The E-Mini S&P 500 dropped Wednesday morning on disappointing economic data. US Retail Sales decreased -0.2% while the forecast at +0.1% was unchanged from the previous reading. US Business Inventories had a + 0.4% increase in the stockpiles to about $1.58 trillion in April while the forecast at +0.3 % was unchanged from the previous reading. US Wholesale Inventories increased + 0.6% in April while the previous reading was at +0.3 %. The US Producer Price Index contracted -1.0 % from the forecast at -0.3% while the previous reading was at -0.2%.
The Producer Price Index works as one out of the three barometers to measure inflation. The US Jobless rate remains at 8.2% to date with the average hourly earnings rising 1.7% in May. US Consumer Spending propped up the economy in the first quarter making up about 60% to 70% of the GDP. This sluggish recovery has spurred many investors to look back to the Fed for more easing at the next policy meeting.
Last August, the US received a downgrade to its credit rating by Standard & Poor's credit rating agency and this year the fear is there another one may be in store. The US has a fragile recovery that may be derailed by another cut in its AAA credit rating. This year the budget deficit is running about $844.5 billion. October was the fiscal opening month in the governments accounting system.
Fitch's warns that the US may "significantly" miss its budget deficit targets. Moody's credit rating agency stated today that it is unlikely that the Aaa US credit rating should change this year as the Presidential election is on tap representing potential budget cuts and revenue generation ahead.
June 14th - OPEC has their policy meeting in Vienna to decide whether to continue with 10 million barrel a day production quota to keep prices down and to further pressure Iran or to cut production. This is pre-election, so will the current administration hold a bargaining chip to keep the oil prices down? It was also a thought of the current administration to release the Strategic Reserves to compensate for any oil that may have come from Iran. The International Energy Agency cut the daily demand forecast for crude oil today by 89.9 million barrels a day. The increased supplies and slackened growth particularly in China had somewhat impacted their anticipated demand. The tightening sanctions on Iran and the potential disruptions in supplies outside of OPEC are still of some concern.
June 17th - The Greek election takes place (Sunday) and the election to date looks to close to call as the leftist SYRIZA party chief Alexis Tsipras announces that if elected, he will lead Greece away from the austerity measures of the bailout required by the European Union and the International Monetary Fund. He wants to renege on the $130 billion bailout deal that was signed in March. He further states that he wishes for Greece to stay in the Euro Zone. The young candidate is counting on being able to receive funding and staying in the Euro Zone without any reforms to their budget. He seems to believe that the risk of a non-managed exit of the European Union would be too severe where the Euro leaders will submit to the new government. The Euro leaders may very well lighten the reforms.
Greece is entering its fifth year in recession. Greece may go into a bankruptcy if they left the EU where there could be significant changes such as limitations on withdrawals from the ATM machines, border checks and border patrols along with banking limitations with the Drachma. Daily withdrawals from the Greek banking system have reached approximately $100 million to $500 million or more so far this month and may accelerate as the election nears. Post-election, they expect the monies to be re-deposited. Hedge funds and the large speculators had taken extremely large net short positions against the euro FX of 214,418 contracts perhaps anticipating a drop last week.
June 18th - 19th - The Group of 20 leaders attend a summit in Los Cabos, Mexico to discuss loaning Spain about $100 billion euros to recapitalize the banks. The yields on the Spanish bonds have been in the 6.61 % area which is deemed non-sustainable. The Euro leaders intend to resolve the European crisis with tax, finance and monetary discussions on ways to expand global growth. These extreme reforms need radical ideas and International Monetary Fund President Christine LaGarde called for decisive steps. She further offered a creative two-fold benefit plan to introduce "carbon taxes".
This program would bring revenue for the debt crisis and aid in pollution charging per tonnage of releases of CO2 in the atmosphere. International aviation, the automobile industry and manufacturing would be affected dearly. It is difficult to forecast the inflationary effects of the program over the long-term or the potential changes it may have on certain areas. The Spanish bonds hit a yield of 6.86 Tuesday which is deemed non-sustainable. Italy will attenpt to sell $4.5 billion euros worth of fixed-rate bonds today. The International Monetary Fund had approved a $1.4 billion euro loan to Ireland today adding to the contagion sentiment.
June 18th -19th - Iran is still in talks with the European Union Foreign Policy Chief Catherine Ashton who hopes that the nuclear research program is at the beginning of the end! They met in Bagdad on May 23rd to resume negotiations but now will resume talks in Moscow. The constricting sanctions are continuing affecting the revenue coming into Iran. The pressure may eventually create the urgency for Iran to focus on a resolve.
June 19th - 20th - The Federal Open Market Committee convenes to discuss monetary policy as Chairman Ben Bernanke will address the growth and recovery in the US and the "significant risk" emanating from the Euro Zone. These reports and meetings could act as a chain reaction should any severe melt-down occur in any of these areas. As the US data worsens, there is a backdrop of optimism in the reliance on the Fed to come to the rescue with further quantitative easing. From Chairman Ben Bernanke's testimony on June 7th it seems that perhaps that fiscal cliff may be a complete halt on the US economic recovery or a chaotic exit from the European Union by Greece on June 17th.
In an election year, we usually anticipate some relief or boost to the economy for window dressing. This particular year may present difficulties for the current administration having so many global challenges.
On the stock side: JP Morgan Chase and Co. (JPM) was up 3.73 % to $35.04. Citigroup Inc. (C) was up 1.34 % to $27.99. Bank of America (BAC) was up 1.13 % to $7.58. Alcoa Inc. (AA) was up 0.47 % to $8.56. Boeing Co. (BA) was down 0.10 % to $72.51. Caterpillar Inc. (CAT) was down 1.10 % to $86.09. General Electric Co. (GE) was up 0.10 % to $19.50. Halliburton Co. (HAL) was up 1.28 % to $28.49. Hewlett Packard Co. (HPQ) was down 0.65 % to $21.56. SPDR Select Sector Fund - Financial (XLF) was up 0.85 % to $14.21.
E- Mini S&P 500 Chart.
Thursday, what to expect: We maintain a bullish bias unless the (September) E-Mini S&P 500 penetrates $1264.75. Today, we anticipate an inside to lower to outside day. Wednesday's range was $1321.25 - $1303.50. The market settled at $1308.75. Our comfort zone or point of control for this market is $1314.50. Our anticipated range for Thursday's trading is $1320.50 - $1292.50.