The Fuse
What are futures doing?
Seeing a mixed picture with futures. this morning as the ES is slightly down, Nasdaq higher but Industrials off as well. Markets are trying to recover from a blast Monday, hoping to see a bid develop during the day.
News
Stocks in Europe followed the US lower with the STOXX down a sharp .4% led by decreases in France and Germany. The FTSE only fell .1%, crude oil is higher again and above $80, gold and silver up as well. The US dollar index fell .1%. Stocks in Asia were actually higher, Japan up by .7%, Hong Kong rallied the same and Shanghai up 1.4%. Yields are rising again, Bunds in Germany up 3bps while 10 yr US treasury yields up 1bp.
Volatility
VIX was firm all day Monday and rose to hit the highs of the session right towards the end. That usually spells trouble for the next day, but because volume levels were light on the day there could be a turnaround tuesday in the works.
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Interest Rates
More worries about inflation as we saw the 2 yr shoot higher to 4.3%, the 10 yr at 4.6%. The market is getting worried about higher inflation and that the fed is going to do something about it. Governor Waller said as much yesterday in a speech, but the numbers will tell us more – CPI today and PPI tomorrow. Yields rising across the curve, high yield spreads are widening as well but fed funds futures for July are steady.
Earnings
Earnings from JPM, WFC and BAC out early today and they all beat across the board, but are selling down a bit in a weak tape. GS and C to come, Fastenal missed and is down today. Tomorrow am we hear from MS, BLK, ASML, PGR, JNJ, LEV, PNC, MTB, and Cintas.
Events
Talk about your turnaround Monday! No bid whatsoever, it’s as if everyone left the party Friday and failed to return. Of course, worries about more damage in the Iran War, which still seems to be kicking has started to create some concern. VIX climbed more than 10% but crude oil also rose up the same amount, those short oil got smashed. Earnings coming up today with banks reporting, we’ll see where it leads.
Breadth
Not a horrible breadth day but certainly finished with a thud. Early on, even as the markets were starting to sell down the breadth was pretty decent, it just deteriorated throughout the session. Oscillators are slightly negative, but the breadth indicators are clinging to buy signals. New highs continue to lead new lows but the margin is much smaller.
Volume
Distribution day for all but the industrials yesterday, that is probably the fourth one in the last few weeks by my count. That’s not too serious but a mild warning about the trend, which could shift on a dime. With expiration week here and some cross currents and news events coming up, expect to see a bit more turnover than usual for a summer week.
Support Levels
Stocks tried to test some lower support but missed the mark, the SPX 500 seems firm at 7,500 but if that breaks then 7,400 is probably a good place for a bounce. The overnight lows from Sunday evening on the ES futures were holding for a bit but fell late, just no buyers engaged in the markets today. With inflation reports due and bank earnings plenty to worry about, the VIX told us this much.
The Internals
What’s it mean?
Talk about disappointing. The VOLD started strong but was miserable all session, so was the ADD and ADSPD, which was nearly a trend down day. The VIX rose up smartly, even put/calls popped up as the TICKS were heavy red, plenty of sell programs. Bulls looking for a turnaround Tuesday.
The Dynamite
Economic Data:
- Tuesday:CPI, small biz optimism, fedspeak
- Wednesday:empire state, PPI, pce, Fed Chair Warsh testimony, more fedspeak
- Thursday:Retail sales, philly fed, housing market index, pending home sales, jobless claims, more fed speak
- Friday:Housing starts, import prices, industrial production, cap utilization, michigan sentiment.
Earnings this week:
- Tuesday:C, GS, JPM, BAC, WFC, FAST, ERIC, AEHR PXFD, LOOP
- Wednesday:ASML, PGR, BLK, MS, CAG, JNJ, ELV, PNC, MTB, CTAS, UAL, JBHT, KARO
- Thursday:UNH, TSM, USB, GE, ABT, STT, CFG, NFLX, ISRG, AA, CNS, WISE
- Friday:RF, TFC, FITB, TRV, SFFI, SKIFY
Fed Watch:
Pay attention this week to Chair Warsh as he talks to Congress about monetary policy. Listen carefully for clues about where policy may be heading, though he has been evasive for weeks. He will face some tough questions this time around.
Stocks to Watch
Chip stocks – with SK Hynix now trading in the US markets there is another competitor for dollars out there, and that might take from Micron, Sandisk and others. This group is key for the markets to retain upward mobility.
Banks – The big banks will report earnings early in the week and optimism is high, with most names at/near all time highs. I suspect strong numbers but any whiff of caution will knock these stocks down sharply.
Volatility – We will again watch volatility closely as the VIX is down to a very low level, near 15%. That is a bit too cozy for market players so expect some giveback, though with earnings up this week not too much.
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