After Jerome Powell suggested more rate increases likely during his Congressional testimony traders and investors remained wary as the low volume pullback finished a week of uncertainty.  However, no technical damage occurred so it will be interesting to see if the bulls can respond with a comeback this week as we enter the corporate buyback period.  Though we don’t have much to inspire the bull or bears today we have significant economic reports this week that could move the market as we move toward the end of the quarter and next week’s holiday shutdown.

Overnight Asian markets struggled as oil prices surged due to the Russian rebellion and closed the day mostly mixed.  European markets trade mostly lower to start the new week though selling energy appears light and uncertain.  As a result, early futures gains have turned slightly negative suggesting a flat to slightly bearish open with very little data to provide directional inspiration so keep an eye on the news cycle.   

Economic Calendar

Earnings Calendar

Notable reports for Monday include CCL & CUK.

News & Technicals’

A failed coup attempt by a Russian mercenary leader has shaken the Kremlin and exposed the growing rift between President Putin and his former loyalist. Yevgeny Prigozhin, who heads a notorious private military company known as Wagner Group, tried to seize power in Moscow on Friday with the help of hundreds of armed men. However, his plot was quickly foiled by the security forces and he was forced to flee to neighboring Belarus. The incident has raised questions about Putin’s control over his security apparatus and his ability to deal with the rising ambitions of Prigozhin, who has been accused of meddling in foreign conflicts and elections.

The U.K. is facing a severe mortgage crisis as the Bank of England unexpectedly raised its base rate by half a percentage point on Thursday. The move, which was aimed at curbing inflation, will increase the cost of borrowing for millions of homeowners who have variable-rate mortgages linked to the central bank’s rate. Finance Minister Jeremy Hunt held an emergency meeting with major lenders on Friday to discuss ways to ease the pressure on borrowers and prevent a wave of defaults and foreclosures. According to a study by the NIESR, the rate hike could push 1.2 million households (4% of the total) into financial distress by the end of the year as they run out of savings to cover their mortgage payments.

The U.S. corporate sector is facing a surge in defaults and bankruptcies as the economy struggles to recover from the pandemic. According to Moody’s Investors Service, 41 U.S. companies defaulted on their debt in the first five months of this year, more than twice as many as in the same period last year. The main causes of default are weak demand, high leverage, and rising interest rates that make refinancing harder and more costly. The number of U.S. companies filing for bankruptcy protection has also soared to the highest level since 2010, indicating that many businesses are unable to cope with their debt burdens.

Investors remained wary Friday as they feared that central banks might have to keep raising interest rates to curb inflation, though markets recovered some of their losses by the end. The S&P 500 broke its five-week winning streak with a weekly drop, while global stocks had their worst weekly performance in over three months. Two factors that weighed on sentiment were the sluggish European economic data that came out overnight and the smaller-than-expected Chinese rate cuts this week. Oil prices also fell for the day and the week, losing almost 5%. Meanwhile, government bonds and the U.S. dollar gained, reflecting the nervous mood in equity markets where defensive sectors did better.  We have entered the corporate blackout period and with a holiday next week expect volume to begin to decline by the end of the week. Today we have both a light earnings and economic calendar but all eyes will be focused on Tuesday’s Durable Goods report hoping to see continued strength in the consumer and a resumption of the market rally.

Trade Wisely,

Doug