U.S. markets opened soft and traded in a tight range throughout Monday’s action following the much anticipated President Trump/Putin meeting.
There was little market reaction to the news conference, as traders shrugged it off and decided to focus on upcoming comments from the Fed.
Oil took a 4% beating and closed at its lowest level in nearly three months after the Trump/ Putin summit didn’t appear to offer any fresh news for the oil market.
Volatility was slightly elevated but held key resistance on light trading volume.
The Dow was up for the 7th time in 8 sessions after climbing 0.2% while reaching a late day peak of 25,072.
The index was trapped in a 93-point range throughout the session but held fresh, and slightly shaky support, at 25,000.
The S&P 500 slipped 0.1% after trading in a 10-point range with the low reaching 2,793. The close back below the 2,800 level keeps risk open to 2,775-2,770.
The Nasdaq closed in the red for just the 6th time in 8 session after dipping 0.3% on the pullback to 7,791.
Fresh support at 7,800 held for a 3rd straight session with a breach below this level getting 7,750-7,700 in the mix.
The Russell 2000 fell for the 4th time in 5 sessions following the backtest to 1,672.
Upper support at 1,680-1,675 failed to hold on the 0.5% decline with a close below the latter being a slightly bearish development.
Financials surged 1.7% and was the strongest sector.
Consumer Discretionary was up 0.2% and was the only other sector that closed in positive territory.
Energy paced sector laggards after giving back 1.2%. Materials were down 0.8%. Health Care, Real Estate and Consumer Staples were all down 0.6%.
Global Economy – European markets were mixed after U.K. Prime Minister Theresa May blasted British lawmakers who are planning to try and bring down a bill that she said is essential in enabling the country to prepare for life outside the European Union.
Germany’s DAX 30 climbed 0.2% and the Belgium20 added 0.1%. UK’s FTSE 100 dropped 0.8% and France’s CAC 40 was lower by 0.4%. The Stoxx 600 Europe declined 0.3%.
Asian markets were mostly lower to start the week following Chinese economic data that failed to impress.
China’s Shanghai was down 0.6% while Australia’s S&P/ASX 200 and South Korea’s Kospi fell 0.4%.
Hong Kong’s Hang Seng added 0.1%. Japan’s Nikkei was closed for a holiday.
China’s economy expanded 6.7% year-over-year in the second quarter, slowing from 6.8% in the previous quarter, but in line with expectations.
China June industrial production rose 6% year-over-year, weaker than forecasts for a rise of 6.5%.
China Q2 GDP grew at a 6.7% year-over-year pace, matching expectations.
China June retail sales rose 9%, topping estimates of 8.8%.
The Empire State Manufacturing Survey for July fell 2.4 points to 22.6, topping expectations for a print of 21. The employment component slipped to 17.2 from 19, while the workweek dropped to 5.6 from 12.
New orders dipped to 18.2 from 21.3. Prices paid fell to 42.7 from 52.7, with prices received declining to 22.2 from 23.3. The 6-month general business activity index declined to 31.1 from 38.9, with employment at 24.2 from 25.9, and new orders at 37.2 from 33.4.
Prices paid fell to 48.7 from 51.2, with prices received at 28.2 from 27.1. Capital expenditures declined to 17.1 from 27.1.
June Retail Sales were higher by 0.5% for the headline and up 0.4% ex-autos, both matching expectations.
The June sales rise reflected an expected 1% pop for gasoline service station sales that beat a 0.5% CPI gasoline price increase and a 0.9% rise in auto dealer sales. This follows a 3.2% bounce in unit vehicle sales, and a 0.8% building sales rise.
Economists now assume real GDP growth of 4.1% (was 4%) in Q2 and 3.4% in Q3, after the 2% Q1 clip, with solid growth rates for real consumption of 3% (was 2.7%) in Q2 and 3.6% in Q3, after a restrained 0.9% Q1 pace.
Analysts assume a 0.5% June PCE rise in nominal terms with a 0.4% real increase, alongside PCE chain price gains of 0.1% for the headline and core that slightly undershoots CPI increases. The savings rate is expected to stay at 3.1%.
Business Inventories rose 0.4% in May, with sales up 1.4%, both matching forecasts.
April inventories were up 0.3%, while sales were revised higher to 0.6% from 0.4% previously. Retailer inventories increased 0.4% in May while manufacturers inventories were 0.2% higher.
The Atlanta Fed’s Q2 GDPNow estimate was hiked to 4.5%, up from 3.9% on July 11th.
The nowcast of second-quarter real consumer spending growth increased from 2.7% to 3.1%.
Market Sentiment – Fed’s Kashkari worries about the flattening yield curve, after saying an inverted curve has been a warning sign for every recession over the past half-century.
He warned those that believe “this time is different” and concluded analysts don’t know for sure.
Kashkari fears that if policymakers continue to raise rates there would be risk of an inversion, as well as the potential for putting the breaks on the economy.
He said deciphering the many signals from the financial markets is not an exact science but declarations that “this time is different” should be a warning that history might be about to repeat itself.
Fed Chairman Jerome Powell’s Monetary Policy testimony is scheduled for Tuesday with an already released report from Friday.
The Fed’s assessment mostly confirmed the recent FOMC statements and minutes that have shown the FOMC remains on a gradual normalization course for now, and which will be dependent on economic data in the future.
Powell will likely be asked on the impacts of trade, but he will likely have to take a wait and see approach, while noting there are risks to the downside.
Questions about the yield curve too, and whether it’s a indicator of a pending recession will likely be asked as well.
The iShares 20+ Year Treasury Bond ETF (TLT) traded in negative territory throughout the session with the intraday low reaching $121.64.
Fresh support at $121.50-$121.25 held with a close below the latter signaling additional weakness. Lowered resistance is at $122.50-$122.75.
Market Analysis – The Russell 2000 ETF (IWM) closed lower for the 4th time in 5 sessions following the backtest to $165.96.
Upper support at $166-$165.50 was stretched but held. A close below the latter would signal a possible short-term top with further risk towards $164 and the 50-day moving average.
Resistance is at $167.50-$168 with continued closes back above the latter keeping $ 170 and all-time highs in play.
RSI is in a downtrend with near-term support at 50-45. A move below the latter would confirm additional weakness. Resistance is at 55-60.
The iShares PHLX Semiconductor ETF (SOXX) has been in a mini trading range for 4 sessions with Monday’s low tapping $181.52.
Near-term support is at $181.50-$181 with a close below $180 signaling additional weakness towards $177.50 and the 200-day moving average.
Resistance is at $184.50-$185 and a solid up trending 50-day moving average.
Continued closes above the latter would be a bullish development as $185 also represents the late June gap below this level.
RSI is approaching resistance at 50-55 with a move above the latter signaling continued strength. Support is at 45-40.
All the best,
Roger Scott