Skip to main content

Morning Update


Moody’s lowered its outlook on AAA rated Germany, Netherlands, and Luxembourg to negative. Finland, the most financially isolated of the Euro-zone countries, was kept on a stable outlook with an AAA rating.

“The Chinese HSBC Flash PMI for July rose to 49.5 from June's 48.2, and touched the highest level since February. ‘Earlier easing measures are starting to work. That said the below-50 July reading implied demand still remaining weak and employment under increasing pressure. This calls for more easing efforts to support growth and jobs,’ HSBC said” (SeekingAlpha.com).

US PMI Flash came in this morning at 51.8 versus 52.6 consensuses, implying that the US manufacturing sector is growing the slowest in years. The weakest component of the repot is exports, which are struggling due to a stronger dollar and weakening demand in Europe and Asia.

Spanish 10-year bonds hit a Euro-area high yield of 7.5% yesterday. Spain’s market regulator completely banned all short selling on all stocks following a 5% decline in the country’s benchmark stock index. Italy banned short selling of financial stocks for one week.

AT&T, the second largest mobile carrier in the US, reported better than expected earnings this morning of $0.66 versus $0.60 expected. Revenue fell short of expectations however, coming in at $31.6 billion versus the consensus $31.7 billion. This quarter’s strength can be attributed to the company’s wireless business, which saw 320,000 contract customers added and a 45% profit margin before interest, taxes, depreciation, and amortization.

Apple will report earnings after the bell today. Price action in the stock was bullish yesterday; after gapping lower with the broader market nearly 3% the stock clawed its way back to close within pennies of its previous close. The S&P 500, meanwhile, closed down 0.89%. Open interest in the options expiring this week is strongest in the 650 calls and 590 puts; yesterday's Put/Call ratio was 0.634. This suggests traders believe there is greater risk of a strong move to the upside than downside, which has certainly been the case during past earnings announcements. For more commentary on Apple and an earnings trade watch my latest video on CNBC.com.

The S&P 500 (SPY) appears to have significant short term downside support here after yesterday’s bullish price action. The SPY has made a series of high lows on its daily chart since June and bounced off a rising trend line yesterday. Yesterday’s low also coincided with the 50-period simple moving average. The market will likely react to Apple earnings and follow the stock up or down. But the news that will drive the market over the longer term will come later this week end next with GDP, a Fed announcement, and NFP report due out.

Comments

Popular posts from this blog

FED Rate Hikes Could Cause Unintended Volatility Shock

Last week the Federal Open Market Committee surprised no one when they raised rates 0.25 basis points to increase rates to between 1% and 1.25%.  What did surprise the market, was the revelation that the FED is committed to normalize rates, even if inflation does not meet their target.  This was reiterated this week in a speech by William Dudley, President of the Federal Reserve Bank of New York, who stated he feels the FED needs to raise rates, despite low inflation, to be ready to act if the economy does slow down.
The market has been quick to respond, and nothing was hit harder by a reduction in inflation expectations than commodities.  Gold, since the announcement, is lower by 2.39%, and oil is down -3.18%.  Crude futures have broken their upward trend line and appear poised to test the previous low of $39.56.
While, oil has been under pressure all year, the S&P 500 does not seem to care, as it continues to make all-time highs.  Oil is down 23% year to date, while the S&P…

Gold and Treasuries Say “RISK OFF”, But VIX Says "RISK ON"

Today we are seeing a modest rebound in the market after yesterday’s small selloff.  Volatility remains extremely low, with the VIX hovering around 10.  It’s important for traders to recognize how low the VIX has been lately.  Since 2010, the VIX has only closed below 10 five times, and each of those five times has come in the last month.                   However, the market is not without risks right now.  Gold has rallied 6.5% since May 9th.  Treasuries have rallied, pushing rates to below 2.15.  So, the market is currently in a risk off mode while equities are in a period of historically low risk.  The VVIX (the VIX of the VIX), for its part, is not sounding the all clear signal, 87 is in the medium range for VIX volatility.  Tomorrow we have a potential market moving event with James Comey’s testimony to Congress.  The last time Comey’s name was in the news, we saw the VIX move from 10.5 to over 15 in one trading day (a 50% increase) on a day where the market was down over 2%.  …

Markets Soft without Stimulus

Markets around the world pulled back the reigns as central banks look to taper quantitative easing. Japan’s central bank decided to leave their current pace of monetary policy unchecked, which has effectively cut the Nikkei down 1.5% on the day, affecting nearly every market in-between, scaring the DJIA 165 points off the start this morning. US Treasuries have now notched the highest yield in 14 months on the 10 year note.

This morning 55,257 EEM July 35 puts were purchased by a trader for $0.29 each, costing him a large $1,602,453. This is a bearish move on the Emerging Markets ETF, with expectations that by the July expiration, the price of EEM will dip below $34.71. EEM opened today at $39.32 and if this trader was to pass the breakeven point, the ETF would have to drop by more than 11.7% within a little over a month.

EEM opened today 1.9% lower than its closing price yesterday and since the 52-week high the ETF experienced in early January, it has lowered by over 13%. While this …