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
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