Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
U.S. futures look to open somewhere in the -0.5% range as it’s already been a volatile morning. After being flat most of the overnight session (with the U.S. dollar down materially) once Europe opened the dollar rallied and in a perfect inverse relationship futures dipped. Then this morning we had the 98th rumor that Germany is open to eurobonds, conditional on fiscal union. Headline grabbing algorithms immediately sold dollars and bought futures almost to the point of a flat open…. but within 30 minutes most of those gains faded away. And we’re back to the -0.5% open. Everything on earth is a mistress to the U.S. dollar / bonds at this point.
Aside from that a lot more herky jerky action expected as a litany of quotes will be released out of Europe the next 2 days; this is summit #19 I believe since the crisis began. Clearly Germany will not move unless a central body has more control over budget decisions at the country level, which is asking for a lot.
The Supreme Court decision on Obamacare is released mid morning which will also jerk the market around, although I believe very temporarily. Aside from that looking overseas Chinese stocks are nearing the year’s lows – if you believe that market is a leading indicator of the future you best be concerned. Jobless claims came in over 380K yet again, and it’s looking like another month of 70-100K type of job growth which does not keep up with population growth.
Consensus seems to be forming that the ECB will cut rates next week, and the Bank of England will “QE” again. If that is going to be enough to create anything other than a short term sugar high remains to be seen.
The market remains unstable. The 1-2% moves we are now getting daily are not a sign of health or stability, even on the days the number is positive rather than negative. It just feels better the days the move is to the upside. Yesterday’s action was a lot of beaten down sectors rallying as oil had an oversold bounce. Meanwhile quite a few names that had been holding up decently in this market got pole axed – especially in the retail sector. The typical leaders such as Apple, Priceline, Amazon did nothing yesterday – so it was a session the most beaten up sectors reverted to mean.
At the corporate level we continue to see warnings of growth slowdowns – O’Reilly Automotive (ORLY) was one yesterday and the stock was punished severely – these auto replacement / service stocks had previously been leaders. At the analyst level, both Chipotle and Under Armour have had analysts come out against them in the past week saying signs of slowdown. As I have repeated there is quite a bit of back half 2012 risk to corporate earnings versus what the Street believes. This marks a different environment then when QE2 was announced or even the European LTROs late in 2011. For the market to rally substantially in a flat (or declining) EPS environment you must count on multiple expansion.
My comments here are getting repetitive because the market has been repetitive. Aside from a handful of days the S&P 500 has traded between 1300-1350 for nearly 2 months. A slowing economy and Euromess are facing off with the eternal believe that central bank intervention or Euro solution remains around the corner.
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