At midsession on Monday, US cash equities are flat to slightly positive, the Dollar is up (strongly against the Yen) and the AUD/USD is sliding a bit more today. US treasuries are slightly weaker. Oil, copper and gold are all weaker as the DXY continues its run higher. China was strong overnight and European indices saw some recovery action. SPX 2712 is intraday resistance. The ES profile is in drift mode.
Here is some stuff you likely already know...
Summary: Recent economic data points to slower global growth which could be aggravated by a trade war, the mechanics of which will be central to this week's action. Carefully controlled efforts to avoid perceptions of further damage could alter earnings expectations and invigorate the bulls. Japan and Europe had a rough time on Thursday and Friday which influenced the action in North America. Central bankers are revealing increasing nervousness about the growth story -- especially in the face big balance sheets, relatively low interest rates and the specter of further disruption in global trade supply lines.
On Friday the SPX closed at 2707.88 or about 15.40% higher than where it was during the intraday low of 26 December and is currently balancing at roughly that same level. The index had been up as much as 16.72% at the 5 February intraday high. The bond market is not budging much. Yields are flat to lower over the same period. This disconnect is sending a message that the bears have not given up and that seems rational enough given the circumstances. Recent gold and Treasury action imply that investors refuse to ignore the data that points to slowing global and US earnings growth -- and further that part of that slowing growth story will be driven by trade issues between the US and China and central banker's response to that situation. Some longer horizon bearish investors are saying that even if the US and China work out a deal it cannot compensate for cyclical changes while short termers are looking to exploit any headlines that come from this week's meetings in Beijing. Still, sellers seem reticent and small dips continue to be bought.
The SPX is struggling with a major retrace area below the 200 day/50 week moving average while the NDX touched but rejected its 200 day average and moved through but fell back below its 50 week average. The Dow, with help from the Transports, bounced Friday right from its own 50 week average and the RUT is still dealing with its 20 week average. The 50 day moving averages are flattening and all four indices were below their rising 5 day averages at the end of last week.
Some Key Influences and Events for Week of 11 February
There must be a US budget agreement by Friday, 15 February. WSJ had reported that the talks are stalled but that is typical. They are not reporting that the talks have resumed but that there are obvious sticking points.
US officials are in China on Monday to negotiate trade issues - a major point is of course forced intellectual property transfer issues. There are lower level talks through Wednesday and then the Secretary Treasury and Liu He come in later in the week. We've heard chatter about extending the 1 March deadline which would take existing tariffs on China imports from 10% to 25%. The president has in the past publically denied flexibility on that date. He has also said previously that any deal will not be finalized until he meets with Xi Jinping. The US administration's trade negotiators are presumed aware that a jump from 10 to 25% could easily derail FAANG, Industrials and pretty much all multinational large caps.
Side note: Bank of America Merrill Lynch weekly flow note out Friday says 26B left the US equity market and 7B has left the European equity market since the start of January. The bank says investors have bought 16B in EM equities and purchased over 30B in high yield, investment grade and government debt.
Levels to Watch: Immediate term ES/SPX support is roughly 2695 and 2680 is heaviest support followed by 2668/2673 -- the ES/SPX 2018 flat line. On the upside we have 2712, 2730 and 2743 -- the 200 day moving average.
If those support levels were to fail, broader SPX support comes in around 2643 (50% retracement) and the next heaviest weekly support and 2635 is a high volume poc on a 30 day time frame. 2600/2610 is the contingency support if things were to get tough. These levels are pretty standard and obvious but can be refined early on Monday, depending on how the index handles that 2700 area. Will update levels as soon as they change. Here is the US weekly indices view.
Incoming Economic Data
Tuesday: NFIB Small Business Optimism Index and JOLTS Job Openings.
Wednesday: MBA Mortgage Applications Index,CPI, Core CPI for January, weekly EIA Crude Inventories and the Treasury Budget for December. Thursday: Retail Sales, Retail Sales excluding automobiles for December, PPI and Core PPI for January, Initial and Continuing Claims, Business Inventories for November and weekly Natural Gas Inventories. Friday: Export Prices excluding agriculture, Import Prices excluding energy, Empire State Manufacturing Survey for January, Industrial Production and Capacity Utilization for January and University of Michigan Consumer Confidence Preliminary for February.
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