Rough Day

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Index charts started the day making lower lows as the 10-year bond topped 5% but as it began to ease markets whipsawed higher and whipped again to finish a rough day mostly lower. After the bell today we will begin the tech giant reports with the highly anticipated GOOGL and MSFT results. Expect some wild price action as traders and investors react from this extreme short-term oversold market condition.  Buckle up the earnings over the next ten trading days could determine market direction for the rest of the year.

Asian markets recovered from early losses to close the day with modest gains with only Hong Kong slightly lower.  European markets trade cautiously higher after disappointing results from Barclays while waiting on an important manufacturing report.  U.S. futures push higher this morning as earnings roll out pondering the pending big tech reports after the bell.  Anything is possible so plan your risk carefully.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include ADM, ARCC, ABG, BYD, CNI, CNC, KO, CB, GLW, DHR, DOV, DOW, WIRE, FFIV, FI, FELE, GE, GOOGL, GM, HAL, HA, ITW, IVZ, JBT, KMB, MMM, MSFT, MTDR, NEE, NEP, NUE, ONB, PACR, PACW, PNR, PII, PHM, DGX, RRC, RHI, RTX, SHW, SMPL, SNAP, SPOT, SYF, TECK, TDOC, TXN, TRU, VZ, VICR, V, WM, XRX.

News & Technicals’

Norway’s sovereign wealth fund, the largest in the world, reported a loss of 374 billion Norwegian kroner ($34 billion) in the third quarter of 2021, due to a weaker performance of the stock market. The fund, which is officially called the Government Pension Fund Global, still managed to beat its benchmark index by 0.17 percentage points. The fund’s deputy chief executive, Trond Grande, said in a statement that the third quarter was weaker than the first half of the year when the fund gained 1.4 trillion Norwegian kroner ($126 billion). The fund invests in stocks, bonds, and real estate around the world, and holds about 1.4% of all listed shares globally.

Barclays, the British banking giant, reported a lower-than-expected profit of £1.03 billion for the third quarter of 2021, down from £1.51 billion a year ago. The bank’s CEO, C.S. Venkatakrishnan, said that the bank “continued to manage credit well, remained disciplined on costs, and maintained a strong capital position” despite a “mixed market backdrop.” The bank faced challenges from lower income in its investment banking division and higher provisions for bad loans due to the COVID-19 pandemic. Analysts polled by Reuters had predicted a profit of £1.18 billion for the quarter, which was also lower than the £1.33 billion profit in the second quarter of 2021.

Nvidia and AMD, two of the leading manufacturers of PC chips, are reportedly developing chips that use the Arm-based instruction set, which is different from the x86 instruction set used by Intel’s PC chips. The Arm-based instruction set is more common in smartphones and other mobile devices, as it allows for lower power consumption and longer battery life. According to a Reuters report, Nvidia and AMD are aiming to challenge Intel’s dominance in the PC market by offering more energy-efficient and cost-effective alternatives. The report also said that Nvidia and AMD are working with Microsoft, which has been developing its own Arm-based PC operating system and software.

The indexes had a rough day whipsawing as they eyed the 10-year Treasury yield and pondered the pending and highly anticipated tech giant reports. The yield reached above 5.0% in the morning but retreated to around 4.85% by the end of the day. The sharp rise in government bond yields has caused more fluctuations in both stocks and bonds. Higher yields can also affect the economy and the markets in various ways, such as by raising borrowing costs, lowering stock valuations, and reducing the bond price returns. China’s banking system is also in crisis according to a Bloomberg report as money flees the country adding worries of global economic instability.  Today we have a barrage of earnings events that include the market movers of GOOGL and MSFT after the bell. The economic calendar is light with a PMI composite, Richmond Fed Mfg., and a 2-year bond auction to inspire. Expect considerable price volatility and perhaps a short squeeze IF the data supports a relief rally from this extreme short-term oversold condition.  In fact, the next ten trading days could set the direction for the rest of the year so plan carefully.

Trade Wisely,

Doug

Fourth Consecutive Session

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The bear ran roughshod over the bulls for the fourth consecutive session on Friday erasing October’s gains.  A hawkish Jerome Powell drove bond yields higher and Middle Eastern war worries drove the market sentiment further damaging index chart technicals.  Today, with the 10-year bond topping 5% we have a few notable earnings and a light economic calendar to inspire price movement.  The T2122 indicator is in an extremely oversold condition suggesting a relief could begin at any time unless the bearish data continue to pile on. Plan for substantial price volatility, whipsaws, and maybe even a short-squeeze rally sometime this week.

Overnight Asian market closed red across the board as the China CSI fell to 2019 levels.  European markets also see red across the board as they monitor rising rates and developments in the Middle East. U.S. futures gave up early gains as the 10-year yield topped 5% but as we move toward the open they have also recovered off session lows in a very volatile premarket trade.  Plan for just about anything in this short-term oversold condition.

Economic Calendar

Earnings Calendar

Notable reports for Monday include AGYS, ARE, BRO, CADE, CALX, CLF, CR, MEDP, PKG, SSD, WRB, & WSFS.

News & Technicals’

Chevron, one of the largest oil companies in the world, has announced that it will acquire Hess, a smaller oil company, in a $53 billion deal. The deal will be paid entirely in stock, meaning that Hess shareholders will receive Chevron shares in exchange for their Hess shares. The deal will allow Chevron to expand its presence in Guyana, a South American country that has huge oil reserves. Chevron and Hess are already partners in some oil projects in Guyana, along with Exxon Mobil, another oil giant. The deal will make Chevron and Exxon Mobil the main competitors in two of the most promising oil regions in the world – shale and Guyana. Shale is a type of rock that contains oil and gas and can be extracted using a technique called fracking. Guyana is a new frontier for oil exploration, as it has been discovered to have billions of barrels of oil under its seabed.

Google, the tech giant owned by Alphabet, is facing an antitrust investigation in Japan over its search practices on mobile devices. The Japan Fair Trade Commission (JFTC) announced on Monday that it is looking into whether Google has violated the country’s competition law by making deals with Android smartphone makers to give preference to its apps and services. Google denied any wrongdoing and said that Android is an “open-source platform that has enabled a diversity” of partners and device manufacturers. The JFTC’s probe comes amid growing scrutiny of Google’s dominance in the global digital market.

Philips, a Dutch company that specializes in health technology, has raised its full-year outlook after reporting strong results for the third quarter of 2021. The company said its core profit more than doubled to 457 million euros ($483.3 million), beating analysts’ expectations. The company also saw an 11% increase in comparable sales, reaching 4.5 billion euros. The growth was driven by higher demand for its medical scanners, patient monitoring equipment, and personal health devices, which helped the company cope with the impact of the COVID-19 pandemic. Philips said it expects to deliver a double-digit improvement in adjusted earnings per share and a high single-digit increase in comparable sales for the full year.

The equity markets continued to slide for the fourth consecutive session, erasing the gains made in early October. Investors are nervous about the rising Treasury yields, which reached new highs for this cycle, and the increased geopolitical tensions in the Middle East. Fed Chair Powell delivered a hawkish message saying the inflation is still too high and more rate increases are possible but data dependent. The defensive sectors outperformed, while growth-style investments fell behind. Banks also struggled as Regions Financial warned of further drops in net interest income. Today the bulls and bears will look for inspiration in the earnings reports and of course bond yields that continue to rise this morning. The economic calendar is light for the beginning of this week but market-moving reports are pending at the end of this week. 

Trade Wisely,

Doug

Bond Yields

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Increasing geopolitical concerns engaged the bears on Wednesday as bond yields and rising interest rates reversed Tuesday’s gains.  Mortgage rates topped 8% for the first time since 1995 and unfortunately, the yields continue to rise this morning as we wait on Jerome Powell’s comments at mid-day.  Bulls or bears will have plenty of earnings results and economic data to inspire price volatility with an afternoon filled with bond auctions and Fed speakers to keep traders guessing.  Anything is possible folks so plan your risk carefully.

Asian markets closed sharply lower overnight with Japan reporting a surprise trade surplus and the Bank of Korea holding rates steady.  European markets trade red across the board this morning as the Middle East war hampers sentiment and increases winter energy prices.  Ahead of earnings and possible market-moving economic reports, U.S. futures point to mixed but overall flat open but that could change substantially as the data rolls out. 

Economic Calendar

Earnings Calendar

Notable reports for Thursday include ALK, AAL, T, BMI, BX, CSX, FITB, FCX, GPC, ISRG, KEY, KNX, LNN, MAN, PM, POOL, SNA, TFC, UNP, WDFC, WBS & WNS.

News & Technicals’

Netflix, the streaming platform, reported better-than-expected results for the third quarter, sending its shares up nearly 14% in premarket trading on Wednesday. The company added 8.8 million subscribers in the quarter, the highest number since the peak of the pandemic. The company attributed its strong performance to its diverse and original content, as well as its expansion in international markets. Netflix also said that it expects to add 8.5 million subscribers in the fourth quarter, surpassing the market expectations. Netflix’s results showed that it remains the dominant player in the streaming industry, despite the increasing competition from other platforms.

Tesla, the electric car maker, reported lower-than-expected earnings for the third quarter, as its operating margin declined sharply from a year ago. The company earned 66 cents per share on an adjusted basis, missing the analysts’ estimate of 73 cents per share. The company’s operating margin, which measures how much profit it makes from each dollar of revenue, was 7.6%, down from 17.2% in the same quarter last year. The company said that the lower margin was due to higher costs and lower prices for its vehicles. Tesla CEO Elon Musk said on the earnings call that the company was facing challenges in the global economy and that it was working on making its cars more affordable for more customers. Tesla also said that it delivered a record number of vehicles in the quarter and that it expects to achieve its full-year delivery target of 750,000 vehicles.

TSMC, the world’s leading chipmaker, reported a third-quarter profit of NT$211 billion on Thursday, beating the analysts’ expectations. However, the profit was the lowest since the first quarter of 2019, as the demand for consumer electronics remained weak after the pandemic. The Taiwanese company produces the most advanced processors for various devices, but the post-pandemic recovery has been uneven and slow for the consumer electronics sector. TSMC said that it expects the demand to improve in the fourth quarter, as it ramps up its production capacity and launches new products. TSMC also said that it is confident in its long-term growth prospects, as it invests in new technologies and markets.

The bears attacked the indexes on Wednesday, as bond yields and interest rates surged higher as geopolitical issues weighed on investor’s minds. The energy sector was the only one that did well, as oil prices rose due to supply concerns. The defensive sectors, such as consumer staples, utilities, and health care, also performed better than the cyclical sectors, such as small caps, which suffered more. That said, better-than-expected earnings results from NFLX may help improve investor spirits in the QQQ.  Unfortunately, TSLA’s overnight decline and the bond yields continuing to rise may well mute that bullish bright spot.  Today traders will have to deal with Jobless Claims, Philly Fed MFG, Existing Home Sales, Natural Gas, and a slew of Fed speakers that include Jerome Powell at noon Eastern time.  We also have a busy day of earnings to add to the volatile price action this morning so plan your risk carefully.

Trade Wisely,

Doug

Volatile Tuesday

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Volatile Tuesday

After gapping lower in reaction to hotter-than-expected Retail Sales numbers the bulls rushed back in producing a very whippy and volatile Tuesday as bond yields surged higher with worries about inflation.  After surging higher to test resistance levels index prices softened leaving behind more questions than answers with the declining market breadth. Today we have a very busy day of earnings and economic reports to inspire the bulls or bears.  However, the war in the Middle East and the increasing tensions add a level of caution and uncertainty to the morning as oil prices surge higher.

Asian market closed the day mixed with modest gains and losses despite the better-than-expected economic figures out of China. European markets trade red across the board this morning as they monitor Middle East tensions and worry about inflation as energy prices rise.  U.S. futures suggest a slightly bearish open due to the war tensions, but anything is possible by the open of the day with earnings and economic reports before the bell.  Expect another day of challenging price action.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include ABT, AA, ALLY, ASML, CFG, CCI, DFS, EFX, FNB, FHN, KMI, LRCX, LVS, MTB, MS, NDAQ, NFLX, NTRS, PPG, PG, REXR, SLG, STT, STLD, TSLA, TRV, USB, WGO, ZION.

News & Technicals’

China’s economy grew faster than expected in the third quarter of this year, according to the latest data from China’s National Bureau of Statistics. The data showed that China’s gross domestic product (GDP) increased by 4.9% year-on-year in the July to September period, beating the 4.4% growth forecast by economists. China’s retail sales also exceeded expectations, rising by 4.3% year-on-year in September. China’s urban unemployment rate dropped to 4.7% in September, the lowest level since November 2019. The data indicated that China’s economic recovery from the Covid-19 pandemic was gaining momentum, as domestic consumption and industrial production improved. China was the only major economy to report positive growth in 2020 and is expected to maintain its growth momentum in the fourth quarter of this year.

Roblox, the online gaming platform and game creation system, has announced a change in its work policy that will require its employees to relocate to the office. Roblox CEO David Baszucki said in a memo on Tuesday that the company will adopt a hybrid work model, where employees will have to work from the office on Tuesdays, Wednesdays, and Thursdays, starting from January 2024. Employees who choose not to relocate to the office can opt for a severance package and leave the company. The new policy is a reversal from the previous one, which allowed employees to “primarily work remotely” since May 2022. Baszucki said that the change was necessary to foster collaboration, innovation, and culture at Roblox.

United Airlines, one of the largest U.S. airlines, has warned that its profits will be affected by higher fuel costs and the conflict in the Middle East. The airline said that the price of jet fuel has increased by 50% since the beginning of the year and that the war between Israel and Hamas has reduced the demand for travel to the region. United Airlines and other airlines with large international networks have enjoyed a boost in overseas travel this summer, as more countries reopened their borders and eased travel restrictions. The summer season is usually the most profitable period for airlines, as they generate most of their revenue in the second and third quarters. However, United Airlines said that the rising fuel costs and geopolitical uncertainty will offset some of the gains from the recovery in international travel.

Index prices produced a whippy and volatile Tuesday after gapping lower after the retail sales report came in hotter than expected driving bond yields higher yet finishing the day nearly unchanged. The industrial production also surprised to the upside, growing by 0.3% month-over-month in September, while the forecast was for a 0.1% drop. However, the market was also affected by the weak housing market index, which fell to 40 in October, the lowest level since January. The index showed that the higher interest rates have hurt the demand for housing, and the 2-year bond surging back above 5% yesterday added more pressure. Today, investors face a big day in earnings events as the 4th quarter season heats up with NFLX, and TSLA numbers pending.  We also have Mortgage Apps, Housing Starts, Petroleum Status, and several Fed speakers throughout the day.  With renewed concerns in the Middle East this morning oil prices are surging adding inflation worries to the mix of uncertainties the market faces. 

Trade Wisely,

Doug

Weirdly Bullish Day

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With no major economic news to influence the DIA enjoyed a weirdly bullish day as market breadth declined.  The SPY and QQQ recovered much of Friday’s selloff while continuing to struggle with overhead resistance as those pesky bond yields moved higher.  Today bulls and bears will have plenty of data to find inspiration with Retail Sales and industrial Production numbers, with several potential market-moving earnings that include BAC and GS. Be prepared for volatile prices with consensus estimates suggesting a decline in the retail figures.

Overnight Asian markets enjoyed a strong bullish session as China and Australia broke a three-day losing streak.  However, European markets trade mixed and mostly lower this morning taking a cautious approach to earnings and economic data with Middle East tensions keeping investors on edge.  U.S. futures indicate a slightly bearish open ahead of busy morning earnings and economic numbers that may provide clues to the strength of the consumer.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include ACI, BAC, BK, FULT, JNJ, GS, HWC, IBKR, JBHT, LMT, PNFP, PLD, UAL, and WTFC.

News & Technicals’

Country Garden, the largest property developer in China, is facing a possible default if it does not pay a $15 million interest on its offshore bond on Tuesday. The company, which has been struggling with high debt and slowing sales, warned last week that it might not be able to meet all of its offshore obligations. The company also said that it was seeking a waiver from its creditors and that it was facing uncertainty in its liquidity and asset sales. The potential default of Country Garden has raised concerns about the financial stability of the Chinese property sector, which has been under pressure from the government’s regulatory tightening and the pandemic.

The global inflation crisis has prompted central banks around the world to raise interest rates sharply in the last year and a half, but the results have been mixed so far. Some countries have managed to tame inflation, while others have seen it persist or worsen. Now, many economists and central bankers agree that interest rates will remain high for a longer time, as inflation pressures are not likely to ease soon. This means that both businesses and central banks will face more challenges in investing and managing their finances. World Bank President Ajay Banga said that higher rates will make the investment landscape more complex and uncertain for everyone.

Apple CEO Tim Cook made a surprise visit to China, where he attended an event for gamers and praised their enthusiasm. The visit showed the importance of the Chinese market for Apple, which is facing some challenges in selling its latest iPhone model. The iPhone 15, which was launched less than a month ago, has received a tepid response from Chinese consumers. According to Counterpoint Research, the sales of the iPhone 15 series in China in the first 17 days were 4.5% lower than the sales of the iPhone 14 series in the same period.

The DIA had a weirdly bullish day, with no major economic news to influence it with the SPY and QQQ recovering Friday’s selling though still struggling with overhead resistance levels. Bond yields also went up, with the 10-year Treasury yield ending around 4.7% and they continue higher this morning. Commodities such as gold, silver, and oil prices eased slightly after Friday’s spike that seemed to be run to safety.  Today we ramp up earnings events with around a dozen notable reports that include BAC and GS that could inspire some premarket volatility while we wail on Retail Sales and Industrial Production figures.  With the consumer showing significant signs of stress the retail number today could be substantially market-moving so be prepared for just about anything at the open.

Trade Wisely,

Doug

Big Bank Earnings

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Big Bank Earnings

Friday’s big bank earnings failed to inspire the bulls as Middle Eastern uncertainty, declining consumer sentiment, and rising oil and bond yields worried investors headed into the weekend.  All last week we dealt with a premarket pump that whipsawed by the end of today and it looks as if the same game plan has started for Monday.  Today we have Empire State figures, bond auctions, and Fed speeches with a couple of notable earnings reports for the bulls or bears to find inspiration.  However, with about 98% of companies within their blackout period don’t be surprised if we whipsaw on anemic volume.

Overnight Asian markets closed red across the board with the Nikkei leading the selling down 2.03% waiting on Key economic data this week.  European markets have recovered from early losses to show modest gains at the time of writing this report despite the Middle East war worries.  However, U.S. futures point to a bullish gap up open with high hopes on 4th quarter earnings results.

Economic Calendar

Earnings Calendar

Notable reports for Monday include SCHW and ELS.

News & Technicals’

Pfizer, the pharmaceutical giant that produces a Covid treatment and vaccine, lowered its earnings and revenue outlook for the year on Friday. The company’s shares fell in after-hours trading. The company said that the demand for its Covid products has declined, as the Covid booster rollout has faced challenges and the Covid cases have become less severe for many people who have been vaccinated or infected before. Pfizer also said that it expects more competition from other Covid treatments and vaccines in the future.

Rite Aid, a drugstore chain that operates in the U.S., has filed for bankruptcy protection under Chapter 11 in New Jersey. The company has also named Jeffrey Stein as its new CEO, who will lead the company’s restructuring plan. Rite Aid has been struggling with declining sales, high debt, and legal troubles related to the opioid crisis. Rite Aid faces fierce competition from its rivals, such as CVS and Walgreens, which have expanded their healthcare services to cope with the challenges in their retail businesses.

The conflict between Israel and Hamas has escalated into a deadly humanitarian crisis. Hamas, a militant group that controls Gaza, launched a surprise attack on Israel last week, firing hundreds of rockets and killing more than 1,400 people, mostly civilians. Israel responded with a massive air campaign that has killed at least 2,670 people in Gaza, mostly militants. Israel also cut off the supply of food, water, fuel, and electricity to Gaza, and warned the residents of northern Gaza to flee before launching a ground invasion to destroy Hamas. The international community has called for an immediate ceasefire and a peaceful resolution of the conflict.

The market ended the day with losses on Friday, despite the big bank earnings reports from several U.S. banks. but the rising oil prices, bond yields, and uncertainty of the war in the Middle East kept the bears engaged. The weak consumer sentiment report from Michigan also worried investors about the strength of the pending 4th quarter reports. Today we have a light earnings and economic calendar but once again the premarket pump we experienced all last week is underway despite weakness in Asia and Europe.  Watch for whipsaws with about 98% of all companies within their blackout period momentum could be lacking as we test overhead resistance levels.

Trade Wisely,

Doug

Inflation Data

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inflation data

After a strong bull run on Tuesday, the pending inflation data brought in some profit-takers making for a choppy afternoon session.  Bond yields on the long end of the curve continue to weaken and the better-than-expected results out of PepsiCo gave the bulls an extra dose of optimism.  This morning’s trades will have Mortgage Apps and a PPI report before the bell so plan to opening gap up or down depending on the data.  After that Fed Speakers and bond auctions until the afternoon release of the FOMC minutes that usually provides a shot of volatility.  Plan for just about anything today and remember the uncertainty continues into Thursday with the pending CPI report.

During the night Asia markets closed bullish with the KOSPI leading the way up 1.98%.  However, European markets are taking a cautious approach ahead of inflation data trading mixed with modest gains and losses this morning.  U.S. futures on the other hand are putting on a brave face pushing for a bullish open ahead of the market-moving data as bond yields on the long end of the curve continue to decline.  Buckle up because what happens next is anyone’s guess.

Economic Calendar

Earnings Calendar

There are no notable earnings for Wednesday.

News & Technicals’

The conflict between Israel and Hamas has not caused much reaction in the global markets, as they have only seen a slight rally. However, some experts warn that the markets have not fully accounted for the risks that the conflict poses. Bob Savage, the head of markets strategy and insights at BNY Mellon, said that Israel has enough budget and GDP to withstand a “long conflict” that could last more than eight weeks. He also said that the conflict could lead to higher inflation risks, as it could increase oil prices and defense spending. Savage advised the markets to be more cautious and vigilant about these risks.

The recovery of China’s consumption growth from the pandemic is expected to be slow and gradual, according to analysts from UBS and HSBC. Christine Peng, head of the Greater China consumer sector at UBS, said that the current consumption growth is still far below the pre-pandemic level and that it will take until the end of 2024 to reach 5% or 6%. She also said that there is “no way” that retail sales can return to 9% in the near future, as consumer confidence is low. HSBC reported that Chinese luxury spending, both domestically and overseas, in September was about 80% of what it was in 2019, which is a slight improvement from the 70% to 75% recovery seen in August. The data for overseas luxury spending was based on Global Blue, a company that provides duty-free shopping services.

General Motors has reached a tentative deal with its Canadian autoworkers, who had launched a national strike on Tuesday at GM’s four Canadian plants. The strike was initiated by Unifor, the union that represents nearly 4,300 GM workers in Canada. Unifor President Lana Payne said that the strike forced GM to “get serious at the table and agree to the pattern”, which is a set of terms that the union has negotiated with other automakers. The details of the agreement have not been disclosed yet, but Payne said that it includes “significant investments” in GM’s Canadian operations. The agreement still needs to be ratified by the union members.

The market ended the day with gains, though profit takers made for a choppy afternoon session with the uncertainty of the pending inflation data.  PepsiCo delivered better-than-expected results for the third quarter, beating the estimates for both earnings and revenues. The market is also pondering the uncertainty of the earnings reports from several major banks on Friday. The market performance was diverse, with both defensive sectors, such as consumer staples and utilities, and cyclical sectors, like materials and consumer discretionary, among the top performers.  As for today, bulls and Bears will be looking for inspiration in the Mortgage Apps, PPI, Fed Speakers, Bond Yields, and the afternoon release of the FOMC minutes.  Plan for an opening gap that could go either way depending on the reaction to the data.

Trade Wisely,

Doug

Stocks Recovered

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Equities had a rough start on Monday but stocks recovered as the investors shook off the Middle East war and spiking oil prices in favor of continuing the relief rally that began last Friday.  The tech giants enjoyed the majority of bullishness as the QQQ remains the strongest of the indexes while the IWM continues to lag significantly behind.  Today, we have another light day of earnings and economic reports as we wait for the September PPI and FOMC minutes on Wednesday.  Consider your risk carefully as big-point moves, gaps, and reversals are possible.

Asian markets closed mixed but mostly higher with the Nikkei leading the buying up 2.43% and Shanghai modestly lower after Country Garden warned of the likelihood of more missed payments.  European markets appear blissfully unconcerned about the Middle East conflict this morning decidedly bullish across the board.  U.S. Futures seek to continue the relief rally suggesting a bullish open as bond yields decline with pending inflation data on the horizon.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include AZZ, NEOG & PEP.

News & Technicals’

According to the World Economic Outlook report by the International Monetary Fund, the U.S. economy is expected to grow faster than the eurozone economy this year. The IMF increased its U.S. growth forecast by 0.3 percentage points to 2.1%, while it decreased its euro zone forecast by 0.2 percentage points to 0.7%. The report says that the U.S. has benefited from stronger business investment and resilient consumption, while the eurozone economies have faced challenges from higher interest rates and diverging performance. The IMF also maintained its global growth forecast of 3% for the year.

The future of generative artificial intelligence, a type of AI that can create new content such as images, text, or music, may not be as bright as some expect. A report by CCS Insight, an analyst firm, predicts that generative AI will face a “cold shower” in 2024, as the costs of running the technology will increase and the hype will fade. The report also says that smaller developers of generative AI will struggle to compete with larger players, as the technology becomes “too expensive” to operate. On the other hand, the report also forecasts that the regulation of AI in the European Union will be delayed, as the technology advances faster than the policymakers can keep up.

Country Garden, a leading property developer in China, has defaulted on a debt payment of 470 million Hong Kong dollars ($60 million). The company said that it was unable to repay the debt due to “unforeseen circumstances” and that it was seeking a waiver from its creditors. The company also warned that it faced uncertainty in its liquidity position and asset sales in the short and medium term, as the property market in China has been hit by regulatory tightening and slowing demand. The default has raised concerns about the financial health of Country Garden and other Chinese developers, who have accumulated high levels of debt in recent years.

U.S. stocks recovered from a negative start on Monday, as they shrugged off the impact of the Hamas attacks in Israel and ended the day with gains despite the declining market breath with the uncertainty ahead. Energy was the best performer, boosted by the increase in oil prices. Other sectors that did well were industrials, real estate, communication services, and utilities. Gold prices also went up 1%, partly due to the inflationary effect of higher energy prices and partly due to the demand for a safe-haven asset amid the conflict in Israel. Finding inspiration may be challenging today with little more than Fed speakers and bond auctions on the economic calendar.  Earnings events are also light on numbers but a least there are a couple of notable reports for the bulls or bears to some energy.   However, expect anemic volume as we wait on the key September inflation reports expected to be a major driver in the coming days.

Trade Wisely,

Doug

Strong Jobs Report

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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. 

Trade Wisely,

Doug

Sputtering Relief Rally

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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.

Trade Wisely,

Doug