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

Bond Yields

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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. 

Trade Wisely,

Doug

Mixed Start

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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.

Trade Wisely,

Doug

Indexes Whipsawed

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The Indexes whipsawed on Friday began with a bit of bullish hope on the better-than-expected Core PCE reading but that hope quickly faded on a failed vote budget vote in the house.  However, with 3 hours to spare Congress passed a 45-day extension kicking the problem down the road to provide the market with more uncertainty during the 4th quarter earnings season.  Today we have PMI, ISM, and Construction Spending figures to inspire the bulls and bears.  Plan for price action to remain challenging with a big week of job numbers while waiting for the big bank reports to kick off 4th quarter earnings silly season. 

Asian markets trade mixed after China reported an improvement in factory activity surging Hong Kong higher by 2.51%.  However, eurozone manufacturing continued to decline bringing in modest selling across European indexes to begin the week.  With U.S. manufacturing numbers pending U.S. futures work to recover some early loss as they chop around the flatline while relieved over no government shutdown, at least for now.

Economic Calendar

Earnings Calendar

There are no notable earnings reports to begin the first trading day of the 4th quarter.

News & Technicals’

Bill Ackman, the billionaire investor and founder of Pershing Square Capital Management, has expressed his interest in doing a deal with X, the social media platform formerly known as Twitter. Ackman’s new investment vehicle called a SPARC, or special purpose acquisition rights company, received approval from the Securities and Exchange Commission (SEC) on Friday. A SPARC is a type of blank-check company that allows investors to buy shares in a future merger or acquisition deal, without knowing the target company in advance. Ackman told The Wall Street Journal that he would “absolutely” do a deal with X if the opportunity arises. Ackman is an active user of X, where he posts about various topics, such as his support for the presidential candidates Vivek Ramaswamy and Robert Francis Kennedy Jr. Ramaswamy is a former biotech executive and author of the book Woke, Inc., while Kennedy is an environmental lawyer and activist. Ackman said he admires both candidates for their courage and integrity.

China, the world’s largest consumer of many commodities, has been showing a strong appetite for various raw materials, despite the slowdown in its overall economic growth. Goldman Sachs, a global investment bank, said in a recent note that China’s demand for commodities such as iron ore, copper, aluminum, oil, and gas has been growing at “robust rates” in the past few months. The bank attributed this to several factors, such as the recovery of industrial activity, the expansion of infrastructure spending, the resilience of the property sector, and the diversification of energy sources. The bank also said that China’s demand for commodities is likely to remain high in the near term, as the country faces supply constraints and environmental challenges. However, the bank also warned that China’s demand for commodities could moderate in the longer term, as the country shifts to a more consumption-driven and low-carbon economy.

The World Bank, an international financial institution that provides loans and grants to developing countries, has lowered its growth forecast for developing East Asia and the Pacific for this year and the next. The region, which includes countries such as China, Indonesia, Thailand, and Vietnam, is expected to grow by 5% in 2023, down from the previous estimate of 5.1%. The growth projection for 2024 has also been revised down from 4.8% to 4.5%. The World Bank said that the region’s growth prospects are facing several risks, such as the uncertainty of the pandemic, the uneven recovery of global trade and investment, and the rising debt levels of governments, corporations, and households. The World Bank urged the countries in the region to adopt prudent fiscal and monetary policies, strengthen their health systems and social protection, and promote green and inclusive growth.

Equity markets began Friday with a nice gap up reacting to the Core PCE numbers but, after a failed vote to prevent a government shutdown indexs whipsawed finishing the day lower with uncertainty. The S&P 500 lost about 4.8% in September and about 6.4% since its peak on July 31. The Nasdaq suffered more losses, falling by 5.5% in September and by 7.5% since July 31. The bond market was stable on Friday, with the 10-year Treasury yield at 4.58%, close to its highest level in the cycle. The bond yields have risen sharply in September, by nearly 0.5% for the 10-year bond, affecting both stock and bond returns. Today traders have PMI, ISM, and Construction Spending along with some short-term bond auctions to deal with as we kick off the first trading day of the 4th quarter.  A relief rally is overdue but expect the price action to remain challenging as we wait for the beginning of the earnings session.  Though the government avoided a shutting down we will be dealing with this uncertainty again having kicked the can down the road for 45 days.  Price action is likely to remain challenging so pan your risk carefully.

Trade Wisely,

Doug

Little Change

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Little Change

After a very volatile day of price action, indexes closed little change after the Senate passed a temporary spending bill to keep the government open but that is likely dead on arrival in the House wanting to curb the deficit spending. With the worries of a shutdown weighing on investors’ minds, they will have to deal with a GDP, Jobless Claims, a flurry of Fed Speakers that include Jerome Powell as well as a handful of notable earnings reports.  The focus will then quickly turn to the Friday Core PCE inflation numbers.  Though a relief rally could begin at any time it may prove to be anemic in light of the government shutdown worries.  Expect the challenging price action to continue.

Overnight Asian markets closed mixed but mostly lower as rising oil and bond yields and more real estate woes plagued China.  European markets have recovered slightly from early lows training around the flatline as leisure stocks suffer from consumer weakness.   Ahead of market-moving economic reports, U.S. Futures are trying to put on a positive face despite all the uncertainties ahead.  Buckle up it is likely to be another volatile day.

Economic Calendar

Earnings Calendar

Notable reports for Thursday include CAN, BB, KMX, JBL, NKE, and MTN.

News & Technicals’

Oil prices reached their highest level in more than a year, as the supply of crude oil in a major storage hub decreased to its lowest level since last summer. The U.S. West Texas Intermediate (WTI) futures, which are the benchmark for U.S. oil prices, rose to $95.03 per barrel during the Asian trading hours, the highest since August 2020. This was driven by the decline in crude oil inventories at Cushing, Oklahoma, which is the delivery point for WTI futures and the largest storage hub in the U.S. According to the latest data from the Energy Information Administration (EIA), the crude oil stocks at Cushing fell by 3.6 million barrels to 34.8 million barrels in the week ending September 17, the lowest since July 2020. The drop in Cushing stocks reflects the strong demand for crude oil in the U.S., as well as the impact of Hurricane Ida, which disrupted the production and transportation of oil in the Gulf of Mexico. The surge in oil prices also reflects the global recovery in oil demand, as well as the ongoing supply constraints from OPEC+ and other producers.

The labor dispute between the United Auto Workers (UAW) union and the three major U.S. automakers, General Motors, Ford Motor, and Stellantis, is escalating as the union threatens to expand its strikes if the negotiations do not make significant progress by Friday morning. The UAW, which represents about 146,000 workers at the three companies, has been on strike since Sept. 15, after the expiration of their labor contracts on Sept. 14. The strikes currently affect about 18,300 workers, or 12.5% of the UAW members, at several plants across the country. The main issues in the negotiations are wages, health care, job security, and electric vehicle production. The UAW announced last week that it would increase its strikes to more plants if the talks did not advance by Sept. 22. However, as of Tuesday, no breakthroughs have been reported, and the union has set a new deadline of 10 a.m. ET on Sept. 24. If the deadline is not met, the UAW said it will announce more strikes at more plants, potentially disrupting the production and sales of the automakers.

Evergrande, the Chinese property giant that is facing a debt crisis, has suspended its shares from trading on the Hong Kong stock exchange since Sept. 16. This is not the first time that the company has halted its shares from trading. In March 2020, Evergrande also suspended its shares, citing a major restructuring plan. The shares did not resume trading until Aug. 28, 2021, after a 17-month hiatus. However, the company’s troubles did not end there. Earlier this month, Evergrande postponed a meeting with its creditors, where it was supposed to discuss a debt restructuring plan. The company has about $300 billion of debt and has been struggling to pay its suppliers, contractors and investors. The situation has sparked fears of a possible default and contagion in the Chinese and global markets.

The stock market ended a very volatile day with little change, waiting on market-moving economic data and the worries of a government shutdown. The Senate approved a temporary funding bill to prevent a government shutdown, but it looks like it will be dead on arrival at the House of Representatives, which is attempting to curtail the massive deficit spending. Yields also rose, with the 2-year Treasury yield reaching over 5.1% and the 10-year yield closing around 4.6% as the dollar continued to surge higher with the oil sector. Today the bulls and bears will look for inspiration in the GDP, Jobless Claims, and a handful of notable consumer-based earnings. We will also have a flurry of Fed members speaking including Jerome Powell as we wait on Friday’s Core PCE inflation figures.  We are overdue for a relief rally but keep in mind if it should begin it could be muted by government shutdown worries.

Trade Wisely,

Doug

Dropped Sharply

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Equity markets dropped sharply on Tuesday with investors worried about higher rates with data indicating the consumer is wreaking adding to the bearish sentiment.  The Costco report after the bell would seem to support the notion of a struggling consumer despite their top line beat of estimates.  Today investors will have to deal Mortgage Apps, Durable Goods, and Petroleum numbers as well as a handful of notable reports to find directional inspiration.  We are overdue for a relief rally but keep in mind if it does begin it could rather be muted with a possible government shutdown possible at midnight Friday.  Expect the challenging price action to continue if the possibility persists.

Overnight Asian markets reversed early bearishness finding some relief in some industrial data and Australian inflation modest improvement to close mostly higher overnight.  However, European markets remain muted and mostly lower this morning as consumer data cause continued sentiment concerns.  U.S futures on the other hand are trying to put on a brave face an inspire a bit of a relief rally ahead of potential market-moving earning and economic reports with a looming government shutdown weighing on investor’s minds.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include CNXC, FUL, JEF, MU, PAYX, & WOR.

News & Technicals’

The U.S. is facing a potential government shutdown if Congress fails to pass a spending bill by Oct. 1, the start of the new fiscal year. This would mean that many federal agencies and programs would have to stop or reduce their operations, affecting millions of Americans and the economy. This is not the first time that the U.S. has faced such a situation, as political disagreements over the budget and the debt ceiling have often led to impasses in the past. In fact, in 2011, after a prolonged standoff over raising the debt limit, S&P downgraded the U.S. long-term credit rating from AAA, the highest possible rating, to AA+, indicating a slightly higher risk of default. The downgrade was a historic and unprecedented move that reflected the growing political polarization in Washington.

Costco, the wholesale retailer, reported its quarterly earnings on Tuesday, beating the analysts’ expectations. The company earned $1.25 per share, higher than the estimated $1.17 per share. The revenue was $44.77 billion, also higher than the expected $43.99 billion. However, the company’s comparable sales, which measure the sales growth at stores open for at least a year, were not very impressive. The comparable sales increased by 1.1% globally, but only by 0.2% in the U.S., which is Costco’s largest market. The company attributed this to the strong performance of its grocery business, which offset the weaker demand for discretionary items, such as clothing, jewelry, and furniture. Costco also faced higher costs due to the pandemic, such as wages, sanitation, and e-commerce investments.

Indonesia, the largest e-commerce market in Southeast Asia, is planning to tighten its regulations on online shopping, especially on social media platforms. The country’s Ministry of Trade said on Tuesday that it is working on a new rule that would ban transactions on social media, such as Facebook, Instagram and TikTok. The ministry said that social media platforms are not registered as e-commerce businesses and do not comply with the existing laws and standards. The move is aimed at protecting local consumers and sellers, especially the micro, small, and medium-scale enterprises (MSMEs), which have been affected by the influx of foreign goods sold through social media. President Joko Widodo said that the MSMEs have seen their sales start to decline due to the unfair competition from foreign products. The new regulation is expected to benefit the traditional e-commerce players in Indonesia, such as Sea Ltd., which operates Shopee, one of the leading online shopping platforms in the region. Citi, a global bank, said that the regulation would reduce the competitive pressure from TikTok, which has been expanding its e-commerce presence in Indonesia.

The stock market dropped sharply on Tuesday, reversing the gains from Monday, as investors were worried about the Fed’s plan to keep interest rates high for a longer period. The Fed’s decision was based on its assessment of the inflation and labor market conditions. The sectors that suffer the most today are the ones that depend on consumer spending and innovation, such as consumer discretionary and technology. The only sectors that performed better were the ones that provided essential goods and services, such as health care and consumer staples. The energy sector also benefited from the rising oil prices. The global markets also followed a downward trend. Today we have a few notable earnings reports as well as Mortgage Apps, Durable Goods, and Petroleum numbers for the bulls or bears to find inspiration.  The indexes remain in an extreme short-term oversold condition so be prepared for a relief rally to begin at any time assuming the data does not pile on to the bearishness.  Also, keep in mind any relief rally could be muted due to the uncertainty of a possible government shutdown on Oct. 1st.

Trade Wisely,

Doug

Lacked Momentum

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After a bearish start to the day, the bulls worked to begin a relief rally that lacked momentum as investors moved cautiously in this final trading week of September.  The rising bond yields contributed to the uncertainty with the 10-year bonds topping a sixteen-year high.  Today we face more possible market-morning economic reports and a few more notable earnings to inspire the bulls or bears.  Expect the challenging price action to continue and watch and be prepared for some big point whips or reversals and pent-up waiting for an opportunity.

Asian markets closed their Tuesday session red across the board as real estate woes continue with inflation data on the horizon. European markets also trade cautiously bearish this morning with German manufacturing continuing to decline under the economic pressures.  U.S. futures point to a bearish open ahead of earnings and economic data possibly reversing yesterday’s tepid bullishness.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include AIR, CTAS, COST, FERG, MLKN, SNX, PRGS, & UNFI.

News & Technicals’

The global economy is facing a serious threat from the escalating tensions in Eastern Europe. The war in Ukraine, which started in 2014, has not only caused human suffering and political instability but also strained the relationships between the economic superpowers, such as the US, China, Russia, and the EU. The conflict has also increased the risk of sanctions, trade wars, cyberattacks, and military confrontations. Jamie Dimon, the CEO of JPMorgan Chase, suggested that Eastern Europe was the epicenter of risk, and compared the situation to the aftermath of World War II. He said that the world had not faced such a complex and uncertain scenario before, and warned that it could trigger inflation, deficits, and recessions

Ukraine is facing a challenging situation as it tries to maintain its international support in its conflict with Russia. The war, which has been going on since 2014, has caused thousands of deaths, millions of displacements, and widespread damage. Ukraine relies on its allies, especially the US and the EU, for political, economic, and military assistance. However, some recent diplomatic gaffes, such as the leaked phone call between President Zelensky and President Biden, have raised doubts about the strength of their partnership. Moreover, public opinion in both Europe and the US has shown a decline in support for Ukraine’s cause, especially when it comes to providing more funding and weapons. Some analysts fear that Russia could take advantage of this situation and try to undermine Ukraine’s alliances and increase its aggression.

The artificial intelligence (AI) chip market is heating up as more startups compete with established players like Nvidia and Arm. One of them is Kneron, a U.S.-based semiconductor company that specializes in edge AI solutions. Edge AI refers to the processing of AI tasks on devices such as smartphones, cameras, and robots, rather than on cloud servers. Kneron announced on Tuesday that it raised an additional $49 million in its funding round, bringing its total funding to over $100 million. The round was led by Taiwanese giant Foxconn, the world’s largest electronics contract manufacturer and a key supplier of Apple’s iPhones. Other investors included Alltek, a communications tech company, and several venture capital firms. Kneron said it will use the funds to accelerate the commercialization of its AI chips, which are designed to enable low-power and high-performance edge AI applications across various industries.

After the DIA tested and held its 200-day moving average the bulls worked to provide a little relief rally on Monday but lacked momentum with inflation data looming later this week. The ongoing increase in U.S. Treasury yields, which have reached their highest level for the year, surpassing 4.5% for the 10-year bond added to Monday’s uncertainty. The U.S. dollar, which tends to appreciate when investors seek safety, has also risen sharply. The DXY dollar index is above 105, its highest level for the year, creating some headwinds for global companies and markets.  Today we have a few more notable earnings reports that could provide some inspiration for the bulls or bears and may also give us a glimpse into the 4th quarter as well as hints to the strength of the consumer.  Investors will have to also deal with Case Shiller, FHFA House Prices, Consumer Confidence, New Home Sales, a 2-year bond auction as well as more Fed member pontifications.  Plan carefully as Asian and European bearishness tries to reverse yesterday’s relief all at once at the open.

Trade Wisely,

Doug

Uncertainty

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Although many were likely hoping to see a bounce on Friday the uncertainty of the hawkish FOMC and the pending inflation data later this week left behind more questions than answers.  As the Dow hovers near its 200-day average, we can’t rule out the possibility of more bearish pressure this morning.  However, with the short-term oversold condition of the index charts, there is also some hope of a cautious relief rally as we wait on Retail Sales, GDP, and the critical Core PCE numbers.  Will it prove bullish or bearish, that is the big question for the week.  So plan carefully with the path forward so clouded in uncertainty. 

Asian markets began the week mixed waiting on inflation data as interest rates and oil prices worry investors.  European market trade red across the board Monday morning as inflation data looms.  U.S. futures point modestly lower in the premarket as investors try to assess what comes next in the economic data while worries of a government shutdown grow.

Economic Calendar

Earnings Calendar

Notable reports for Monday include THO.

News & Technicals’

Evergrande, the Chinese property giant that is on the brink of default, saw its shares plunge to a record low on Monday. The company announced that it would postpone a crucial meeting with its creditors, which was scheduled for Monday, to discuss a debt restructuring plan. The company also said that it was unable to issue new notes under the plan, due to an investigation into its subsidiary Hengda Real Estate. The news raised doubts about the company’s ability to repay its massive debt of over $300 billion, which could have serious consequences for the Chinese and global economy. Evergrande’s shares fell to 41 Hong Kong cents on Monday, down 11.8% from Friday’s close, and 94% lower than a year ago.

The U.S. government is facing the risk of a shutdown on Oct. 1, as Congress remains deadlocked on the federal budget. The main reason for the impasse is the opposition from some House Republicans, who demand more spending cuts as a condition for approving a short-term bill that would fund the government through Oct. 31. The bill, which also includes a suspension of the debt limit, has been delayed by the House GOP leadership, who are struggling to unify their caucus. Senate Majority Whip Dick Durbin said he was at a loss over the situation, and urged the House to act quickly. A government shutdown would affect millions of federal workers, military service members, and beneficiaries of federal programs. It would also disrupt the operations of national parks, museums, airports, and other public services. A shutdown would also cost the U.S. economy billions of dollars in lost revenues and fees. The U.S. is also facing another fiscal crisis, as it could default on its debt obligations by mid-October if Congress does not raise or suspend the debt limit. A default could trigger a financial crisis and damage the U.S. credit rating. The U.S. is facing a costly and calamitous crisis if Congress fails to act soon.

The ongoing strike by Hollywood writers has disrupted the production of many movies and TV shows. The writers, represented by the Writers Guild of America (WGA), are demanding better pay and working conditions from the major studios, such as Disney, Paramount, Universal, and Warner Bros. Discovery. The strike began in early May after the previous contract expired and the negotiations failed. The WGA and the Alliance of Motion Picture and Television Producers (AMPTP), which represents the studios, resumed talks last week, hoping to reach a new agreement soon. However, the final contract language is still being drafted, and the strike continues.

Equities chopped in a narrow range on Friday trying to come to terms with a still hawkish FOMC and the uncertainty of pending inflation data later this week.  If that were not enough we also have the possible government shutdown at midnight on September 30th if an agreement is not reached soon in Congress. Index charts have suffered significant technical damage with the Dow nearing its 200-day average and the small caps already below that key level of support.  That said, the indexes are also in a short-term oversold condition so a cautious relief rally could begin at any time as we wait on Retail Sales, GDP, and Core PCE figures later this week.  However, if the bears find inspiration in the pending data a panicked and punishing selloff is not out of the question.  Plan your risk carefully my friends.

Trade Wisely,

Doug

Hawkish Federal Reserve

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Despite all the talking head predictions the hawkish Federal Reserve reversed early bullish producing a nasty whipsaw that unfortunately left behind some technical damage in the index charts.  This morning we have more data to inspire the bulls or bears with Jobless Claims, Philly Fed, and Current Account figures before the bell.  However, there is little on earnings for the rest of the week.  Watch for potential bounces near support levels and plan for the price volatility to continue with so many companies in their blackout period as we wait on the 4th quarter earnings results.

While we slept Asian markets traded lower across the board in reaction to the FOMC decision.  European markets trade decidedly bearish this morning falling into negative territory amid central bank actions.  After a bearish reversal on the hawkish Fed, U.S. futures point to a substantial gap down open with several pending economic reports that could quickly make it better or worse by the open. 

Economic Calendar

Earnings Calendar

Notable reports for Thursday include DRI & FDS.

News & Technicals’

The Writers Guild of America (WGA) strike, which has lasted for more than two months and disrupted the production and release of many TV shows and movies, may be nearing its end. According to sources close to the negotiations, the writers and the producers are close to reaching an agreement after meeting face-to-face on Wednesday. The two sides hope to finalize a deal on Thursday, which would end the strike and allow the writers to resume their work. However, the sources also cautioned that if a deal is not reached, the strike could last through the end of the year, causing more losses and delays for the entertainment industry. On Wednesday evening, the WGA and the AMPTP released a joint statement that they met for bargaining and would meet again on Thursday. The statement did not provide any details or specifics about the progress or outcome of the meeting. However, sources said that both sides were willing to compromise and make concessions on some of the key issues. They also said that both sides were hopeful that they could reach a mutually beneficial agreement that would end the strike and restore normalcy to the industry.

The UAW strike, which has affected the U.S. auto industry for more than two months, has caused more layoffs and disruptions for the workers and the companies. GM, one of the largest automakers in the U.S., said it idled an assembly plant in Kansas because of a shortage of parts due to the strike. About 2,000 of its workers were laid off on Wednesday, adding to the tens of thousands of workers who have been affected by the strike. GM also said that because of the strike, the workers laid off on Wednesday will not be eligible for the supplemental unemployment benefits it normally pays, which could hurt their income and well-being. Stellantis, another major automaker, also laid off about 370 workers at three parts factories that supply its Jeep plant in Toledo, where the UAW went on strike last week. The Jeep plant employs about 3,000 workers, who are demanding better wages and working conditions from Stellantis. The layoffs and disruptions at GM and Stellantis show the ripple effects of the UAW strike, which has reduced the production and supply of vehicles in the U.S. market. The strike has also increased the costs and losses for both the workers and the companies, as they lose their revenues and fees. The strike has also affected consumers, who have fewer choices and options in buying new cars. The UAW strike is one of the longest and largest labor disputes in the U.S. auto industry in recent history, and it remains unresolved despite ongoing negotiations between the union and the producers.

Poland, one of Ukraine’s closest allies in its conflict with Russia, has announced that it will stop supplying weapons to Ukraine, as a trade dispute escalates. Poland has been supporting Ukraine since Russia invaded and annexed Crimea in February 2022, and backed the separatist rebels in eastern Ukraine. Poland has donated weapons, tanks, fighter jets and military training to Ukraine’s armed forces, as well as providing diplomatic and humanitarian aid. However, a recent dispute over Ukraine’s agricultural exports has threatened to break the alliance. Ukraine has accused Poland of imposing unfair and discriminatory tariffs and quotas on its agricultural products, such as wheat, corn, and sunflower oil. Ukraine has said that these measures violate the free trade agreement between the two countries, and have caused significant losses for its farmers and exporters. Poland has defended its actions, saying that they are necessary to protect its domestic market and consumers from cheap and low-quality Ukrainian products. Poland has also accused Ukraine of failing to comply with the sanitary and phytosanitary standards required by the European Union, of which Poland is a member. As a result of the trade dispute, Poland has decided to suspend its weapons deliveries to Ukraine, which could weaken Ukraine’s defense capabilities and security situation. The decision has sparked criticism and concern from other European countries and the United States, which have urged Poland and Ukraine to resolve their differences peacefully and constructively. They have also warned that the dispute could benefit Russia, which has been trying to undermine and isolate Ukraine from its Western partners.

Markets began the day with high bullish hopes but the hawkish Federal Reserve meeting on Wednesday engaged the bears creating a nasty whipsaw that left behind technical damage in the index charts. The Fed signaled that it would raise interest rates sooner and faster than expected despite all the predictions from the talking heads. The two-year Treasury yield reached its highest level this year reversing some early weakness in the dollar. Today we have a busy economic calendar with Jobless Claims, Philly Fed, Current Account, Existing Home Sales, Leading Indicators, and Natural Gas numbers to inspire the bulls or bears. Expect the challenging volatility to continue and don’t be surprised if we experience another whipsaw after the gap down as the market reacts to the data.

Trade Wisely,

Doug

Housing Starts

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Instead of a choppy Tuesday as we waited on the FOMC, the big miss on Housing Starts engaged the bears making lower lows in the index chart before whipsawing back up in the afternoon session. Market Breadth continued to weaken while the VIX ended the day seemingly ambivalent to the volatility.  Today, of course, we will get the FOMC decision and Powell’s press conference which will likely be more relevant to the path forward.  How the market reacts is anyone’s guess so plan your risk carefully.

Asian market finished their Wednesday session mostly lower after China kept its benchmark loan rates unchanged.  However, European markets are green across the board after learning that U.K. inflation came in slightly below forecast.  With a pending FOMC decision, U.S. futures look to follow through on Tuesday afternoon rally pointing to a bullish open ahead of market-moving data that could inspire some big point moves up or down.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include FDX, GIS & KBH.

News & Technicals’

Deutsche Bank CEO Christian Sewing said Germany was not the “sick man of Europe”, but admitted it had some problems. He said Germany had a recession in the first quarter and faced challenges like aging, low investment, high taxes, and complex rules. He said Germany needed to invest more in digital, green, and social areas, and to reform its tax and labor systems. He said this would make Germany more productive, competitive, and growing.

The global debt stock, which measures the total amount of debt owed by governments, corporations, and households, reached a record high of $307 trillion in the first half of 2023, according to a report by the Institute of International Finance (IIF). This represents an increase of $10 trillion from the end of 2022 and more than $100 trillion from a decade ago. The IIF is a global association of financial institutions that monitors and analyzes the trends and risks in the global debt market. The main reason for the rise in global debt was the surge in inflation, which eroded the real value of debt and reduced the debt-to-GDP ratio. The debt-to-GDP ratio is a measure of how much debt a country or region owes relative to its economic output. The global debt-to-GDP ratio fell from 362% in the first quarter of 2021 to 336% in the second quarter of 2023, as inflation outpaced nominal GDP growth. Inflation was driven by factors such as the pandemic, supply chain disruptions, fiscal stimulus, and commodity price shocks.

The House GOP leadership has postponed a vote on a bill that would prevent a government shutdown at the end of the month. The bill, known as a continuing resolution (CR), would fund the federal government through Oct. 31, giving lawmakers more time to negotiate a longer-term spending plan. However, the bill faces opposition from some House Republicans, who object to its inclusion of a debt limit suspension, which would allow the Treasury Department to borrow more money to pay the government’s bills. The U.S. faces a looming government shutdown if Congress fails to pass a CR by midnight on Sept. 30, which could result in the closure of nonessential federal agencies and services, and the furlough of hundreds of thousands of federal workers. The U.S. also faces the risk of a default on its debt obligations if Congress fails to raise or suspend the debt limit by mid-October, which could trigger a financial crisis and damage the U.S. credit rating. The House GOP leadership pulled the vote originally scheduled for 2:30 p.m. ET on Wednesday, according to an updated schedule, and said they would try again on Thursday. The bill is expected to pass the House with mostly Republican votes, but it will face an uncertain fate in the Senate, where Democrats have vowed to block it.

Indexes whipsawed substantially after Housing Starts came in signifyingly below consensus estimates at a level not seen since June 2020.  The selling was broad-based affecting most sectors however the rally back in the afternoon left behind hopeful hammer candle patterns suggesting a least a short-term relief rally could be near.  Of course, what will determine the day is the FOMC decision and what investors take away from Powell’s press conference about the path forward.  Anything is possible and I think traders should be prepared for big point moves and whipsaws in price as all the pent-up market emotion spills out.  Keep in mind it is also possible the FOMC decision turns out to be a nonevent with so many stocks in their blackout period before 4th quarter earnings.  Buckle up it could be a wild day.

Trade Wisely,

Doug