Futures Point to Lower Open

Markets gapped higher Monday, following Europe and Asia in follow-through to the pre-holiday rally.  After a volatile session (volatile above the gap), prices closed not too far from the highs.  The mega-cap tech names led the way with AMZN up almost 6%, leading to another all-time high close in the QQQ.  On the day, SPY closed up 1.53%, DIA up 1.77%, and QQQ up 2.46%.  The VXX closed down just slightly to 32.28 and T2122 remains in the mid-range at 63.46.  10-year bond yields closed up to 0.678% and oil was up slightly to $40.65/barrel.

After the close, Fitch reported that commercial mortgages posted the largest increase in delinquencies ever in June, with 3.6% of all commercial mortgages now delinquent.  Unsurprisingly, hotels (11.49% delinquent) and retail (7.86% delinquent) lead the list.  Retail consultancy ShopperTrak also told CNBC that consumers have begun to retreat again as virus cases surge.  The last two weeks of their retail store surveys show a decline in shopper traffic for the first time since the first week of April.

Last night, Secretary of State Pompeo told Fox News that the US is looking at banning TikTok (who cooperates with Chinese authorities) and Chinese social media apps in a clear attempt to ratchet tensions.  What is unclear is how the US would legally do that and what benefit the US gains from such action.  For that matter, it’s unclear how such a move would negatively impact China.  However, what is obvious is that US-companies like FB, TWTR, GOOG and other social platforms will be in the cross-hairs from the Chinese side if any such measures are taken by the US. 

In the US, the virus numbers show we’ve now topped 3 million cases at 3,041,129 confirmed cases and 132,993 deaths.  We recorded another 50,500 cases Monday with 32 states reporting an increasing rate of new infections.  However, the daily death count continues to fall with the 7-day average just over 500/day.  In TX, the military deployed medical personnel at the request of FEMA as hospitals around San Antonio are feeling the strain of virus cases.  Still, at least at this point, this is a very small deployment compared, for example, to the military support sent to New York in April.  In CA, Governor Newsom “asked” more of its counties to close indoor venues and businesses as the stat’s positive result rate has climbed to 6.8%. 

Globally, the number of cases has reached 11,770,153 confirmed cases and 541,490 deaths.  In Europe, the EU cut its GDP forecast from an already abysmal 7.4% contraction (May forecast) to an 8.3% contraction for 2020.  In Brazil, their President has canceled all his events for the week and was taken to hospital for coronavirus testing after “feeling unwell” and showing a high fever.  He was released, but was wearing a mask and told people to stay away from him as a safety measure upon release.

Overnight, Asian markets were mixed.  China was well into the green, but Japan, Hong Kong, and South Korea were all well into the red.  In Europe, their own economic data and fear over the US virus surge has markets red across the board.  The big 3 bourses are all down over 1.1% at this point in their day.  As of 7:30am, US futures are looking to follow Europe, pointing toward a gap down between half a percent (QQQ) and 1.05% (DIA).

The major economic news for Tuesday is limited to May JOLTS (10 am).  However, there are 3 FOMC speakers, Bostic (9 am), Quarles (1 pm), and Daly (2 pm).  The only earnings report for the day is PAYX before the open.

The bulls have shown no fear of bad economic or the virus surge.  Along those lines, the bears have shown no teeth recently either.  With that said, markets may need a rest (especially the QQQ).  So, an inside day might not be a bad thing at all.  Either way, continue to be careful, but don’t buck the bullish trend unless you are fast.  Don’t chase, don’t predict, and don’t be greedy (take profits and move your stops as you go). 

Ed

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