Major Market Movers To Watch July 26th – 30th: Stocks, Commodities, Forex

 

Introduction

Prior Week

Bullish Market Movers

1. US Earnings Week II
2. EU Data
3. UK Data
4. Other

 

Bearish Market Movers

EU Non-Events

–EU Bank Stress Tests

Coming Week

1. Bearish
2. Bullish 

 

Conclusion-Downside Risk Greater, EU Banks Stress Tests Likely To Decide Near Term Market Direction

Introduction

 

Here are the key market movers bullish and bearish for the past and coming week.

Prior Week

 

Bullish

 

1. US Corporate Earnings Week II

 

As noted below, the main EU events had no major effect on markets, leaving US earnings as the major market mover. Market basically moved with the tone of the releases each given day.Apple (AAPL) on Tuesday; eBay (EBAY), Morgan Stanley (MS) and Qualcomm (QCOM) on Wednesday; AT&T (T), Nokia (NOK) and UPS (UPS) on Thursday; and Ford Motor (F) and Verizon (VZ) on Friday. The focus continues to be on improving top-line revenue, and most of these companies met or exceeded expectations

1. European Economic Data Surprises

• European purchasing managers’ indexes in the past week showed private sector business activity accelerating in July, beating expectations of a slowdown. They indicated third-quarter euro zone growth of around 0.6-0.7 percent, double the 0.3 percent forecast in the most recent Reuters poll.
• German Ifo business sentiment posting a record jump in July to its highest level in three years.

 

1. UK GDP Data Does Too

 

• The U.K. gross domestic product grew by a much stronger-than-expected 1.1% in the second quarter vs. a forecasted increase of 0.6%
• It also showed the biggest rise in construction in almost 50 years.

 

1. Other

 

• US Congress Extends Jobless Benefits, Defers Further Damage To Spending From Exhausted Employment Benefits
• US Inflation Remains Dormant: Permitting possible continued levels of deficits for additional stimulus while us borrowing remains cheap
• China Property Bubble Eases While China Growth Continues
• Concerns About EU Continue To Ease: Even riskiest EU states able to sell bonds (but to whom?)
• US consumer credit delinquencies may be stabilizing
• Financial Sector Uncertainty Lifts With Passage Of Regulation Bill, Goldman Sachs Settlement

 

Bearish

 

1. EU Bank Stress Tests

 

Given the lack of sustained effect of bullish or bearish rumors, and the strategically late Friday release of test results(calculated to be too late for markets to digest until next Monday) the impending results produced speculation but no meaningful effect. What we finally saw looks distinctly bearish. See below for more.

1. Federal Reserve Chairman Ben Bernanke’s Semi-Annual Monetary Policy Report

 

He disappointing the market by focusing on the uncertainty still in the marketplace, saying the economic outlook remains “unusually uncertain” and the Fed remains prepared to take further policy actions (read stimulus) as needed.

Coming Week

 

First, consider what the daily chart of the bellwether S&P 500 is telling us about the overall picture of risk appetite.

 

S&P 500 DAILY CHART    10JUL24

As per the above chart, the past week’s increase on low-average leaves markets once again testing 3-phased multi-week resistance for the 3^rd time in 6 weeks. This triple resistance consists of its:

1. 200 day EMA
2. 50 day EMA
3. 1100 price level, which has held as resistance since May 19^th, and is being tested for its 3^rd time in the past month

 

Whether it can stay will depend on the balance of bullish vs. bearish forces in the coming week

Bearish

 

1. Increased uncertainty on EU banks: No one doubted that the overall tone of the EU bank stress test results would be rosy – the question was whether it would somehow have enough detail, transparency, stringency and failing banks to be credible. It didn’t. That creates greater concern about what skeletons is the EU hiding. Thus we expect this attempt to calm markets to backfire and pressure markets lower. Similar to the EU’s initial attempts to ease concerns about Greece early this year, by failing to decisively reduce uncertainty it has increased it. This is EXACTLY what we warned against last week in the concluding lines of  The Coming Week: Stocks, Commodities, Forex – 3 Key Market Drivers July 19th -23rd. See Anticipating Market Response To EU Bank Stress Tests for the full story. Unclear whether markets will react immediately to price in the continued or greater uncertainty about EU banks, but it will do so eventually as it now has a massive excuse to pull back.
2. Major stock indices like the S&P 500 are now at major resistance levels and will likely need further good news to fuel a sustained push higher. The EU remains the biggest source of doubt for global markets, and a credible stress test report would have been the best source of such news. With the stress tests results failing to alleviate uncertainty about the EU banking system, markets will need to look elsewhere to justify further gains. Other than overall positive US earnings, which have been priced in already, there is no clear source of such news coming in the near future
3. Fundamentals Remain Weak: In most of the developed world, none of the fundamental weaknesses behind the downtrend in risk assets in 2010 have materially improved. The pillars of a genuine recovery remain shaky – jobs, spending, real estate, construction and banking, longer term resolution of the sovereign and private debt levels all remain weaker than we would expect in the early stages of a real recovery.
4. ECRI data worsens: the latest weekly reading at -10.5%. As we noted last week, -10% annualized decline has historically meant a double dip recession coming.
5. Hungary Debt Picture: Hungary rejects IMF austerity measures in a bid to win popular support in coming elections. Two top ratings agencies said on Friday they might downgrade Hungary’s sovereign debt without the IMF lending credibility to the future of Hungarian deficit reduction. A risky move by Hungary but not unexpected given both recent successful PIIGS bond sales and the EU’s likely support if needed in order to prevent another EU crisis. Reuters reported that “Hungary sold all the bills on offer at a 12-month Treasury bill auction on Thursday, although yields rose. But analysts said a 50-billion-forint bond auction next Thursday would be a better indicator of investor sentiment. The hundreds of thousands of Hungarian households that have borrowed heavily in foreign currency, mainly Swiss francs, in the past years will suffer if the forint weakens further.”

 

Bullish

1. Positive momentum plus a quiet news week could be enough to keep markets moving higher if they somehow choose to ignore the EU stress tests or manage to view them positively.
2. US Earnings Week III: There are fewer big names, though the list includes of BP (BP), Boeing (BA), Chevron (CVX.N), DuPont (DD.N), Exxon Mobil (XOM), Sony (SNE) and Visa (V).
3. Further stimulus and tax reductions may be coming
4. China and other emerging market nations continue to show growth
5. China’s property bubble is easing without killing growth, a huge plus for global commodity demand
6. As emerging markets continue to resist stagnation, hopes increase that they can fill in the gap in longer term growth left by the developed world, which is looking at stagnation as most economies suffer from cutbacks in government spending
7. While little in the EU has fundamentally improved since the panic of this past spring, the panic of imminent collapse has subsided, buying the EU time to heal. The EU appears willing to adopt US style measures to prevent defaults that could spark a default contagion. As a result, EU sovereign bonds are selling, including those of members most at risk of default, albeit at rising rates. Keeping markets calm about the EU is not enough to spark a rally, but it is the biggest single factor in keeping markets from dipping in the near term.
8. Many challenge the reliability of the negative ECRI outlook
9. In our April article, CHARLES NENNER’S HIGH CONVICTION TRENDS, TRADES: 2010-11 Investors’ Roadmap, Nenner predicted a final rally in August before risk assets begin a long decline stretching well into 2011. This may be the start of that near term push higher.

 

Unknown

 

Economic Data: Like Bernanke said this past week: “unusual uncertainty.” Highlights include:

US

Monday: New Home Sales, with data expected to show a rise to 320,000 units in June, per a Reuters poll of analysts.

Tuesday: More housing data – includes the Case-Shiller home price index, which is expected to rise 4 percent year-over-year in May, consumer confidence is expected to come in at 51 for July, a slight dip from the month before. The next round of Treasury auctions in the middle of the week

Wednesday: Durable Goods Orders, Fed Beige Book

Thursday: Weekly initial jobless gains, consensus is for a small drop from 460,000 from 464,000 the week before, the final July reading of consumer sentiment, which is forecast to rise from the preliminary July reading.

Friday: Advance Reading for Q2 2010 GDP, with expected growth of 2.5 percent, compared to 2.7 in the first quarter.

EU

Tuesday: German GfK Consumer Confidence Survey and June Import Price Index

Wednesday: Business Climate Indicator, Consumer Confidence, and Monthly Industrial Confidence numbers

Friday: June Euro-zone Unemployment Rate and July CPI Estimate

UK

Tuesday:, June Net Consumer Credit, and June Mortgage Approvals

Thursday: the BOE’s King, Bean, Fisher, and Sentance will be testifying on the May Inflation Report at Parliament’s Treasury Committee, July Nationwide House prices

Friday: July GfK Consumer Confidence Survey

Japan

Wednesday: June Retail Trade and Large Retailers’ Sales

Thursday: June Unemployment Rate, July Tokyo CPI, June National CPI, and June Industrial Production

Friday: June Housing Starts

Canada

Thursday: June Industrial Product Prices and Raw Materials Price Index

Friday: Monthly GDP for June

Switzerland

Wednesday: KOF Economic Barometer

Australia

Monday: PPI q/q

Wednesday: CPI q/q

New Zealand

Wednesday: NBNZ Business Confidence, Official Cash Rate

Conclusion

 Balance of market movers continues to be bearish. Logically, markets should tank based on suspicions raised by the EU stress tests, which suggests high potential for nasty surprises ahead. However, markets are not always rational, and with senior traders on vacation and mild upward momentum, further rally is not out of the question if no other major negatives appear. However make no mistake, nothing has fundamentally improved. Worse, the EU has once again provided bears a huge excuse to take markets lower by failing to come clean about real risks ahead.

Disclosure: No Positions