U.S. markets showed some strength on the open but failed to hold momentum throughout Thursday’s action.
Wall Street seemed slightly nervous ahead of the Fed’s annual 3-day conference in Jackson Hole, WY, and is awaiting clues as to the future course of monetary policy.
Fed Chair Jerome Powell will be making remarks Friday afternoon but won’t likely sway too far from the recent meeting minutes.
Volatility tested major support before closing slightly elevated.
The Russell 2000 tumbled 0.3% despite testing another record high north of 1,723 for the 2nd-straight session.
Fresh and upper support at 1,710-1,700 held on the backtest to 1,712.
The S&P 500 gave back 0.2% after trading in a tight 14-point range with the low tapping 2,854. Major support at 2,850 held for the 3rd-time in 4 sessions.
The Dow fell 0.2% after testing a low of 25,608. Support at 25,600 held for a 2nd-straight session with risk to 25,400-25,200 on a close below this level.
The Nasdaq cleared major resistance at 7,900 but was unable to hold this level after slipping 0.1%.
Support at 7,850 held on the 0.1% pullback and backtest to 7,866.
Technology was the only sector to show strength after adding 0.2%.
Materials led sector weakness after giving back 0.7%. Energy and Financial were lower by 0.5%.
Global Economy – European markets closed lower as fresh details emerged on contingency plans for a no-deal Brexit. Dominic Raab, Britain’s Brexit secretary, said that while he remains confident that a good deal is within sight, the alternative should also be considered.
The Stoxx 600 Europe, Germany’s DAX 30 and UK’s FTSE 100 were off 0.2%. France’s CAC 40 slipped less than a point, or 0.02%.
The Belgium20 was also down a point, or 0.03%.
The Eurozone August Markit manufacturing PMI slipped 0.5 to 54.6, weaker than expectations of 55.2. The August Markit composite PMI rose 0.1 to 54.4, missing forecasts of 54.5.
ECB Governing Council member and Bundesbank President Weidmann said that with inflation heading toward the ECB’s goal, it’s time to begin exiting the very expansionary monetary policy and the non-standard measures, especially considering their possible side effects.
The German August Markit/BME manufacturing PMI fell 0.8 to 56.1, missing estimates of 56.5.
The August Markit services PMI was up 1.1 to a 6-month peak of 55.2, topping expectations of 54.3.
UK August CBI retailing reported sales rose 9 to 29, easily topping forecasts of 13.
Asian markets were mixed as already planned and fresh tariffs went into effect between the U.S. and China.
South Korea’s Kospi and China’s Shanghai advanced 0.4% while Japan’s Nikkei was up 0.2%.
Hong Kong’s Hang Seng dropped 0.5% and Australia’s S&P/ASX 200 declined 0.3%.
Initial Jobless Claims slipped another 2,000 to 210,000 in the week ending August 18th, better-than-expectations for a print of 215,000.
It represented the 3rd-straight weekly decline and highlights the tight labor market. The 4-week moving average dropped to 213,750 from the prior 215,500.
Continuing claims declined 2,000 to 1,727,000 in the week ending August 11th, after falling 31,000 to 1,729,000.
FHFA House Price Index rose 0.2% to 264, missing forecasts for a rise of 0.4%. The index was up 1.1% in Q2 after a 1.9% increase in Q1.
Home prices were also up 6.5% year-over-year in Q2 versus 7.3% in Q1 2017. Prices rose in all 50 states and the District over that time frame.
Seven of the 9 regions surveyed posted gains on the month, led by the Mountain’s 0.7% rise, with 0.4% pullbacks in New England and the South Atlantic.
PMI Composite Flash dipped 0.7 to 54.5 in August, below estimates of 55.6.
New Home Sales dropped 1.7% to 627,000 in July, after falling 2.4% to 638,000 in June, and below forecasts were for 655,000.
August Kansas City Fed Manufacturing Index came in at 14, well below forecasts of 23.
Market Sentiment – Dallas Fed Robert Kaplan favors 3 or 4 more rate hikes over the next 12 months, as he sees a very strong economy in 2018.
He didn’t comments on the remarks from President Trump regarding rising interest rates, but said it’s the Fed’s job to make decisions independent of politics.
Kaplan believes that trade uncertainty could impact business investment.
As far as the yield curve, he said he is monitoring the situation and noted the 1-year and 2-year rates, currently at 2.35% and 2.625% are firmer than the 1.75% to 2% funds target band, suggesting the market is pricing in further tightening.
He thinks the flatter yield curve is suggesting a dimmer medium term outlook and he is hopeful to get to a neutral rate without inverting the curve.
Kansas Coty Fed Esther George said she’s revised her GDP forecast up to 3% and favors two more hikes this year.
She’s not sure the economy can continue at the current pace, which she stated is well above where the economy can operate.
The neutral rate is in the 2.5% to 3% area, she estimates, and she could make the case for going slightly above that, but that’s not where analysts are today, she added, and is taking a more wait and see approach.
As far as trade, Esther sees downside risks due to uncertainties, but so far she’s not seeing anything to change her forecasts. On President Trump’s criticism of the Fed, she said it won’t affect her views or decisions.
The iShares 20+ Year Treasury Bond ETF (TLT) closed higher for the 4th time in 5 sessions after reaching a peak of $122.13.
The close above the $122 was a bullish development with fresh resistance at $122.25-$122.50. Rising support is at $121.75-$121.50.
Market Analysis – The Spider S&P 500 ETF (SPY) fell for a 2nd-straight session despite tapping $286.94 within the first hour of action. Near-term resistance at $287-$287.50 held with a move above the latter signaling blue-sky territory towards $290.
Support at $285.50-$285 held on the fade to $285.43 afterwards with a move below the latter being a slightly bearish development.
The 50-day moving average has been in a nice uptrend since early July with the 200-day moving average in a longer-term uptrend since June 2016.
RSI is back in a slight downtrend and is approaching support at 60-55. A move below 50 would be a bearish signal. Resistance is at 65-70.
Bitcoin Investment Trust (GBTC) is trying to form a near-term bottom following the backtest to $8.75. This level has been holding for the past 5 sessions with additional support at $8.50-$8.25.
A move below the latter would be a continued bearish development. The 52-week low taped $8.24 and was followed by a print of $8.25 in late June on back-to-back sessions.
Resistance is at $9-$9.25 with a close above the latter leading to a possible run towards $9.50-$10.
However, the 50-day moving average remains in a nasty downtrend and shows no signs of leveling out any time soon.
RSI is giving a neutral reading with resistance at 40. A move above this level could lead to a possible push towards 45 and the August highs.
Support is at 35-30.
All the best,
Roger Scott.