Stalling Signs? Taking a Look Under the Hood of US Equities

Greetings. I hope this article finds you and yours well. Today, we are taking a look at some additional market indicators and internals to get an unbiased perspective on things.

First, I want to preface things by mentioning that I am not suggesting that I am fully bearish on the S&P 500 or stocks right now. However, I am taking more of a cautious stance at the moment.

 

Figure 1 – S&P 500 Index April 15, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Nothing new to see here. Just another pedestrian pullback to the 50-day SMA and a bounce back. This pattern has repeated itself several times since the pandemic lows in the $SPX. It won’t repeat itself forever – that would be too easy.

Since it is earnings season, let’s talk earnings multiples.

Feeling bullish? It can be challenging to get excited about an $SPX at 4400 with an estimated 46.40 P/E ratio (trailing twelve months). We are in the middle of earnings season, so we will have a clearer figure soon.

Figure 2 – S&P 500 PE Ratio 1870 – July 22, 2021. Source multpl.com

Stocks are not cheap by any measure, folks. However, with easy monetary policy and low rates, this is to be expected. What could be the catalyst to derail this freight train?

How about the Dow Transports? This index used to be talked about much more frequently and is followed closely by students of Dow Theory. We just don’t hear much analysis about it on Fox Business, CNBC, or Bloomberg these days.

The Dow Transports (Dow Jones Transportation Average) $TRAN is an index comprised of 20 companies.

Here are the index components and weighting as of December 2020:

Alaska Air Group, Inc. 2.55%

American Airlines Group Inc. 0.76%

Avis Budget Group, Inc. 1.80%

C.H. Robinson Worldwide, Inc. 4.61%

CSX Corporation 4.39%

Delta Air Lines, Inc. 1.94%

Expeditors International of Washington, Inc. 4.61%

FedEx Corporation 13.10%

J.B. Hunt Transport Services, Inc. 6.70%

JetBlue Airways Corporation 0.70%

Kansas City Southern 9.73%

Kirby Corporation 2.51%

Landstar System, Inc. 6.60%

Matson, Inc. 2.79%

Norfolk Southern Corporation 11.42%

Ryder System, Inc. 3.12%

Southwest Airlines Co. 2.26%

Union Pacific Corporation 9.91%

United Airlines Holdings, Inc. 2.11%

United Parcel Service, Inc. 8.39%

Figure 3- Dow Jones Transportation Index January 4, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Here, and in contrast to the Dow Jones Industrial Average, we can see that the Transports topped back on May 10, 2021. Proponents of Dow Theory would argue that this creates a lack of confirmation and that the subsequent highs in the Dow Jones Industrial Average are not valid due to this lack of confirmation.

What could be the reason for the stall in the Transports? Input Costs? While fuel costs have risen, what about the rise in retail spending? Is the stimulus-powered consumer pocket not enough to counterbalance the rising input costs?

If input costs are the reason for the stalling, what about the other companies that rely on raw materials to make their products? Recent inflationary data has not affected these companies’ stock prices yet (for the most part).

What if the Fed eases off the gas pedal?

While it is very difficult (if not impossible) to pick market tops (and I don’t advocate trying to do that), it is wise to look at certain market indicators to get an understanding of what is going on beneath the surface.

It is easy to look at the chart of the $SPX and see that it is moving higher, from the bottom left-hand corner of the chart to the top right-hand corner. However, that does not tell the whole story of what is happening in the US equity markets.

We will be monitoring the above and previously mentioned market internals and indicators for more clues in the coming days, weeks, and months. I think it is critical to be aware of metrics such as the above as the broader indices trade near all-time highs.

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For a look at all of today’s economic events, check out our economic calendar.

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits’ employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

Inflation Nation: Pressure Builds, Underwater Beach Ball

Did you watch Fed Chair Powell testify in front of the Senate and House last week? It seemed to be like watching certain angry congresspeople calling for interest rates to be kept lower for longer. Do they want hyperinflation? Other groups of Senators reflected on what the inflationary environment was like in the early 1980s.

As Chair Powell testified, bonds rose (yields fell), and the S&P 500 was mostly lower. Clearly, there was a bid under the bonds (keeping interest rates lower). All of this came over a two-day period following the monstrous CPI print.

Recapping Tuesday through Friday in the E-Mini S&P 500 Futures Last Week:

Figure 1 – E-Mini S&P 500 Futures July 12, 2021 – July 16, 2021, 10:00 PM ET, 30 Minute Candles Source stooq.com

A. Tuesday 8:30 AM: CPI Data 0.9% vs. 0.5% expected, highest run rate ex-food and energy in 30 years.

B. Tuesday 1:00 PM: Weak 30-Year bond auction offered at 2.00% yield

C. Wednesday: Fed Chair testimony

D. Thursday: Fed Chair testimony

E. Friday: NY Cash Market Open

We can see the large CPI print was bearish for the index, and the market recovered. Then, we had the bond auction, which had very weak demand at 2.00%, and the index sold off again. It recovered once again, tested the highs, and was rejected. The Fed testimonies on Wednesday and Thursday kept the S&P 500 bid and sideways.

As all of this was occurring last week, I was eyeballing the index all day, each day, wondering when it would all become too much to keep the index afloat.

On Friday, we got a bullish Retail Sales number at 8:30 AM before the NY cash open, and then a bearish UoM Consumer Sentiment Print at 10:00 AM. The NY open was lower even before the bearish UoM print at 10:00 AM. It seemed like the index finally couldn’t bear the inflation data. The weak bond auction, and the congressional rhetoric during the Fed 2-day testimony any further and had to break. It actually made sense.

I want to illustrate the above A through E points in terms of interest rates last week.

Taking a look in terms of the 10-Year note yield:

Figure 2 – 10-Year Treasury Yield July 12, 2021 – July 16, 2021, Daily Candles Source stockcharts.com

The question I pose here: What if interest rates were rising towards the end of last week?

It doesn’t seem like the current market would be able to handle it. However, the Fed must use tools to curb inflation. This inflation seems anything but transitory or temporary at this point.

If bond yields were going higher on Friday with the market lower, how much would the INdex have dropped? That is the million-dollar question.

Rates do need to rise. But, if the Fed is not going to begin tapering (slowing bond purchases) or raising rates incrementally, what will happen with inflation?

If you hold a beach ball underwater, it eventually will pop up. You can’t keep it underwater forever.

This is food for thought as we begin the week.

Now, let’s cover all nine markets we are following for Premium Subscribers.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

For a look at all of today’s economic events, check out our economic calendar.

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits’ employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

 

Inflation Woes, Travel Stocks Drag Europe Shares Lower

The pan-European STOXX 600 index fell 0.3% after hitting a record high in the previous session.

Travel & leisure slid 0.8%, with TUI shedding 2.9% on reports that the world’s largest holiday company had cancelled more holidays until August.

UK’s FTSE 100 dropped 0.4% on a stronger pound after data showed British inflation jumped to 2.5% in June, further above the Bank of England’s target and hitting its highest since August 2018.

“The creeping UK headline inflation rate is likely to add to the sense of unease pervading the financial markets about the impact higher prices will have on economies around the world,” said Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown.

“Although much of the increases are related to the unusually low level of prices last year due to the pandemic effect, it appears genuine price inflation is also occurring.”

Investors were already nervous after data on Tuesday showed U.S. inflation ran hotter than expected in June, leading many traders to price in faster interest rate hikes.

All eyes now will be on Federal Reserve Chairman Jerome Powell’s congressional testimony starting later in the day.

European Central Bank policymakers have stressed in recent weeks that they will not remove support measures prematurely as the economic recovery is still underway.

Along with euro zone bond yields, the bloc’s banks rallied after sharp falls in the previous session.

Swedish telecoms operator Tele2 gained 4% after it reported an 8% rise in quarterly core earnings, helped by cost savings and lesser pandemic-related headwinds.

German fashion house Hugo Boss jumped 5.1% after it forecast its revenue to grow by 30% to 35% this year.

Italian luxury group Brunello Cucinelli underperformed despite raising its 2021 sales guidance for the second time this year.

German airline Lufthansa slipped 0.6% after it said passenger numbers were currently around 40% of pre-pandemic levels and it was aiming to reach 60%-70% by the end of the year.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sruthi Shankar in Bengaluru; editing by Uttaresh.V and Subhranshu Sahu)

 

Will The Markets Lead Us To Temptation Or Back To Work?

Headed into the July 4th holiday weekend, we have 5 more trading days in Q2:2021. We are starting to see a continual grinding higher in the US major indexes and various market sectors.  The one thing my team and I believe is happening in the markets right now is “moderate complacency”.

After the FOMC statements just a few weeks ago and the continued support of the US Fed, the markets entered a period of moderate volatility.  Currently, the markets appear to be settling in for moderately strong earnings expectations as Q2:2021 comes to a close.  That means the markets will start to react to earnings and profit data as well as forward expectations presented by corporate statements along with the continued economic recovery attempt.

NASDAQ Grinds Higher – Breaks Upper Flag Channel Level

This NASDAQ Daily chart shows how the NQ has rallied above a Flag channel high and has begun to grind higher. Traders continue to expect upward price trending in expectation of stronger technology and other earnings data.  This broad Flag pattern, shown on this chart by the CYAN lines, should highlight the level of volatility currently active in the NQ right now. The range between the upper and lower boundaries is more than 6%.  Therefore, any surprise volatility may prompt a price rotation within this volatility range.

Retail Breaking Resistance And Attempting A Rally Above $100 – Get Ready

Retail will likely surge as earnings data is delivered showing a moderate increase in consumer spending.  Additionally, as we are well into the start of Summer, there are likely a large number of consumers that are making big-ticket purchases (boats, cars, RVs/Trailers, toys) in support of Summer vacation plans.  This surge of consumer spending after many months of lockdown and saving may prompt a wave of spending throughout the end of 2021 and into 2022.  The stimulus checks also continue to help drive additional savings and spending.

Retail may surge to levels above $105 if profits and earnings data comes in strong over the next few weeks for Q2:2021.

MIDCAPS Show Us Where Resistance Is Likely To Contain The Upward Grind

This Monthly chart of the SPDR S&P 400 Midcap Futures shows the resistance level that we believe will continue to act as a ceiling for the markets.  The trends that started in 2016 and continued through early 2018 created a Standard Deviation channel range that trends almost perfectly to the current price highs.  My researchers believe this upper Standard Deviation channel will continue to act as strong resistance as earnings data pushes the markets into a continued grind higher.

So, as we start to see the markets trend after the July 4th holiday weekend, stay keenly aware of where the current resistance/price ceiling is in the charts.  It is likely that prices may attempt to reach above this level briefly, then stall sideways, or correct lower, as this upward trending channel represents extreme bullish trending.

The strongest market sectors are likely to continue to try to grind higher and attempt a 4% to 7% rally (or possibly more) as the markets prepare for Q2:2021 earnings and continued US economic recovery data.  Traders are expecting solid earnings and further economic growth, and are thus putting their capital behind these expectations – grinding the markets higher right now.  There is a very strong potential the strongest sectors will rally 5% to 8%, or more, over the next 25+ days.  Are you ready?

Or, are you trying to make sense of where the opportunities are in these market trends?  Are you still trapped in the thinking that guessing when and where to enter the markets will help you identify good trades?

My team and I have been building and developing fully systematic algorithmic trading strategies for many years and can tell you that unless you have a solid foundation related to knowing when and where opportunities exist in market trends, you are likely churning your money in and out of failed trades. I will be presenting my two favorite strategies at the July Wealth365 Summit on July 13th at 4 pm and July 16th at 12 pm. The Summit is free to attend and offers unparalleled opportunities for learning…plus a potential prize or two!

For a look at all of today’s economic events, check out our economic calendar.

Have a great day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Stocks clamber up from 4-week lows, dollar eases from 10-week high

By Ritvik Carvalho

LONDON (Reuters) – Global stocks recovered some losses after hitting a four-week low on Monday as investors continued to digest last week’s surprise hawkish shift by the U.S. Federal Reserve, while the dollar stood just below a 10-week high.

Shares of banks, energy firms and other companies that tend to be sensitive to the economy’s fluctuations have fallen sharply since the Fed’s meeting on Wednesday, when the central bank caught investors off guard by anticipating two quarter-percentage-point rate increases in 2023.

Stocks in Asia took their cue from Wall Street’s falls on Friday but European shares bucked the trend, with the pan-European STOXX 600 index up 0.2% by afternoon trade in London. [.EU]

U.S. stock futures also moved firmly into positive territory, suggesting gains at the open on Wall Street later in the day. S&P 500 E-mini futures were up [.N]

“The interesting part about this correction is that it was lagged, so it took a while for the market to sort through the news,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

“The situation in reality is actually pretty good – the Fed is stabilizing inflation…Cyclical sectors may have overshot the market in the short term and so you may have a bit of pressure on the sector.”

Britain’s FTSE 100 was down 0.1%, France’s CAC 40 index gained 0.3% and Spain’s IBEX 35 fell 0.3%. Germany’s DAX was up nearly half a percent, while Italy’s FTSE MIB index rose 0.2%.

MSCI’s All Country World Index, which tracks shares across 49 countries, was down 0.2%, trimming some losses after hitting its lowest since May 24.

Benchmark 10-year U.S. Treasury yields recovered to 1.4414% after falling to their lowest since Feb. 24 at 1.3540%.

The yield curve – measured by the spread between two- and 30-year yields – earlier hit its flattest since late January, and as investors brought forward rate hike expectations while lowering the longer-term outlook for growth and inflation.

The U.S. dollar index hovered just below the 10-week high of 92.408 touched on Friday, following its biggest weekly advance in more than a year.

“Last week’s dollar rally is a combination of expectations and positioning (sold dollars), a concern that the Fed is ‘behind the curve’ (and therefore must do more and earlier than expected), and that stock markets have started to lose ground which makes the dollar strengthen as the most defensive currency,” Filip Carlsson, junior quantitative strategist at SEB, said in a morning note.

“We still see this as a correction and not the beginning of a new trend.”

St. Louis Fed President James Bullard further fuelled the sell-off on Friday by saying the shift toward faster policy tightening was a “natural” response to economic growth and particularly inflation moving quicker than anticipated as the country reopens from the coronavirus pandemic.

“The Fed’s pivot to begin the tightening discussion caught most by surprise, but markets began discounting this inevitable process months ago in our view,” Morgan Stanley analysts wrote in a report.

“It’s exactly what the mid-cycle transition is all about, and fits nicely with our narrative for choppier equity markets and a 10-20% correction for the broader indices this year.”

Earlier in Asia, Japan’s Nikkei led declines with a 3.6% drop and dipped below 28,000 for the first time in a month, while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.4%. Chinese blue chips lost 0.7%.

Several Fed officials have speaking duties this week, including Chair Jerome Powell, who testifies before Congress on Tuesday. European Central Bank President Christine Lagarde speaks before the European Parliament on Monday.

The euro traded above its lowest against the dollar since April 6 at $1.1896 on Monday, dropping from as high as $1.21457 last Tuesday.

Sterling recovered some ground, to trade 0.6% higher at $1.3880 after sliding to its lowest since April 16 on Friday. [GBP/]

Commodity-linked currencies have also suffered, with the Australian dollar hovering above a six-month low at $0.7495.

A stronger greenback has pressured cryptocurrencies too, with bitcoin falling 10% to around $31,930, while smaller rival ether lost 15% to around $1,903.

In commodities, gold rebounded 1.1% to $1,783 an ounce on Monday, looking to snap a six-day losing streak, but remained near the lowest since early May.

Three-month copper on the London Metal Exchange fell to its lowest since April 15, following an 8.6% drop last week, the biggest weekly fall since March 2020.

Crude oil rose for a second day, underpinned by strong demand during the summer driving season and a pause in talks to revive the Iran nuclear deal that could indicate a delay in resumption of supplies from the OPEC producer.

Brent crude futures rose 0.1% to $73.56 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 0.1% to $71.74 a barrel.

(Reporting by Ritvik Carvalho; Additional reporting by Kevin Buckland in Tokyo; Editing by Catherine Evans and Peter Graff)

European Stocks Hit Two-Week low ahead of PMI data

The pan-regional STOXX 600 index fell 0.6% by 0810 GMT after the prospect of U.S. tax hikes to pay for the large stimulus package spooked Wall Street overnight. [.N]

Meanwhile, the European Union is set to extend COVID-19 vaccine export curbs to Britain and other areas with much higher vaccination rates, and to cover instances of companies backloading contracted supplies, EU officials said.

All eyes will turn to IHS Markit’s March business surveys for the euro zone and the United Kingdom.

Chipmakers, including ASM International, ASML and BE Semiconductor, were the top gainers on STOXX 600, up between 3% and 5.3% after U.S. firm Intel Corp announced a $20 billion plan to expand its advanced chip manufacturing capacity.

Banks, retailers and travel stocks declined the most on recovery worries.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Arun Koyyur)

Spain’s Stock Market Supervisor Expects Record Six IPOs in 2021

“We could be speaking about half a dozen IPOs, which, if successful, would be the highest number since we have records at the commission,” Rodrigo Buenaventura, the head of the CNMV supervisor, said on Wednesday.

The rate of new listings is unlikely to continue though, Buenaventura added.

“It’s a positive phenomenon and great news for the Spanish market to have IPOs after two years with only two,” he said.

Spanish green energy producer Grenergy and solar equipment maker Soltec were the latest companies to debut on the local market in late 2019 and late 2020 respectively.

Other companies in the renewables industry, such as OPDEnergy, may follow suit, while larger companies such as Repsol and Acciona are planning to spin off and list their green energy assets.

(Reporting by Jesús Aguado; additional reporting by Emma Pinedo. Editing by Inti Landauro and Mark Potter)

European Supranationals Outlook: Path Clears for Euro-Denominated Green and Social Safe Assets

Download Scope Ratings’ 2021 Supranationals Outlook.

We believe the momentous shift in availability of safe assets in Europe reflects the national and supranational European fiscal stimulus to counter the Covid-19 shock, providing comprehensive safety nets for households, businesses and governments amid the pandemic, and financing a sustainable recovery in the coming years.

A sustainable recovery, green transition are Europe’s main policy priorities

European supranationals are adapting mandates and operating guidelines to ensure carbon neutrality by 2050, which, given the weight they carry in capital markets and policy making, will influence industry standards and affect investors and the private sector globally.

The EIB and EBRD, for example, are aligning their financing activities with Paris Agreement terms and raising their climate-finance-related objectives, while the EU, via its EUR 750bn Next Generation EU recovery fund of which about EUR 225bn will be issued in green bonds, will play a pivotal role in providing a safe, green asset in Europe.

Social bond issuance is also set to rise

But EU safe assets will not only be green. Social bond issuance is also set to rise markedly. The EU’s Support to mitigate Unemployment Risks in an Emergency (SURE) scheme of up to EUR 100bn has completely changed the landscape for supranational social bond issuance.

Of the EUR 100bn, EUR 53.5bn has already been borrowed and disbursed to 15 member states since an inaugural bond issue on 20 October 2020. With EUR 90.3bn requested overall, EUR 36.8bn is still to be raised, which is likely to be mostly concluded by the end of Q2 2021.

These programmes underpin the EU’s emerging role as a major contributor to sustainable finance in capital markets and, depending on varying investor demand for the different types of programmes, there is a possibility of distinct social, green and conventional curves in the future.

Open questions remain

Open questions remain: how much will the EU ultimately issue in bonds, how much will be green or conventional, and to what extent will it be more than matched by a greener greenback under the new US administration?

The Covid-19 outbreak also entails risks through possible deterioration in asset quality and higher leverage.

Still, while risks remain, European supranationals have strong credit profiles based on robust balance sheets and sizeable buffers, as well as rock-solid shareholder support. We expect credit profiles to remain resilient in 2021 as reflected in our current Stable Outlooks for supranational borrowers.

For a look at all of today’s economic events, check out our economic calendar.

Alvise Lennkh is the Deputy Head of Sovereign and Public Sector ratings at Scope Ratings GmbH.

Indices in Europe Start This Week With a Correction

American Indices continue the buying fiesta.

European indices, on the other hand, undergo a bearish correction.

Gold tries to create a right shoulder of the inverse head and shoulders formation.

EURUSD pair continue the correction inside a flag formation.

GBPUSD pair drop below 1.37 again.

AUDCHF with a triple top formation but so far without a proper sell signal.

GBPJPY bounces from the 142.2 again.

For a look at all of today’s economic events, check out our economic calendar.

2020 Kicks off with US-Iran and Climate Change Crisis

The start of the year was marred by the escalating tensions between the US and Iran while extreme weather conditions across the global triggered fierce debates about climate change.

What do we know so far about the tensions between Iran and the US?

  • Iranian-backed militia killed an American Defense Contractor
  • The US retaliated with missile strikes
  • The American Embassy in Baghdad was attacked
  • US airstrikes killed top Iranian military official, General Qassem Soleimani
  • Iran responded by launching missile strikes at two bases hosting U.S. forces in Iraq

As the world witnesses the rising tensions between the US and Iran, and a uniting Iran over the assassination of one of the most influential and powerful men, the downing of Ukraine International Airlines flight PS752 has caused an international outrage and brought internal division within Iran.

Beyond Economic War

The existential conflict between the US and Iran moved beyond an economic war. In 2019, the US announced further economic sanctions on Iran which brought the latter into a deeper recession. As a significant buyer of crude from Iran, China sees the situation as an impediment that can hurt its economy. The Iran risks may therefore overshadow the trade deal.

Investors have already pricedin some extent of the risks associated with Iran since President Trump pulled out of the 2015 nuclear deal and started to impose sanctions. Even though the headlines brought Iran back on the geopolitical risks radar and caused a spike in volatility, we do not see the conflict changing the investment landscape at this stage.

Climate Change

2020 is set to be the confirmation of a new era for climate change. As we entered a new decade, the extreme weather conditions around the world have forced leaders of many countries to reassess their actions over climate change and transform the global energy system.

In Australia, the unprecedented and raging bushfires across the country act as a warning to the world and has even challenged a reluctant Prime Minister to take more action

Energy Sector

Oil prices experienced their largest weekly drop since July 2019 despite the tensions in the Middle East. Coincidently, markets were hit by two contradictory themes for the oil and gas industry: Iran Risks and Climate Change.

Source: Bloomberg Terminal

It should be highlighted that the energy sector emerged as the worst-performing sector of S&P500 in the last decade. Investors are stepping into 2020 being accustomed to the global oil glut and the gradual shift in the oil and gas industry.

Iran risks fuelled expectations of a reduction in supply while the “green” shift lowers demand expectations.

Eyes are now on the US-China trade deal!

Stock Markets

Despite an erratic few weeks of trading, global stock markets have performed quite well:

  • Major equity benchmarks traded at a record high
  • US stock indices are trading higher by 1% and above
  • Most European Bourses are also experiencing similar gains
  • Australian benchmark outshines its peers with more than 4% gain
  • FTSE100 is lagging slightly behind with 1% gain

Brexit will remain the dominant factor for the UK markets. Despite the volatile year 2019, the FTSE100 posted two-digit gains. The Tory win had pushed the index above the 7,500 mark. Looking ahead, the Footsie is expected to rebound and investors are eyeing the next target at 8,000 level for 2020.

However, given that a large amount of earnings of the index is derived from overseas, an appreciation of the Sterling may hinder the performance of the FTSE100 to play catch up with its global peers.

Source: Bloomberg

Are Re-Pricing Risks Required?

The killing of the Iranian key commander took the markets by surprise. Heightened geopolitical risks have somehow become the new normal and unless there is any serious escalation, medium to long-term effect on the markets would be limited. In a new world of higher tariffs, de-globalisation, and historic low levels of interest rates, the most significant risks for 2020 are:

  • Trade deal outcome.
  • Central Banks.

Deepta Bolaky, Market Analyst at GO Markets.

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The Most Influential People of 2019

If we had thought that 2018 was a year to remember, we were certainly not disappointed with 2019.

The U.S and European equity markets hit record highs going into this week’s holidays and the extended U.S – China trade war ended in a phase 1 trade agreement.

Perhaps more so than in any other year, geopolitics gripped the global financial markets more so than the stats. There was monetary policy also in focus, however, as the markets went on a rollercoaster ride of rising expectations of a recession to economic euphoria.

Without a doubt, the U.S President continued to be the global financial markets’ main protagonist.

Donald Trump

The U.S President was the center of attention in 2019 and continues to be with a week to go as we approach a new decade.

It all started back in early 2018 when Trump hit aluminum and steel imports with tariffs. Few would have anticipated the U.S President to hold is ground for an unprecedented 20 odd months to deliver a phase 1 agreement.

When you throw in the USMCA, which finally got the seal of approval after a year of wrangling, it’s hard to argue against Trump’s success at making America great again.

In spite of continued economic growth, he even managed to get the FED to reverse rate hikes, while also standing his ground on foreign affairs. A prime example was the HK Bill in support of the HK protestors. Few would have allowed such a bill to pass at such a delicate time in U.S – China trade negotiations.

To be frank, many had argued that he would only have his first 100 days to deliver on campaign pledges…

They couldn’t have been more wrong.

What he plans to deliver going into next year’s presidential election campaign remains to be seen but it’s likely to be bolder than the last one…

Boris Johnson

Boris Johnson’s sheer political resilience and persistence deserve a top 5 position. After disappearing into the political wasteland alongside the likes of David Cameron, there was a swift revival in late 2019.

Theresa May, Brexit, and ritain were on the ropes. With a minority government, Johnson failed in Parliament with a string of defeats before defying the odds.

Contrary to the EU and the Establishment’s threats, Johnson garnered a revised Brexit agreement and even got Parliament to vote in favor.

He then forced a first December General election since 1923 to deliver the Tory Party’s best outing since Thatcher’s heyday…

The Tories are now with a sizeable majority and finally reunited, with the British PM in prime position to draw the best out of the EU over the next 12-months.

And let us not forget, his pal sits in the Oval Office, just across the Pond…

Jerome Powell

In a year where many failed to stand up against the U.S President, Trump’s nemesis managed to avoid delivering zero interest rates. In a calm and collected manner, the FED Chair steered the U.S economy away from a recession. Powell managed this without the fanfare that we saw with his predecessor.

Trump may lay claim to the sustained growth and optimistic outlook, but the FED Chair does need some if not, most of the recognition. After all, the phase 1 trade agreement only came into being in the final month of the year…

Nigel Farage

If Boris gets a mention then Nigel also deserves a spot in the top 5. Firstly, he upset the apple cart in the EU elections, raising anti-EU sentiment in Brussels. He was then also a key figure in the Tory Party’s euphoric victory in early December.

His decision to fall on his sword to deliver a Tory Party victory was a rare event in politics. He did ultimately ensure Brexit. The people responded in kind, giving Johnson his majority to wrap up Brexit by the end of 2020…

HK Rioters

While there may have been a few that got things going, it was the sheer numbers. The unity seen across HK through late 2019 deserves a spot. While the violence could have been avoided, Hong Kong’s will to retain its identity was an impressive one. It was some time ago when the world saw images of Tiananmen Square and Tank Man. 30 years to be precise.

There was not be a single iconic picture to resonate with. The length of the stand against China and outcome, however, was impressive. Beijing and the world saw firsthand just how passionate the Cantonese are in retaining their identity.

And finally,

Nancy Pelosi

In terms of U.S politics, it was a trailblazer year for the Democrat. She became the first-ever woman speaker of the U.S House of Representatives. If that wasn’t enough, she also delivered just the 3rd impeachment in history.

Anyone who achieves such feats deserves a spot in the top 5. She may not get to oust the U.S President, but she has certainly achieved political greatness. That’s quite remarkable when considering the political landscape.

Powell and Trump were both in 2018’s top 5. We now have Boris and Donald on either side of the Pond. It will be interesting to see who makes it into next year’s list…

2019 in a Nutshell and the Transit into a New Decade

If one is to describe the year 2019 in one word, we believe the word “uncertainty” would be the right fit. The world has entered 2019 with a high degree of uncertainty and is poised to finish the year with probably the same extent of uncertainties. The Global Economic Policy Uncertainty Index which is a GDP-weighted average of national EPU indices for 20 countries has remained in elevated levels in 2019.

Each national EPU index reflects the relative frequency of own-country newspaper articles that contain a trio of terms pertaining to the:

  • Economy (E)
  • Policy (P)
  • Uncertainty (U)

In simple words, the frequency at which newspapers cite “uncertainty” in relation to economic policy is high.

Source: Bloomberg Terminal

Sino-American Trade War

We have seen a de-escalation of trade tensions between the world’s two largest economies towards the end of the year. Investors grew hopeful that both countries will sign a partial trade deal. After weeks of speculations regarding the partial trade deal, “ a deal in principle” made headlines driving major US equity benchmarks to new highs. The optimistic statements in the US were not reciprocated to the same extent in China. It was a much muted and cautious response.

Any commitment and compliance from China remain murky.

The Trade Truce is being handed over to the financial markets like a Christmas gift. The real surprise will be unwrapping the gift and taking note of the details of the agreement. At the moment, vague promises and speculations are creating a “fragile” positive environment.

Uncertainties Persist! Phase One will ease but not eliminate uncertainties as Phase Two will handle challenging issues such as IT, Artificial Intelligence and cybersecurity and other hi-tech areas.

At CNBC’s Hadley Gamble at the Doha Forum, US Treasury Secretary Steven Mnuchin’s comments on Phase two was not inspiring:

“Phase Two maybe 2a, 2b, 2c, we’ll see….”

Populism and Globalisation

The growing prospect of populism comes with an array of uncertainties which is hard to ignore. President Trump’s presidency and Brexit are the bellwether of populism and have played a significant role in the recent volatility in the markets.

President Donald Trump

The Western political space is changing and is disrupting globalisation. The US President adopted a hard-line approach on not just trade, but also on migration and capital flows. The US has launched a trade war against major countries, some of which have been key allies of the US.

Brexit

Brexit Europe and the United Kingdom are practically on hold due to Brexit. The echoes of populism have threatened the existence of the bloc and have crippled its economy. Following the referendum for the UK to leave the European Union, the bloc’s members like Germany, Italy and France were also hit by several anti-establishment groups.

Hong Kong Protests

Hong Kong came to a standstill following months of democratic protests. The people of Hong Kong initially took to the streets to voice their frustrations on the extradition law. After the demonstrations intensified and turned violent, protesters laid five demands including an investigation into police brutality and the resignation of Chief Executive, Carrie Lam.

After more than six months of protests, economists are predicting a 1.3% contraction for 2019. The recent election resulted into an electoral win for pro-democracy parties which brought a semblance of normality after months of unrest.

Slowing Global Growth

Manufacturing Contraction

The manufacturing sector has been one of the main factors that had triggered concerns of a recession. In the US, the two widely- used indicators of the performance of the manufacturing industry are ISM and IHS Markit.

Both surveys consist of a diffusion that summarises whether the market conditions are expanding, staying the same, or contracting. Over the months, investors received mixed signals from both surveys. The divergence could partially be explained by the differences in the methodology used. Yet, the contrasting signals were noteworthy for investors.

As the year draws to an end, the preliminary Markit Manufacturing PMI figures for the US shows that it will be another month of steady growth fuelling hopes of a brighter start for 2020. On the other side, the ISM shows that the manufacturing industry has been softening for the past eight months and contracted for the fourth straight months at a faster rate.

Source: Institute for Supply Management

Interest Rates and Central Banks

Slowing global growth and recession fears have forced major central banks to cut interest rates to record lows. The Reserve Bank of New Zealand was among the first major central banker to commence a major easing cycle. After some resistance, the Fed and other central bankers has also cut their interest rates. The European Central Bank have even resumed the controversial quantitative easing to stimulate its economy.

Towards the end of the year, the concerns of slowing global growth have receded as global economic data has shown some signs that the downturn may be bottoming out. Central banks have paused the easing policies and appear less dovish when setting policies for 2020.

Stock Markets

A look at the performance of major global equity indices does not reflect the angst seen during the year. As of writing, the stock market is set to close the year on a strong note.

Two Digits Gains and Record Highs!

Chinese stocks have recovered strongly over the month. Despite a trade war, sanctions against public tech companies and slower economic growth, Chinese shares rallied. buoyed mainly by renewed optimism on the trade front.

Hong Kong Shares took a beating as months of protests have discouraged investment and compromised the country’s position as a financial hub. The US has also passed the bipartisan Hong Kong Human Rights and Democracy Act that could strip the city of its special trading status following annual reviews of its democratic freedoms. As of writing, the Hang Seng index was up by only 7%.

FTSE100 was primarily driven by Brexit-related events. Towards the end of the year, the index has been trading sideways, but the majority win by the Conservative Party has pushed UK stocks higher. However, the possibility of a hard-Brexit has tamed the rally.

World Equity Indices (% Change)

Source: Bloomberg Terminal

As the year comes to an end, we are seeing the dominant risks – trade and Brexit that have rattled the markets over the months moving in a positive direction.

Energy Sector

The energy landscape is changing over the increased concerns on climate change. The rise of renewables is altering the dynamics of the industry. The “Greta effect” and various extreme weather conditions are constant reminders that the climate crisis is not going away and governments will be forced to adjust policies to tackle climate change.

As we move into a new decade, we see that the energy sector has been left behind. Looking at the different sector of the S&P500, energy emerged as the worst performer.

The oil and gas industry is facing a supply glut and decreasing demand at the same time. Saudi Aramco’s IPO which is one of the biggest IPO was launched as a local affair reiterating the struggle to entice international investors at a time where the oil market is facing structural headwinds.

The deeper production cuts by the OPEC members and allies and less geopolitical tensions are currently supporting a fragile oil market.

2020 will be the confirmation of a new era…

Investors are navigating in an environment with historically high levels of policy uncertainty. As we step into a new decade, market participants will be familiar with:

  • A new world of higher tariffs
  • Peak globalisation
  • Climate change
  • A probable tech war between the US and China
  • Commodities gluts
  • Historically low levels of interest rates.

2020 is probably not the year for a recession. In the last two months, investors have priced-out the recessions risks. The optimism is mostly based on positive trade-related comments, central banks intervention and expectations of steady interest rate in 2020.

Still, Uncertainties Remain and 2020 could be as volatile as 2019!

Deepta Bolaky, Market Analyst at GO Markets.

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Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.

Safe-Haven Markets Showing Limited Reaction to Impeachment Inquiry

Another way to look at the impact of the impeachment inquiry into President Trump is to watch the reaction in the so-called safe-haven markets. During periods of unrest in the financial markets, investors tend to sell risky assets and move their money into Treasurys, gold and the Japanese Yen. We saw these textbook moves on Tuesday when investors trimmed their positions in stocks and move their money into the perceived safety of U.S. Treasurys, gold and yen.

No Overreaction by Investors

Early Wednesday, U.S. stocks are edging higher while Treasurys, gold and yen are moving lower. This tells me that investors are in sync with the news and not overreacting until they are presented with all the evidence.

Don’t get me wrong, the impeachment of a president is a big deal, but based on the early price action in the key financial markets, we haven’t hit the point of concern yet, and we may never get there if the investigation into President Trump’s alleged wrong-doings show he did not break the law.

What We Know So Far

All we know at this time is there will be an impeachment inquiry. This move was serious enough to encourage investors to sell stocks, and buy Treasurys, gold and Japanese Yen. The next reaction in these markets will be to the transcripts of the phone call between President Trump and Ukraine President Volodymyr Zelensky later today.

The early reaction in the markets indicates that investors don’t expect the transcripts to worsen the situation, but that the inquiry will continue until the President is completely exonerated or cleared.

News Discounted

The price action on Tuesday indicates that investors have discounted the latest news, which is essentially the start of the inquiry. The next move will be investors reacting to whether something serious is brewing, or that this is just another distraction for the President.

Is Past a Good Guideline?

According to CNBC, “Stocks have previously struggled when a president faces the possibility of impeachment. In 1998, the S&P 500 fell about 20% at one point from its high to its low as independent counsel Kenneth Starr ramped up his investigation of President Clinton for perjury and obstruction of justice, according to CFRA. The market would bottom as the House began impeachment proceedings and then would later recover all those losses and hit an all-time high in November of that year.”

Obviously, we’re not even at this level and may never even get there since the event may never rise above a formal inquiry.

Possibly No Big Effect on Market

“From strictly a market’s point of view, the question will be, is it likely to succeed, and it does, what does a [Vice President Mike] Pence administration look like, and what does that mean for the 2020 election,” said Ed Keon, chief market strategist at QMA. “It is unlikely to succeed because of the composition of the Senate. If you net it all out, the end result is likely to be the status quo. I don’t expect that to have a big effect on the market.”

Futures Fall, Higher Tariffs Go Into Effect, Chinese Markets Surge

The U.S. Futures Are Down On Trade Woe

The U.S. futures trade was indicating a lower open for the major indices on Friday. The broad-market S&P 500 was in the lead with a loss of -0.50% while the Dow Jones Industrials and NASDAQ Composite were close behind. The move is driven by souring sentiment as U.S. tariffs on Chinese goods jumps to 25%. The hike in tariffs casts a pall on trade negotiations and is backed up by another Trump Tweet. Trump says he is comfortable keeping the tariffs in place, there is no need to rush, a sign of serious trouble in the trade talks.

In economic news, U.S. consumer-level inflation remains tame. The CPI came in at 0.3% headline and 0.1% core, both off consensus by -0.01%. The year-over-year comparisons are equally tepid at 2.0% and 2.1% and do not encourage traders to think an interest rate hike will happen this year.

Global Markets Move Higher, Traders Are Optimistic

Indices in the EU and Asia were largely higher in Friday trading. In the EU, trading was led by the German DAX. The DAX advanced 0.75% in what may be a dead-cat bounce. The UK FTSE 100 and French CAC both advanced about 0.40% at midday. In economic news, the UK first quarter GDP came in at 0.5%. This is above expectation and the highest level since 2017. In the YOY comparison, UK GDP came in at 1.8% and as expected.

Shares of ProSeibenSat were among today’s leaders. The EU-based media company set the launch date for a new streaming service and saw shares rise by 6.0%. ThyssenKrupp saw its shares surge by 17% and lead the market. The company says it will IPO a portion of its elevator business and the market cheered.

The ThyssenKrupp IPO highlights a little-talked-about sector, infrastructure. There is a growing world need for infrastructure spending and elevators are a prime example. Older buildings need new elevators and new buildings that need elevators are being erected every day. Brookfield’s Public Securities Group, a leader in infrastructure investment, is another example. Larry Antonatos, a managing director and portfolio manager with the group, outlined several opportunities for growth in infrastructure during their quarterly market update. The parent company, Brookfield Asset Management, is in process of closing upwards of $33 billion in new infrastructure investment.

Chinese Markets Surge As New Tariffs Take Effect

Chinese markets surged as new tariffs took effect. Experts believe the tariffs do not affect goods in transit so there is still time for a trade deal to be struck. Vice Premier Liu He remains in Washington as a representative of China but not as Special Envoy as he was in past meetings. The Shanghai Composite led the advance with a gain of more than 3.0%. The Hong Kong Hang Seng made a strong advance too but only 0.84%. Elsewhere in the region, markets were mixed, the Nikkei fell 0.27% while the Australian ASX and Korean Kospi advanced about 0.25% each.

In trade news, Chinese President Xi Jinping says China will retaliate to the new tariffs and the threat of more.  He did not give specific details in his statement.

Trade Deal Broken, Global Equities Fall, The Bear Is Back

The U.S. Futures Fall After Trump Declares Trade Deal Broken

Trump, speaking before a rally in Florida, has declared the Trade Deal broken. He says China has broken the deal and tariffs are going to be raised on Friday. Conversely, China is still expected to send Vice Premier Liu He to Washington today in an effort to salvage the slowly disintegrating negotiations. The tech-heavy NASDAQ Composite was posting the biggest loss in early premarket trading, about -1.00%, while other major indices were close behind.

Shares of Revlon were moving higher in early trading despite a whopping miss on EPS. The company says revenue was in-line with expectations but EPS was hurt by one-time items. The company’s net loss was much less than in the previous year and guidance is optimistic. Shares of Lifetime Brands were flat after that company reported earnings. The maker of kitchen and lifestyle brands beat on the top and bottom line.

On the economic front, inflation data from the U.S. tamed in April. The April PPI came in at 0.2%, down from the previous month’s 0.6%, and below forecast. On a year over year basis, producer level inflation fell to 2.2%. This good news as it shows ongoing economic expansion but at a sustainable rate.

Global Equities Fall On Trump Tariff Threat

Global equities were moving lower on Thursday as well. The Trump tariff threat and discord at the negotiating table has traders on edge. The French CAC was in the lead with at midday with a loss of -1.25%. The German DAX and UK FTSE 100 were posting smaller losses at -0.90% and -0.45% respectively. The autos were leading losses at the sector level with most stocks in the red.

UK energy company Centrica was among the worst performers of the day. The stock saw its shares fall around -8.0% as sentiment for the company sours. Shares of Heidelberg Cement were moving higher in early trading, up about 2.0%, as infrastructure spending plans boost demand. Shares of Glaxo-Smith-Kline and Pfizer were both flat after the sale of GSK’s consumer health business to Pfizer was approved.

The Bear Is Back, Asia Falls On Trade News

Asian equities fell in Thursday trading as bearish traders gear up for a possible market correction. The Korean Kospi led with a loss greater than -3.0%, it, in turn, was led by Samsung and SK Hynix. Shares of the index heavyweights fell -4.0% and -5.0% respectively. The Hong Kong Hang Seng was the next biggest decliner at -2.4% followed by a -1.50% decline in the Shanghai Composite. Japanese shares fell an average -0.90%, led by Honda, with Australia’s ASX posting a small advance. Shares in Japan were led by Honda. Honda guided full-year profit up to 6.0% but shares fell nearly -5.0% anyway.

Trade Talks In Disarray, China Backpedals, Brexit Uncertainty Rears Its Ugly Head

The U.S. Futures Hit New Lows, Trade Talks In Disarray

The U.S. futures are indicating a down open in Wednesday trading as trade negotiations with China begin to unravel. Reports China had backpedaled on key aspects of the deal have led President Trump to raise tariffs to 25%. The tariffs will go into effect on Friday and may be avoided if only a deal can be reached. Chinese Vice Premier Liu He is still expected in Washington on Thursday and Friday but the odds are not in favor an accord will be made.

The tech-heavy NASDAQ Composite is in the lead in early pre-market trading, down about -0.60%. The Dow Jones Industrials and S&P 500 are down roughly -0.50% and -0.25% with Caterpillar, Ford, Nvidia, and Micron all moving lower. News from Iran isn’t helping matters. Iran is threatening to ramp up its nuclear program in order to stave off the effects of U.S. sanctions.

In earnings news, Disney and Fox are expected to report after the closing bell. Early action included reports from Barrick Gold and Wendy’s. Barrick Gold reported a much better than expected 16.8% increase in revenue for the quarter. This is the first quarter since the merger with Randgold and saw production increase 30%. Wendy’s beat on the top and bottom lines. Comp-store sales were better than forecast and margins improved. Guidance for the full year is in a tight three-penny range around consensus.

Brexit Uncertainty Resurfaces In The EU

European indices were mixed and flat at midday on Wednesday. The DAX was the only one in the green at 0.15%. The FTSE 100 and CAC were both down about -0.15%. While trade relations are at the forefront of everyone’s mind, Brexit uncertainty has reared its head again. The word on the street is that opposing sides in Parliament cannot reach an agreement and the talks may fall apart.

The autos and basic resources were the hardest hit sectors. They have a disproportionate exposure to China and are sensitive to trade news. Other sectors were also moving lower with shares of Imperial Brands and UK broadcaster ITV both shedding -5.0%. Both companies reported weak earnings, ITV at least is expected to launch a streaming service soon. Sales at Imperial Brands are likely to keep falling as tobacco use declines.

Trade Talks In Disarray, Japan Leads Asian Market Lower

Asian markets were broadly lower on Wednesday. Japan was in the lead with a loss of -1.40% but the Chinese Shanghai Composite and Hong Kong Hang Seng were close behind. The Australian ASX and Korean Kospi were also lower but the declines were much smaller, about -0.40% each. In China, weaker than expected trade data helped to send the market lower. Trade data for April shows a smaller than expected amount of exports balanced by a surprise gain in imports. While the overall trade balance was weaker than expected the trade surplus with the U.S. increased.

Trade Talks Roil Markets, Volatility Rises, Tariff Threats Loom Closer

Trade Tensions Rise, Market Calm Shattered

A series of Trump Tweets has roiled global markets. His threat to increase tariffs on Friday and to impose new tariffs soon has shattered the market calm. Futures trading in the U.S. indicates another big drop for equities and this may only be the beginning. The tech-heavy NASDAQ Composite with its heavy exposure to China and Asia is leading the losses on Tuesday. The index is indicated down about -1.0% with the Dow Jones Industrials and S&P 500 close behind.

Caterpillar and Boeing were among the days biggest losers, down -1.0% and -1.5% respectively, but there were not the only ones. Shares of Marriot Vacations were edging lower, about -0.15%, after missing top and bottom line expectations. Lumentum, maker of lighting and photographic solutions, saw its shares fall after beating consensus estimates. The company provided light guidance for the coming year and sent shares down about -0.70%.

In economic news traders will be waiting on the JOLTs report. The JOLTs report is a gauge of job openings and labor market confidence and is due out at 10 AM. The JOLTs report has shown job openings and labor market confidence trending at all-time highs. Later this week the PPI comes out on Thursday and the CPI on Friday.

Europe Moves Lower, FTSE 100 At A 1-Month Low

Equities indices in the EU moved lower on Tuesday. Traders are cautious about the U.S. tariff threat and how it may impact the EU. Not only is the EU in the crossfire between the U.S. and China it too must negotiate trade terms with the U.S. later this year. The UK FTSE 100 led the losses, down about -1.10%, and set a new one-month low in the process. Banks were among the worst performers, down 1.8% as a group, with Barclay’s and HSBC down more than 2.0%. The utility sector was among the best performers, up about 1.8% at midday.

Shares of BMW fell more than -2.0% after the automaker reported EPS fell -78.0% from last year. Thomas Cook, an airline, saw its shares surge more than 10% after Lufthansa confirmed it would put in a non-binding offer to purchase some assets. In economic news, German new orders rose from last month but not as much as expected. This comes after several months of contraction and does little to encourage investors.

Volatility Rises As Tariff Threats Loom Closer

The VIX index, the fear index, has risen to a six-week high on the back of Trump’s renewed tariff threat. The index is pointing to a major decline in global equities, Asia included. Asian indices were mixed on Tuesday but the action was muted. Chinese markets posted small gains but there were little more than a dead cat bounce. The Japanese Nikkie reopened after an extended holiday and fell -1.51%. Shares of Fanuc, heavily exposed to China, fell -3.0%. The Australian ASX was able to advance 0.19%, the Korean Kospi fell -1.0%.

On a positive note, China has confirmed that Liu He will still attend a delegation in Washington later this week. His attendance was questionable following the Trump Tweets but a good sign a deal is still possible.

Trade Talks Stall, Global Equities Dive, Global Growth At Risk

The U.S. Index Futures Fall 2.0% As Trade Talks Stall

The U.S. indices are down roughly -2.0% in early premarket trading following a breakdown in trade talks. The tech-heavy NASDAQ Composite was in the lead, down -1.90%, with the Dow and S&P not far behind. The move followed a series of Tweets from President Trump that have cast a pall on sentiment. Trump says he will increase tariffs on China from 10% to 25% starting on Friday. In addition, Trump says he will place tariffs on another $325 billion in Chinese goods if the talks don’t move forward soon.

Trump’s reason for the tariffs, a surprise to most in the market, is that the talks are progressing too slowly. The word that China is trying to renegotiate portions of the deal may have played a roll in the decision. According to one market participant, the new tariffs are a message to China not to bring any more empty offers to the table. China, scheduled to attend a final round of talks this week, has indicated it may pull out. Up until just yesterday many, including those close to the talks, had thought a deal was possible by Friday.

In economic news, last week’s non-farm payrolls figure was a blowout number. The data shows strong increases in jobs, wages, and unemployment and belies fears of an economic slowdown. The catch is that an increase in trade tensions may cause an additional slowing in global economic activity.

Europe Falls On Trade And Data

European markets were not immune to the U.S./China trade news. Indices in the region fell an average -1.80% with downward pressure aided by weak manufacturing data. The Markit PMI data shows composite PMI in the Eurozone region held steady over the past month but data within the report was mixed. Likewise, EU retail sales came in a bit above expectations but still down more than 1.2% from the previous month. The UK FTSE 100 was closed for a holiday.

In stock news, shares of Apple fell -3.0% after news the European Commission would be opening an investigation. The investigation comes after complaints filed last year by WhatsApp. Others in the tech space, specifically the chipmakers, were also down hard in early Monday trading.

Trade Talks Stall, Global Growth At Risk

With trade talks stalling global growth is at risk. Nowhere was that risk felt stronger than in China where equities fell more than 5.0%. The Shenzen Composite led the losses with a decline of -7.0%. The Hong Kong Hang Seng lost only -3.0% but was still down hard in Monday trading. The Australian ASX and Korean Kospi were down about -0.80%.

Chinese Vice Premier Liu He is scheduled to visit Washington this week. He expected to bring a 100-person delegation for a final round of trade talks. The last indications were that a deal was possible by Friday. China has responded to Trump’s tariffs with surprise saying they were unexpected.

Equities Rebound, Strong Labor Data Lifts Stocks, All-Time Highs In Sight

Equities Rebound After Strong Labor Data

The U.S. equities rebound after stronger than expected labor data. The much-anticipated NFP report blew past market expectations posting an increase of 263,000. The consensus estimate was only 196,000. Other data within the report was also bullish. The unemployment rate fell 0.2% to 3.6%, a 60-year low, while average hourly earnings rose 3.2% YOY. The good news is the rise in wages is coupled with increased productivity. The Q1 labor costs fell due to rising productivity so bears no impact on the inflation outlook.

The NASDAQ Composite futures were leading in early pre-market trading with an advance of 50 points. The Dow Jones Industrials and S&P 500 were both looking at similar gains, up about 0.35% and 0.40% respectively. The markets are now within spitting distance of new all-time highs. New all-time highs are likely to be set in Friday’s session.

Earnings reporting was light on Friday morning but there were still some of note. Weight Watchers saw its shares rise 14% after it reported cost-cutting efforts had helped it beat estimates. Newell Brands, makers of Rubbermaid and other household brands, reported a strong quarter as well sending its shares up more than 3.0%. Mercado Libre, an e-commerce platform serving Latin American, was also a big winner after reporting strong earnings. The merchant says revenue and items sold beat consensus and shares rose 13%.

EU Markets Up After Data

The EU equities indices were broadly higher in Friday trading after better than expected CPI. The pan-EU CPI rose better than expected at both the headline and core levels reducing expectations for ECB policy easing. The headline CPI is 1.7%, rising 0.3% from the prior month, while the core CPI is 1.2%, 0.2% above consensus. The data is still weak in regards to the ECB’s 2.0% target but shows reacceleration and should give policymakers more confidence in the economy.

The UK FTSE 100 posted the strongest gains in midday Friday trading, 0.75%. The German DAX and French CAC were both solidly higher but gains were more moderate at 0.40% and 0.30%. In earnings news, Societe Generale saw its share move higher after reporting a 26% decline in net profits. The banking giant says its restructuring efforts are bearing fruit and shares advanced 3.0%. Another big player in the banking industry, HSCB, also beat consensus expectations and saw its shares rise 2.0%.

Asia Mixed, Traders Eye U.S. Labor Data

Asian markets were firmly mixed after yesterday’s weak session in the U.S. The Japanese Nikkei is still closed for holiday’s. Gainers and losers were evenly split, two and two, with both mainland China and Hong Kong moving higher. Those indices advanced about 0.50% each while the Australian and Korean markets moved lower. The Australian ASX fell a mere -0.04%, basically unchanged, while the Korean Kospi fell a more substantial -0.74%.

In trade news, there is some expectation a trade deal could be announced as early as next Friday.

Futures Flat After FOMC Statement, Global Markets Mixed, Wage Inflation Eases In U.S.

The U.S. Futures Are Flat After The After The FOMC Statement

The U.S. futures are indicating a flat to a slightly negative open for the major indices on Thursday morning. The move follows a -0.75% decline in the S&P 500 on Wednesday sparked by Jerome Powell’s comments. FOMC Chief Powell says low inflation is transitory and the Fed stands ready to act when needed. This stance hints at no cuts to interest rates this year, a situation largely supported by the data.

Today’s data includes the weekly read on jobless claims and a key read on labor costs and productivity. On the jobless claims side of the equation, claims held steady over the last week. Continuing claims, those requesting the second week of assistance, rose slightly from a downwardly revised figure. Both figures have shown some volatility over the past few months but remain consistent with long-term economic health. Tomorrow’s NFP report will be closely watched. The market is expecting a strong 213,000 and that estimate may be low.

In earnings news, Under Armour reported before the bell and beat on the top and bottom line. The company is benefiting from strong labor trends and increased consumer spending shares advanced more than 5.0%. Shares of Dunkin Donuts were right behind with a gain near 5.0%. The iconic coffee and snack brand also reported better than expected revenue and earnings. Conversely, Tempur Sealy, a mattress maker, saw its shares fall -3.6% as competition and input costs weigh on results.

The EU Markets Are Mixed, Manufacturing Contracts For Another Month

The EU indices are flat and mixed at midday as Fed Chief Jerome Powell’s comments work their way through the market. Trading in the region was also affected by weaker than expected manufacturing data and the dovish tone in the BOE statement. On the economic front, all-EU Manufacturing PMI rose a tenth to 47.9, better than expected, but yet below 50 and firmly contractionary. The data is another indication the EU is suffering from protectionist policies and international trade relations.

The BOE, for its part, voted unanimously to hold rates steady at today’s meeting. The bank cited international risks related to trading conditions and the Brexit. With manufacturing in contraction and other signs of weakness, it is possible the BOE could lower rates sometime this year.

On the earnings front, shares of BNP Paribas jumped more than 1.0% after it released results. Shares of Dutch financial firm ING fell -1.5% after it reported a narrow miss.

Asian Equities Mixed, Japan Is Still Closed

Equities in Asia were mostly higher as markets return from a holiday. The Shanghai Composite, Hong Kong Hang Seng, and Korean Kospi all posted gains between 0.40% ad 0.85%. The Australian ASX was the only market to post a loss, -0.59%, but that is not surprising as it was the only market open on Wednesday. The Japanese market remains closed for the enthronement of their crown prince.