[MM_Member_Data name=’firstName’],
Stocks are seeing increased selling pressure, spurred by tech. Expect some spillover into the broaker market and more volatility ahead.
Global Economy – European stocks are down at a 1-1/2 month low.
European stocks dropped on weakness in mining companies, energy stocks and commodity producers as Jul WTI crude oil slid -0.31% to a 1-1/4 month low,
Japan’s Nikkei Stock Index sold-off to a 2-week low after Wednesday’s plunge in USD/JPY to a 1-3/4 month low undercut Japanese exporter stocks.
The BOE as expected kept its benchmark rate unchanged at 0.25% with a 5-3 vote, the most dissenters since 2011, and maintained its asset purchase target at 435 billion pounds.
BOE policy makers said that with the pound’s recent decline, inflation could overshoot the central bank’s 2% target by more than previously thought.
U.S. Economy – U.S. stock indexes retreated after people familiar with the story said that the special counsel investigating Russia’s interference in the 2016 election plans to interview two top U.S. intelligence officials about whether President Trump sought their help to get the FBI to end the probe of former NSA Adviser Flynn.
Jobless claims remain extremely low and are consistent with strong demand for labor. Initial claims for the June 10 week fell 8,000 to 237,000 which is 6,000 below consensus.
The 4-week average is up very slightly to 243,000 which is right in line with levels in May and offers an early indication of strength for the June unemployment rate.
Continuing claims, which lag by a week, edged 6,000 higher to 1.935 million with this 4-week average also little changed, at 1.927 million. This average is also in line with levels in May. The unemployment rate for insured workers is steady and very favorable at 1.4 percent.
U.S. factory output fell last month as manufacturers cranked out fewer cars, computers and semiconductors, a sign that economic growth remains sluggish.
Factory production slipped 0.4 percent in May, after a big 1.1 percent gain the previous month, the Federal Reserve said Thursday. Manufacturing output has largely been flat since February, but is up 1.4 percent in the past year.
Overall industrial production, which includes mining and utilities, was unchanged in May. Mining activity posted a large gain for the second straight month, rising 1.6 percent. Much of that increase has been driven by greater oil and gas drilling. Utility production rose 0.4 percent.
Market Sentiment – The Federal Open Market Committee decided to raise interest rates, its fourth increase since December 2015, increasing its target for the fed funds rate by 25 basis points to 1% to 1.25% from .75% to 1%. The fed hiked rates in spite of weaker inflation and some signs of economic softening.
The FOMC said inflation on an annual basis is expected to remain somewhat below 2% in the near term. In addition, the Fed said near term risks to the economic outlook appear roughly balanced.
The probability that the Federal Open Market Committee will increase interest rates at the December 13 meeting is 50%.
Technically, Bonds are losing volatility and directional range and appear to be ready for a decline back to the 50 day line. While FED may be slow to raise rates, the odds are strong that interest rates will continue trading lower, which will put continuous pressure on the overall bond market and cause more downside in the near term.
I’m expecting price to revert back to the main trend, which is lower and that will cause price to revert down in the next few weeks.
Expect yesterday’s gap to fill over the next few weeks and possibly sooner, unless there’s major global uncertainty on the horizon.
Stock Market Analysis – Stocks are increasingly weaker in light of weakness coming out of tech sector. The QQQ is at the 50 day line as we expected over the past month and I’m expecting slightly more downside till we see some degree of balance in the overall stock market.
The recent corrective pressure is doing a fair job of balancing blue chips against tech, since the latter has been generating substantially more momentum and there’s only so much deviation major indices can create before moving back in line with each other, which is the scenario we have before us now.
Corrective pressusure is necessary to create balance, which in turn creates directional momentum and with tech generating overbought levels across most indicators and momentum studies, the current corrective pressure is no surprise.
Broader market is holding up better at this time since majority of the weakness is coming from the tech sector.
We are seeing some spill over into the broader market, since SP 500 has massive concentration of tech within it’s market share. Expect SPY and QQQ to balance out over the near term and congest over the next few days, unless drama surrounding Russia and U.S. elections turns into something substantial over the near term.
Volatility levels remain near historic lows, which tells me that the current downside pressure is a minor correction.
I will update you on Sunday as usual and don’t expect too much corrective pressure unless markets start seeing MAJOR Global Uncertainty ahead.
Roger Scott