U.S. markets rebounded for the first time in three sessions following Tuesday’s gains while pushing prior support levels.

News that the U.S. and China are trying to restart tariff talks to avoid a full-blown trade war helped sentiment.

A bevy of positive economic news was also welcomed as Wall Street prepares for the release of the FOMC minutes on Wednesday afternoon.

Meanwhile, volatility closed below a key level of support ahead of the event.

The Russell 2000 soared 1.1% after trading to a high of 1,675.

The close above 1,670 and the 50-day moving average was slightly positive with a move above 1,680 being a more bullish signal.

The Nasdaq gained 0.6% following an intraday push to 7,709.

The index recovered and held its 50-day moving average into the closing bell but failed holding the 7,700 level.

The S&P 500 added 0.5% after making a midday run to 2,824. Lower resistance at 2,825-2,830 held with continued closes above the latter being a more bullish development.

The Dow rose 0.4% following an intraday push to 25,490. The close back above the 25,400 level was a slightly bullish signal and keeps fresh resistance at 25,600 in play.

Industrials and Real Estate lead sector strength after surging 2.2% and 1.9%, respectively.

Healthcare jumped 1.1% while Material and Utilities rose 0.9%.

Financials and Energy were the only sector laggards after falling 0.7% and 0.2%, respectively.

Global Economy – markets showed strength aside from the Belgium20 which fell 0.4%. UK’s FTSE 100 rallied 0.6% and France’s CAC 40 was higher by 0.4%.

The Stoxx 600 Europe rose 0.2% while Germany’s DAX 30 gained 0.1%.

Eurozone July CPI rose 2.1% year-over-year, stronger than expectations of 2%. The July core CPI rose 1.1% year-over-year, topping estimates of 1%.

Eurozone Q2 GDP rose 0.3% quarter-over-quarter and 2.1% year-over-year, a slower pace than expectations for a rise 0.4% and 2.2%, respectively.

The Eurozone June unemployment rate was unchanged at 8.3%, right on expectations.

German June retail sales rose 1.2%, topping forecasts of 1%.

German July unemployment declined 6,000 to 2,338,000, less than expectations for a drop of 10,000.

The July unemployment rate was unchanged at a record low of 5.2%.

Asian markets were mostly higher after the Bank of Japan cut its inflation forecast and said that interest rates will stay low for an extended period of time.

China’s Shanghai rose 0.3% and South Korea’s Kospi climbed 0.1%.

Japan’s Nikkei was up 9 points, or 0.04% while Australia’s S&P/ASX 200 gained nearly 2 points, or 0.03%. Hong Kong’s Hang Seng gave back 0.5%.

The BOJ kept its benchmark interest rate at -0.1% and its 10-year yield target at 0% but said it will allow the 10-year yield to fluctuate as much as 0.2% from zero, compared with 0.1% now.

The BOJ also cut its 2018 inflation forecast in the fiscal year through March to 1.1% from a previous forecast of 1.3%.

Japan June industrial production fell 2.1%, weaker than expectations for a drop of 0.3%.

Japan July consumer confidence slipped 0.2 to 43.5, below forecasts for a rise of 0.1 to 43.8.

The Japan June jobless rate rose 0.2 to 2.4%, topping expectations of 2.3%.

The June job-to-applicant ratio climbed 0.02 to 1.62, ahead of forecasts of no change at 1.60.

The China July manufacturing PMI fell 0.3 to 51.2, weaker than expectations for a print of 51.3 and the slowest pace of expansion in 5 months.

The July non-manufacturing PMI fell 1 to 54, weaker than expectations fro a slip of 0.1 to 54.9.

U.S. chain store sales were up a modest 0.1% in the week ending July 28th, after sliding 0.9% in the prior week, and ending a streak of three consecutive weekly declines.

The sales rate accelerated to 3.5% year-over-year versus 3%.

Personal Income and Outlays increased 0.4% for June, matching expectations. Compensation was up 0.3%, the same as the prior 0.3% gain, with wages and salaries 0.4% higher from 0.3% previously.

Disposable income increased 0.4%, the same as in May. The savings rate was steady at 6.8%.

The PCE chain price index edged up 0.1% from 0.2%, with the core rate up 0.1%, from 0.2%, as well.

Employment Cost Index was up 0.6% for the quarter, missing forecasts of 0.7%. Wages and salaries were up 0.5% while benefit costs climbed 0.9%.

Compared to Q2 last year, employment costs increased at a 2.8% year-over-year clip, slightly faster than the prior quarter’s 2.7% pace. Wages rose 2.8% year-over-year, with benefits up 2.9%.

Redbook Store Sales up 4.2% for the year in the week ending July 28th.

The S&P Corelogic Case-Shiller Index rose 0.72% to 211.94 in the 20-City composite, missing forecasts for a rise of 0.9% to 212.1.

This represented a 6.51% year-over-year gain, bit a tad slower than the prior 6.69% pace. The 10-City composite was up 0.55% to 225.31.

All 20 cities posted annual gains, led by Seattle (13.58%), Las Vegas (12.6%), and SanFrancisco (10.87%), with Chicago (3.31%) and Washington DC (3.06%) bringing up the rear.

Chicago PMI climbed another 1.4 points to 65.5 in July after the 1.4 point uptick to 64.1 in June. Expectations were for a drop to 60.

It was the 4th-straight increase and is the best since January’s 65.7. The 3-month moving average rose to 64.1 from 61.5.

July Consumer Confidence checked-in at 127.4, topping forecasts of 127. The present situation index improved to 165.9 from 161.7.

The expectations gauge fell to 101.7 from 104. The labor market differential climbed to 28.1 from 25.3 while the 12-month inflation rate popped to 5.1% from 4.9%.

July State Street Investor Confidence stood at 101.8.

Market Sentiment – Fed funds futures are slightly higher ahead of the FOMC minutes on Wednesday.

The market is pricing in, with about a 90% probability, a 25 basis-point increase in the funds rate band for the September 25th, 26th FOMC meeting. Another tightening is expected in December with about a 65% probability.

The iShares 20+ Year Treasury Bond ETF (TLT) traded to a high of $119.86
with resistance at $120-$120.50 getting split.

The 50-day moving average remains on track to clear the 200-day moving average and form a golden cross. This is typically a bullish setup for higher highs.

Continued closes above $120.75-$121 would suggest the recent selling pressure has subsided. Support remains at $119.25-$119.


Market Analysis – The PowerShares QQQ (QQQ) snapped a 3-session slide after trading to a high of $177.13. Resistance is at $177-$177.50 held with continued closes above the latter get $180 back in play.

Early July support is at $175-$174.50 and the 50-day moving average.

A close below the latter could signal additional weakness towards $172.50-$170 and late June lows.

RSI is back in a slight uptrend with resistance at 50.

Continued closes above the this level would be a slightly bullish signal for continued strength towards 55-60. Support is at 45-40 with a close below the latter likely leading to additional selling pressure.

Bitcoin Investment Trust (GBTC) is back in a downtrend after closing in the red for the 4th time in 5 sessions. Tuesday’s low tapped $10.42 on the close back below the 50-day moving average.

Near-term support is at $10.25-$10 with a move below the latter being a continued bearish development. Lowered resistance is at $10.50-$11.

RSI is in a nasty downtrend with support at 45-40.

A close below the latter would suggest a continued pullback towards 35-30.

All the best,
Roger Scott