Geopolitical, economic and technical factors finally combined to drag down the S&P 500. It closed down for the first time in four-weeks. As the saying goes, one week does not make a trend, the S&P 500 is till in a nice uptrend on the weekly chart. It is a bit overextended by stretching above the upper-channel line. It also is making a divergence on 9-week RSI (see point A & B). However, the divergence in such a strong trend does not automatically mean reversal.
Week In A Nut Shell:
- Most global indices fell for the week except for the Shanghai, Hong Kong and Tokyo – a reversed combination from last week. The 3-month picture is up for all, except Russell 2000. The markets that were severely depressed – Russia, Brazil, Turkey and Spain – in the last few months did better.
| Week | 3-Month | Week | 3-Month | |||
| North America | Global Dow | -(0.5)% | +6.5% | |||
| DJIA | -(0.9)% | +4.4% | ||||
| S&P 500 | -(0.7)% | +5.2% | Latin America | |||
| NASDAQ | -(0.2)% | +1.5% | Brazil | 3.2% | 21.9% | |
| Dow Transport | -(2.0)% | +7.6% | Mexico | -(0.7)% | 11.9% | |
| Russell 2000 | -(0.2)% | -(1.6)% | ||||
| Europe | Asia & Pacific | |||||
| UK FTSE 100 | -(1.2)% | +2.2% | Shanghai | +2.0% | +3.3% | |
| German DAX | -(0.7)% | +9.5% | Nikkei 225 | +0.1% | +5.4% | |
| French CAC40 | -(0.8)% | +7.8% | Hang Seng | +1.6% | +8.3% | |
| Spain | +0.4% | +13.3% | South Korea | -(0.2)% | +3.7% | |
| Italy | -(0.6)% | +8.9% | Australia | -(1.1)% | +1.4% | |
| Switzerland | -(0.1)% | +6.7% | Bombay | -(0.7)% | +15.7% | |
| Russia | +1.2% | +30.2% | Indonesia | -(0.2)% | +1.0% | |
| Turkey | -(1.7)% | +24.9% | Thailand | -(0.1)% | +6.1% | |
- Treasury yields were mixed but are lower than 3 months ago.
| 30 Years Yields | -(0.7)% | -(7.7)% | 13 Week Yields | +7.1% | -(37.8)% | |
| 10 Years Yields | +0.3% | =(6.9)% | 30 Years Bond | +0.3% | +2.3% |
- Commodities generally rose for the week but for copper, corn, wheat and soybeans. 3-Months picture is mixed.
| GSCI Index | +2.1% | -(1.0)% | |||
| Light Crude | +4.0% | +8.0% | Wheat | -(5.2)% | -(14.7)% |
| Nat Gas | +0.9% | +7.4% | Soybeans | -(2.1)% | +2.7% |
| Gold | +1.9% | -(7.5)% | Sugar | +0.7% | -(1.2)% |
| Silver | +3.5% | -(8.2)% | Coffee | +0.9% | -(12.4)% |
| Copper | -(0.8)% | +2.6% | Cotton | +2.6% | -(5.7)% |
| Corn | -(2.6)% | -(8.0)% | Cocoa | +1.7% | +4.6% |
- Forex had a volatile week. Dollar index closed up but was much higher mid-week.
| Dollar | +0.4% | +1.5% | |||
| EUR/USD | -(0.8)% | -(2.7)% | AUD/USD | +0.8% | +4.1% |
| GBP/USD | +1.0% | +1.9% | NZD/USD | +1.9% | +1.5% |
| USD/JPY | -(0.5)% | +0.6% | USD/CAD | -(0.7)% | -(2.3)% |
| USD/CHF | +0.7% | +3.2% | AUD/JPY | +0.3% | +4.8% |
The Economic Report Card
- Asia-Australia
- Japan – GDP improved but manufacturing disappointed
- GDP y/y was 6.7% and q/q was 1.6% better than the estimates of 5.6% and 1.6%
- Current Account came at 0.13T, less that expectations. So were Tertiary Industry Activity Index at -5.4%, BSI Large Manufacturing Conditions at -13.9 and Industrial Production m/m at -2.8%
- China – higher inflation expectations, more business activities
- The CPI rose more than expectations – y/y by 2.5% and m/m by 0.1%
- PPI y/y rose by -1.4%, also more than estimates
- New Loans increased by 871B, more than forecast. So did Fixed Asset Investment at 17.2%
- NZ – RBNZ increased the rate to 3.25% from 3.00% – inline
- Australian unemployment rate fell to 5.8% beating estimates but Employment Change was -4.8K instead of +10.0K
- Japan – GDP improved but manufacturing disappointed
- Europe
- UK’s Claimant Count Change was -27.4K beating estimates. So was the Unemployment Rate of 6.6% and RICS House Price Balance of 57%
- French CPI numbers disappointed – m/m CPI was 0.0% versus 0.1% forecast. HICP had similar numbers too,
- German, Spanish and Italian m/m CPI came inline showing lack of inflation at -0.1%, 0.0% and -0.1% respectively
- EU Industrial Production m/m rose by 0.8%
- Americas
- Canadian Housing Start at 198.3K was better than forecast but the New Housing Price Index (m/m) disappointed at 0.2%. Manufacturing Sales (m/m) also disappointed at -0.1%
- Mexican CPI y/y rose to 3.51% compared to estimates of 3.47%
- US
- JOLTS Job Openings at 4.46M was better
- Federal Budget Balance was -130.0B, also better than estimates of -131.0B
- 10-Year Auction Note was inline at 2.648%
- Retail Sales disappointed – Core Retail m/m was 0.1% and Retail was 0.3% versus 0.4% and 0.6% expectations respectively
- Import Price Index (m/m) at 0.1% was worse than forecast of 0.2%. So was the Business Inventories (m/m) at 6.6% =
- Core PPI (m/m) came at -0.1% and PPI at -0.2%, both lower than forecast of 0.1%
- University of Michigan Consumer Expectations and Sentiments came at 72.2 and 81.2 respectively and lower that the forecast
Technical Perspective
S&P 500 is overextended on the upside and the bonds on the downside. Previous such combinations led to a pullback for S&P 500 and snap-back for bonds. Odds of that happening again have increased a lot. June’s Triple-Witching is on next Friday. Historically it has a bearish impact. Since 1998, there has not been a single positive week following June’s triple-witching. Also, a down triple-witching week is followed by a down week 72% of times since 1991, though it was reversed for the decade before.
Slumbering China Wakes Up
FXI, iShares China Large-Cap ETF, is completing an upward-sloping inverse head-&-shoulder pattern. It is not a classic one, hence difficult to measure the target. The target seems to be in 40-41 range, which is also near the resistance level formed by Dec ’13 highs.
EEM, iShares MSCI Emerging Markets ETF, is knocking on a resistance formed by the highs of May ’13 and Oct ’13. So is the BRIC ETF. BKF.
India Overbought
Indian ETF, EPI – WisdomTree India Earnings Fund, is in overbought territory. On weekly chart, 9-period RSI is showing a divergence and the ETF is at the 61.8% Fibonacci retracement levels of the drop from the Oct ’10 high of 28.72 to Sep ’13 low of 13.38.
Oil & Gold Boosting Canada
Toronto’s TSX Composite Index is nearing the summer of 2008 high for the first time in six years. EWC, iShares MSCI Canada ETF, has broken above the upper limit of a symmetrical triangle and moving towards the measured target near April ’11 highs.
Looking Ahead To The Week Of June 16th, 2014
Economic Reports
- Monday 16th
- BoJ is coming out with monthly report
- Euro Zone CPY y/y are expected to be 0.5%, Core CPI y/y at 0.7%, CPI m/m at -0.1% and Core CPI m/m and 0.3%
- US will have TIC Long-Term Purchases of 41.3B and the Industrial Production is forecasted to be 0.6%
- Tuesday, 17th
- UK’s CPI y/y expected @ 1.7%; Core CPI at 1.7%; PPI Input m/m at 0.1%, PPI Output m/m at 0.1% and RPI y/y at 2.5%
- German SEW Economic Sentiment expected at 35.2
- US Building Permits estimated at 1.07M; Core CPI m/m at 0.2%; CPI m/m at 0.2%; Housing Starts at -3.7%
- NZ Current Account expected at 1.30B
- Japan Adjusted Trade Balance expected at -1.01T; Trade Balance at -1173B; Exports y/y at -1.2%;
- Wednesday, 18th
- UK MPC Asset Purchase Facility and MPC Official Bank Rate Votes
- US – FOMC Economic Projections and FOMC Statement; Current Account expected at -96.4B
- German 10-Yr Bond Auction expected at 1.410%
- NZ GDP q/q forecasted at 1.2%
- Thursday, 19th
- Swiss SNB Monetary Policy Assessment and Press Conference
- US Unemployment Claims expected at 316K; Philly Fed Manufacturing Index at 14.3
- UK Retail Sales m/m expected at -0.5%; Retail Sales y/y at 4.3%; Core Retail Sales y/y at 4.8%
Earnings / Splits
Some of the planned events of the week
- Monday
- Korn/Ferry (KFY) to announce earnings at close
- Tuesday
- Isle of Capri (ISLE) and Yingli Green Energy (YGE) will announce before open
- Adobe System (ADBE), La-Z-Boy to announce at close
- Wednesday
- FedEx (FDX) will announce before open
- Jabil Circuit (JBL), NQ Mobile (NQ) and Red Hat (RHT) will announce after close
- Thursday
- BlackBerry (BBRY), IHS (IHS), Kroger (KR), Pier 1 Imports (PIR), Rite Aid (RAD) will announce before open
- KBR (KBR), Oracle (ORCL), Smith & Wesson (SWHC), and TIBCO Software (TIBX) will announce at close
- Friday
- Carrmax (KMX), Darden Restaurants (DRI) will announce before open
