U.S. markets showed strength to start Tuesday’s after the White House clarified overnight comments from trade adviser Peter Navarro who said that the trade deal with China is over. He linked the breakdown in part to China not sounding the alarm earlier about the coronavirus outbreak.
Navarro later clarified that his comment was taken wildly out of context with President Donald Trump assuring soon afterwards that the trade deal with China was fully intact. The positive close pushed the major indexes towards the top of their trading ranges with the Nasdaq setting another all-time high – its 21st record close for 2020.
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The Nasdaq was higher by 0.7% to extend its winning streak to 8-straight sessions with the midday high reaching 10,221. Uncharted territory and lower resistance at 10,200-10,300 was cleared but held with a move above the latter signaling additional strength towards 10,400-10,500.
The Dow advanced 0.5% with the intraday high tapping 26,314. Lower resistance from last week at 26,250-26,500 and the 200-day moving average were breached but levels that held with a move above the latter getting 26,750-27,000 back in focus.
The Russell 2000 gained 0.4% after trading to a high of 1,454 shortly after the opening bell. Prior and lower resistance at 1,450-1,465 was tripped but held with a close above the latter setting up another run towards 1,470-1,485.
The S&P 500 was also higher by 0.4% with the 2nd half peak reaching 3,154.
Current and lower resistance at 3,150-3,175 was cleared but held with a close above the latter signaling a retest towards 3,200-3,225.
Consumer Discretionary was the strongest sector after soaring 0.8% while Technology and Communication Services were up 0.7%. Utilities were the weakest sector after falling 1% while Real Estate and Consumer Staples gave back 0.4% and 0.2%, respectively.
European markets finished in positive territory following economic data that showed business activity was rebounding faster than expected.
Germany’s DAX 30 rallied 2.1% and Belgium20 soared 1.5%. France’s CAC 40 rose 1.4% and the Stoxx 600 gained 1.3%. UK’s FTSE 100 was up 1.2%.
Eurozone flash IHS Markit Composite PMI surged to 47.5 in June, from 31.9 in May, and April’s all-time low of 13.6. The 15.6-point rise was the largest in the survey history with the exception of May’s record increase. Specifically, France was at 51.3 in June versus 32.1 in May; UK rose to 47.6 versus 30; and Germany checked in at 45.8 versus 32.3 last month.
Asian markets closed higher after Japan said it will stick to its plan of getting its budget back to surplus by 2025.
Hong Kong’s Hang Seng rallied 1.6% and Japan’s Nikkei added 0.5% and
China’s Shanghai, South Korea’s Kospi and Australia’s S&P/ASX 200 added 0.2%.
Flash June Markit manufacturing index was up 9.8 to 49.6, topping forecasts for a reading of 45, and follows the 3.7 point gain to 39.8 in May. This represented the 4th-straight month in contraction, but the best print since February. The output and new orders indexes also increased to the best levels since February. The flash services reading rose 9.2 points to 46.7, after jumping 10.8 points to 37.5 in May. The employment component improved to 48.1 from 37.8. The June flash composite index increased 9.8 points to 46.8 after rising 10 points to 37 in May.
New Home Sales surged 16.6% to 676,000 in May, topping expectations for a print of 636,000, after falling -5.2% to 580,000 in April. Gains were seen in the northeast, south, and west, with a decline in the midwest. The month’s supply fell to 5.6 from 6.7. The number of homes for sale slid to 318,000 from 325,000. The median price climbed 4.9% to $317,900 after dropping -8.7% to $303,000. It’s up 1.7% year-over-year versus -10.6% preciously.
Richmond Fed Manufacturing Index climbed back to unchanged in June, from -27 in May, and April’s record low of -53. Nearly all of the components improved. The employment index rose to -5 from -16, while the workweek zoomed to 1 from -24, with wages edging up to 1 from -3. New order volume jumped to 5 from -35. The prices paid index showed a rise to 1.59% from 1.05%, while prices received were little changed at 1.19% from 1.11%. The 6-month data also improved, with the shipment index surging to 51 from 10, and is the highest since February 2017. It was at a record low of -19 in March. The future employment index increased to 23 from 1, with the workweek at 26 from 2, and wages at 34 from 24. Capex rallied to 11 from -9. Price paid rose to 2.36 from 1.87, with prices received dipping to 1.58% from 1.77%.
St Louis Fed James Bullard discussed yield curve control in a long, wide-ranging interview and said there is a debate going on, but he didn’t suggest it would be adopted anytime soon, if ever. He said yields are already low and have been for a while, and the FOMC has indicated they will remain low.
Bullard stressed analysts should be thinking about correct interest rates, an equilibrium rate that makes sense for the current environment, and not just low rates. He noted that the U.S. experimented with yield curve control in the late 1940s and early 1950s, and it ended in tears, while Japan’s adventure with yield curve control hasn’t necessarily worked.
There are a lot more questions to be answered, Bullard said, before yield curve control would be adopted here in the United States. On the potential for asset bubbles, he is keeping his eye on it, but he is not seeing things of the same magnitude as the dot.com era, or the housing bubble from the late 1990s.
Mark Twain once said, “history doesn’t repeat itself but it does rhyme.”
We’ve seen whipsaw markets before. We will see them again.
The question is: do you know what to do about it today?
Bullard expects a big increase in growth in Q3 to counter the weakness from Q1 and Q2. He has not lost faith in the transformational aspects of capitalism, but the pandemic has really thrown a curve ball to a lot of businesses. He also wants businesses and households to adapt to the virus, and not wait for a vaccine or therapeutic.
The iShares 20+ Year Treasury Bond ETF (TLT) had its 4 session winning streak snapped following the afternoon pullback to $161.12. Current and upper support at $161.50-$161 was breached and failed to hold. A close below the latter would signal additional weakness towards $160-$159.50.
Lowered resistance is at $162-$162.50 with more important hurdles at $164-$164.50 and the 50-day moving average.
The S&P 500 Volatility Index ($VIX) fell for the 2nd-straight session and for the 7th time over the past 8 with the morning low reaching 29.26. Prior and upper support from late May at 29.50-29 was breached but held. A close below the latter would signal additional weakness towards 27.50-27.
Lowered resistance is at 31.50-32 followed by 32.50-33 and the 50-day moving average.
The Spider S&P 500 ETF (SPY) was up for the 3rd time in 4 sessions, and 2nd-straight, following the intraday run to $314.50. Current and lower resistance at $314.50-$315 was tagged but held. Continued closes above the $315 level would be a more bullish signal for a retest towards $317-$317.50.
New support is at $311.50-$311. A close below the latter reopens downside risk towards $310-$309.50.
RSI is in an uptrend with key resistance at 60 holding. Continued closes above this level would signal additional strength towards 65-70. Support is 55-50.
The iShares MSCI Emerging Markets Fund (EEM) was up for the 2nd-straight session after testing a high of $41.06. Lower resistance at $41-$41.25 was cleared but held. Continued closes above the latter and the monthly peak at $41.31 would be a more bullish signal for a continued run towards $41.75-$42.
Current support is at $40.25-$40. A close back below the latter and the 200-day moving average would signal a false breakout with backtest potential towards $39-$38.75.
RSI is in an uptrend with lower resistance at 65-70 holding. Continued closes the latter and the monthly peak would signal additional strength towards 75 and the mid-January top. Support is at 60-55.
All the best,