U.S. markets were showing a nasty reaction to North Korea’s missile firing over Japan with losses over 1% but improved into the morning open. The major indexes traded to their lows shortly after the opening action but worked their way back to even midday.

The rest of the session was spent in a tight range before higher closes across the board. Industrials, Technology and Consumer Staples showed strength while Materials and the Financials were the weakest sectors.

Global Economy – European markets pulled back on the immediate reaction to North Korea’s latest missile launch with investors rushing into safe havens such as gold and bonds. The DAX 30 sank 1.5% while the Belgium20 and the Stoxx Europe 600 dropped 1%. France’s CAC 40 index and FTSE 100 declined 0.9%.

U.K. housing prices fell by 0.1% for August and below July’s growth of 0.3%. Compared with the same month last year, prices rose by 2.1%.

German September GfK consumer confidence rose 0.1 to 10.9, topping expectations for no change at 10.8. It was the highest reading since the data began in 2005.

Asian markets traded mostly lower on North Korea’s latest shenanigans with the losses much more contained. Australia’s S&P/ASX 200 declined 0.7% and Japan’s Nikkei fell 0.5%. Hong Kong’s Hang Seng Index gave back 0.4% while South Korea’s Kospi was lower by 0.3%. China’s Shanghai index advanced 0.1%.

Japan July overall household spending unexpectedly slipped 0.2% year-over-year. This was weaker than expectations for an increase of 0.7% year-over-year.

The Japan July jobless rate was unchanged at 2.8%, matching expectations and the lowest in 23-years. The July job-to-applicant ratio climbed 0.01 to 1.52, right on expectations.

August U.S. consumer confidence rose to 122.9 in August, up from 120 in July versus expectations for a print of 120.9. It was the second highest level since December of 2000 with the 16-year high at 124.9 from March of this year.

U.S. Case Shiller home price index rose 0.75% to 200.54 in June for the 20-City index, with the annual pace at 5.65% year-over-year. This topped expectations for a gain of 0.1% month-over-month and 5.60% year-over-year.

Market Sentiment – Outflows from the U.S. markets continues to reach a fever pitch as investors have pulled $30 billion from stock funds over the last 10 weeks. The 10-straight weeks of withdrawals is the most since 2004 with internal positioning changes also indicating investors are becoming more defensive.

Emerging markets along with European and Japanese stocks have benefitted with $36 billion in inflows over the last 10 weeks. While the rotation is not too surprising, it comes with the S&P 500 just 2% off its all-time peak of 2,490.

Coming into the year, Wall Street predicted continued underperformance in emerging markets due to President’s Trump’s trade policies and a rising U.S. dollar. The president’s policies haven’t proven to be as detrimental to trade as initially feared, and the lower dollar has provided some relief for battered emerging markets.

A stabilization in commodity markets, which are a key income source for many emerging markets, has also the rotation out of U.S. markets into overseas equities. This improved backdrop could help corporate earnings for emerging markets accelerate by over 25% in 2017.

The iShares 20+ Year Treasury Bond ETF (TLT) opened at $128.46 while trading to a peak of $128.53. Upper resistance at $127.50-$128 was cleared with lower resistance holding into the closing bell.

Continued closes above the latter would be a bullish setup for a possible push towards $129.50-$130. Support remains at $126.50-$126.


Market Analysis- The Spider S&P 500 ETF (SPY) tested a low of $242.93 with upper support at $243-$242.75 holding. A move below $242 and the bottom of the current trading range would be a bearish development. Resistance remains at $244.75-$245 and the 50-day moving average.

The lower highs and lower lows over the past three sessions is a slightly bearish signal.


The iShares Emerging Markets ETF (EEM) is coming off a recent 52-week peak of $45.07 with current resistance at $44.75-$45. Continued closes above the latter could lead to a run to multi-year resistance at $47.50-$50. EEM traded to the $50 level in April 2011.

The all-time high is at $55.73, reached in October 2007. Rising support is at $44.50-$44.25.


All the best,
Roger Scott