly declined as uncertainty appears to be on the rise. We begin this week with a very light day on the earnings and economic calendar so don’t be surprised if we see another choppy day of price action as we wait to see the strength of the consumer with Retail Sales figures Tuesday morning.  With speculation so high be careful not to overtrade as big point up or down moves remain likely.

Trade Wisely,

Doug