The Market Week Before
However swelled the seasonal population of the Hamptons, July’s holiday-shortened trading week had nothing of the market doldrums commonly associated with mid-summer as stocks, bonds yields and currencies fought to hold or attain higher ground. Here’s what you need to know about what went down while your attention was on refashioning raw meat, enjoying just a few craft beers, very judiciously blowing things up otherwise occupied:
- Egyptian President Mohammed Morsi is deposed July 3rd by the country’s military after failing to meet an ultimatum issued in the wake of massive popular protests last week. Supreme Constitutional Court Chief Justice Adly Mansour is appointed interim head of state, Egypt’s one-year old Islamist-tinged constitution is suspended and July 5th Mansour dissolves the upper house (lower dismissed by Morsi previously) of Egyptian parliament.
- Portuguese bond yields soar, stocks collapse as Prime Minister Coelho’s ruling coalition is in tatters after the resignation of two key ministers in protest of continued austerity. The Portuguese economy remains mired in deep recession with steadily contracting GDP, rising budget deficits and the chronically high unemployment characteristic of the Euro area periphery
- The European Central Bank meets July 4th, leaving lending rates unchanged but following the Fed with unanimously-approved introduction of forward guidance. Intending to provide clarity regarding the central bank’s rate outlook, the ECB’s Governing Council issues their statement confirming rates will remain low “for an extended period of time”. The Euro fell broadly away from 1.30 following the announcement.
- Similarly the Bank of England under the direction of new Governor Mark Carney. The BoE’s Monetary Policy Committee fashions a uncharacteristically transparent statement, issued on July 4th affirming the recent rise in borrowing costs “were not warranted by the recent developments in the domestic economy.” Sterling likewise fell sharply below 1.50 on the dovish assessment.
- All-pervasive chatter of Fall start to Fed Taper following the week’s raft of positive employment data including a better-than-expected ADP, Weekly Initial Unemployment Claims near 345k, improving ISM Non-Manufacturing PMI Employment Index (all Wednesday) and Non-Farm Payrolls once again near 200k (with April and May revised a comparable level). After the release Friday morning, heavily-followed analysts are quick to voice a near-universal consensus the Fed’s first “taper” of asset purchases would be announced at September 2013’s FOMC meeting.
- Important Levels to close out the week include the S&P 500 (Symbols: SPX, ES, SPY) at 1631, once again above its 50-Day SMA at 1626; the Russell 2000 (Symbols: RUT, TF, IWM) at a closing all-time high of 1005; the US Treasury 10-Year Note yield at 2.71% (+21bps for the week; +109bps since the early May low), the US Treasury 30-Year Bond (Symbol: TYX) at 3.68% (+18bps; +86bps since the early May low).
Economic Calendar At-A-Glance:
| Release | Actual | Expected | Prior | |
| ISM Manufacturing PMI | 50.9 | 50.6 | 49.0 | |
| Construction Spending m/m | 0.5% | 0.6% | 0.1% | |
| Factory Orders m/m | 2.1% | 2.0% | 1.3% | |
| Total Vehicle Sales | 16.0M | 15.3M | 15.3M | |
| ADP Employment Report | 188k | 161k | 134k | |
| Trade Balance | -45.0B | -40.3B | -40.1B | |
| Initial Unemployment Claims | 343k | 345k | 348k | |
| ISM Non-Manufacturing PMI | 52.2 | 54.3 | 53.7 | |
| Bank of England (Rate) | 0.50% | 0.50% | 0.50% | |
| ECB (Rate) | 0.50% | 0.50% | 0.50% | |
| NFP: Unemployment Rate | 7.6% | 7.5% | 7.6% | |
| NFP: Unemployment Change | 195k | 163k | 195k (rev.) |
The Market Week Ahead
Now that you’re back, here’s what’s on-tap (still thinking of that craft beer?) in the coming week:
- Atypical seasonal volatility is likely persist as mid-to-long US Treasury yields (Symbols: TNX, TYX) continue to rocket higher, stocks end last week with an uber-bullish tone and just off all-time highs, the US Dollar Index (Symbols: DX, UUP) marks 3-year highs, Light Sweet Crude Oil (Symbol: CL) crosses $103/bbl, Gold (Symbols: GC, GLD) – okay the entire Metals complex – comes under post-NFP/pro-taper/strong USD pressure and Forex remains under the sway of the strong Greenback theme, with EUR/USD testing 1.28 and GBP/USD below 1.49.
- A relatively quiet economic calendar after last week’s overcrowded one. Given the striking spike in yield the last 3 weeks, the result of Wednesday’s US 10-Year Treasury Note Auction will be noteworthy. June FOMC Minutes follow closely at 1400ET and will received close attention given Bernanke’s hawkish tone at June 19’s press conference; to gauge committee doves’ true unanimity around the “taper”; for any calendar-based hints on when the taper may begin; and to assess whether the many dovish “revisionist” statements made by Fed Governors since June 19 hold any credence. Thursday features Weekly Initial Unemployment Claims at 0830ET, predicted to creep further into the low 300s; and Friday sees the release of PPI at 0830ET and finall Preliminary University of Michigan Consumer Sentiment at 0955ET (or 09:54:58 if you’re a paying customer) projected to further press into multi-year highs.
Economic Calendar At-A-Glance:
| Release (all times ET) | Actual | Expected | Prior | |
| Wednesday, 1:00 p.m. – 10 Yr Treasury Note Auction | ||||
| Wednesday, 2:00 p.m. – June FOMC Minutes | ||||
| Thursday, 08:30 a.m. – Initial Unemployment Claims | 336k | 343k | ||
| Friday, 08:30 a.m. – PPI | 0.5% | 0.5% | ||
| Friday 09:55 a.m. – Preliminary UoM Cons Sentiment | 85.3 | 84.1 |
With all major asset classes at significant technical waypoints moving into July’s second market week, expect to see plenty of coverage of the moves that follow here on See It Market. Whatever your chosen timeframe, trading vehicle or strategy, here are two charts with major levels you’ll want to keep a close eye on:
Russell 2000: Breaking Away?
Small caps have traded off market leadership with Mid caps here-and-there year-to-date, but have the baton firmly in-hand on this latest sprint higher. That said: the current leading US equity market index is making a run at its all-time high. A breakout above isn’t assured; but for the moment compelling momentum is pointing in that direction. Watch how the Russell behaves between 1000-1010 (prior resistance) – while its there, and if it returns to it after any breakout.
EUR/USD: Anatomy of a Potential Breakdown
Though it continues to show an almost shocking resilience, the Euro is once struggling hold higher ground under intense pressure against the US Dollar. As speculation abounds about the Fed tapering/tightening as soon as Fall 2013 and with the ECB explicitly affirming its dovishness “for an extended period”, monetary policy seems wholly on the side of a falling EUR/USD. The level to pay close attention to? 1.28.
Take care out there in the week ahead.
