The Fuse
What are futures doing?
Futures are getting hit hard after poor earnings response from Google, Tesla, Texas Instruments and a few others. Stocks look to be starting a downtrend here and there is little in the way of support if some deep levels are penetrated.
News
Stocks in Europe were lower, the STOXX off .8% with bigger declines in Germany and France. The FTSE was down .3%, crude oil rising sharply up 4.3%, gold down nearly 2% while silver is getting hit as well, the US dollar off .1%. Yields are again on the rise, German bunds up 2bps and US 10 yr treasuries up 1bp, Japan was higher by .5%, Hong Kong up 1% and Shanghai gained .3%.
Volatility
VIX is rising again, pushing above 18% as traders brace for possibly worse news from the Iran War. We see a rise in crude oil which is only going to lift inflation and put the Fed on the spot next week.
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Interest Rates
Rates are up again as bond traders continue to sell of fixed income. Across the curve starting with 2, 5, 10 and 20 year there is no respite for the bulls. Despite higher rates inflation is still contained as we saw last week. High yield is steady while we have fed funds futures now pointing to a 32% chance of a hike next week.
Earnings
Horrible reaction to Google and Tesla as these two names are down hard this morning, also Texas Instruments is getting beaten up. This morning’s earnings from AAL were not good with guidance, Nokia mostly in line. Tonight we get Intel, Deckers, Newmont, Boston Beer.
Events
Rather odd session for the markets, contained within yesterday’s range as it appeared neither the bulls nor bears wanted to give up the reins. It’s been a tough month of July so far, basically having gone nowhere in the indices but certainly some individual names have had big moves. No telling what’s to come next week as the big earnings hit the street.
Breadth
More weak breadth as this indicator remains in the penalty box. It’s been a tough time trying to get the bulls or bears in alignment for one session, in fact not much better than 1-1 on the A/D most days. New highs barely beat new lows again so this indicator remains on a buy signal for now.
Volume
Distribution on the IWM and Industrials (mild) as it appears higher rates are starting to matter. We do not have too many distribution days clustering as of yet but that could change soon. Still in the summer doldrums period as the market churns.
Support Levels
The market seems to be flattening out here, but with not much news to drive the markets higher or lower the onus is going to be on the bulls to keep the trend going. That could be challenging if rates continue to rise, equities are anathema to higher rates.
The Internals
What’s it mean?
More mixture in the internals but the bias was down. The VOLD and put/calls were lower, ADD and ADSPD are very weak here, while the ticks were heavy red all session. Saving grace is the VIX declining, but right below 17% again, which is dangerous.
The Dynamite
Economic Data:
- Thursday:Jobless claims, KC fed survey
- Friday:new home sales, flash PMI
Earnings this week:
- Thursday:NOK, CLF, AAL, HBAN, FCX, STM, BX, CX, LMT, TSCO, INTC, MXL, DECK, NEM, COLB, BYD, SLM, SAM, RNG, JAKK
- Friday:VZ, CHTR, AXP, NEE, CNI, BAH, LW, SLB, HCA, CPF
Fed Watch:
Kevin Warsh had some tough talk for the markets and Congress this week, vowing to fight inflation with all the tools available at his disposal. In the end, it is more likely a rate hike or two, the fed funds futures are pricing that in. We’ll learn more in a couple of weeks, and then Jackson Hole next month.
Stocks to Watch
Google – The stock took a hefty fall this past week and will report their quarter after the close Wednesday. I’m not sure the beating last week was a warranted, but we’ll see how much color they provide in the call.
Rates – They have been climbing steadily, trying to force the fed’s hand to raise rates at the next meeting. No question the Fed committee is going to be aggressive against inflation, and that means rate hikes. Bond yields may rise before they fall.
Breadth – We have had mediocre breadth on the up days for weeks, finally it is starting to matter that this is not bullish. Perhaps a bit more downside to go into the end of July.
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