U.S. markets showed continued momentum as the major indexes made another run at record highs. Financial stocks showed major strength along with a bounce back in retail.
Volatility is still being compressed with the VIX once again hitting another all-time low of 9.04. Meanwhile, the ZIV continues to race toward record highs after the S&P 500, Nasdaq, and Russell 2000, all, reached historic intraday peaks.
Global Economy –European markets closed higher, led by Banking stocks, as the Stoxx Europe 600 gained 0.4%. The DAX 30 was higher by 0.5% while the FTSE 100 added 0.8%. France’s CAC 40 index rose 0.7%.
Germany’s widely watched Ifo index of business sentiment surged to a record high of 116.0 in July. This topped June’s record of 115.2 points and economists’ forecast of 114.9 points.
Germany’s gross domestic product is forecast to expand 1.8% this year and 2.0% in 2018.
Asian markets traded mostly lower with South Korea’s Kospi index falling 0.5%.
China’s Shanghai index slipped 0.2% while Japan’s Nikkei Stock Average dipped 0.1%. Australia’s S&P/ASX 200 bucked the negative tone after rising 0.7%. The Hong Kong’s Hang Seng Index was basically flat after adding 0.02%.
U.S. Economy-U.S. May Case-Shiller home price index rose 0.81% to 198.97 for the 20-City index after April’s 0.99% increase to 197.38 that was revised from 197.19.
The FHFA home price index rose 0.4% in May to 249.2.
The Conference Board consumer confidence index improved to 121.1 in July from 117.3 in June. Expectations were for a print of 117.
The Richmond Fed manufacturing index rose 3 points to 14 in July versus consensus of 8.
Market Sentiment –Implied fed funds futures are signaling chances are between slim and none for a rate hike following the FOMC’s meeting that wraps up on Wednesday.
Additionally, risks for a third tightening this year have eroded to roughly 40% since weak data, especially on inflation, and a cautious tone from Yellen, suggested the Fed might remain sidelined this year.
Additionally, the Fed may use the excuse of balance sheet normalization to delay the next action on rates.
Analysts still believe the FOMC will boost the rate band again, but not until December, when policymakers should have more evidence on growth and as inflation should have made some, albeit slight, upside progress.
The iShares 20+ Year Treasury Bond ETF (TLT) made a bearish breakdown following the 1.3% drop and close back below support at $124.50-$124 and the 50-day moving average.
These levels now represent short-term resistance. There is risk to $123-$122.75 on continued weakness and on a close below $123.50. The 100-day moving average remains in a strong uptrend and has been holding since mid-March.
Market Analysis-While the Nasdaq traded to a fresh all-time high, the PowerShares QQQ ETF (QQQ) struggled in negative territory throughout the session. The QQQ’S kissed a morning low of $144.01 with upper support at $144-$143.50 holding.
The steady rebound afterwards fell shy of the all-time high of $144.87 and fresh resistance at $145-$146.25.
The Financial Select Sector Spiders (XLF) traded to a fresh decade peak of $25.32 with historic highs in play. Continues closes above $25 could lead to a push towards $26.25-$27.50.
Rising support has moved up to $24.75-$24.50. Below is a 20-year monthly chart that shows the formation of a double-top in process.
The pending meltdown from the financial crisis was the obvious reason for the first failure at $25 in 2007 and why this level will be crucial in holding going forward.
All the best,