The E-Mini S&P succumbed to the uncertainty in the marketplace Thursday trending lower as hopes of easing somehow turned into vague notions.
The reality of the situation is that US Federal Reserve Chairman Ben Bernanke may want to look over the next US Unemployment report on September 7th before taking any decisive action! Wednesday, the Federal Reserve said that they may deliver another round of stimulus "fairly soon" unless the US economy improves considerably.
The US economy grew at a slack 1.5% annual rate in the 2nd quarter due in part to a slowdown in consumer spending, less personal income, slack government purchases and weak exports. The last US Unemployment report showed a creation of 163,000 jobs, but the unemployment rate was raised to 8.3% from the previous 8.2%.
The US Federal Reserve meets September 12th and 13th. The US Fed has already embarked on $2.3 trillion in bond buying through QE1 and QE2. The markets are still looking for some further potential QE3 as the economy has fallen back from previous growth targets. Any potential QE3 would pressure the US Dollar further and create a "risk on" trading environment possibly.
It is thought that should the Fed initiate another stimulus plan that engages in buying mortgage-backed securities. Other potential moves may be to extend the eventual interest rate hike beyond 2014 and/or they could possibly lower the rate the Fed pays banks to park their excess reserves at the central bank.
Many investors think that the US Federal Reserve may initiate QE3 at the next Fed meeting of September 12th and 13th! The US still has the "fiscal cliff" to contend with at the year's end, but the details may very well wind up on the next elected officials! The fiscal cliff represents about $500 billion in expiring tax credits and automatic spending reductions. Thoughts are that if not dealt with, the US could spiral into a recession with potentially 2 million jobs at risk.
The US Initial Jobless Claims increased by 4,000 to a seasonally adjusted 372,000 claims for unemployment benefits, up from the previous 365,000! US New Home Sales increased by 3.6 % to a 372,000 unit annual rate, but the US July median sale price of the homes decreased 2.5% to $224,200 from the previous $229,900.
The Markit Flash U.S. Manufacturing Purchasing Managers' Index (PMI) increased a half a point to 51.9 in August. Any figure over 50 points to expansion. US Hewlett Packard Co. posted a $8.9 billion loss and further cut the earnings forecast for the year creating a selloff and title of the worst performer of the Dow Thursday! US Steel was down 6.9 % to $21.19.
Volume is typically light in the month of August! The global economy is fragile as leaders attempt to keep it propped up on expected reforms and hopes of stimulus. A domino effect could be easy in this market as any unmet expectation may trigger a severe selloff.
Friday, the Greek Prime Minister Antonis Samaras visits Berlin in a plea for a two-year extension on the reforms necessary to qualify for the next tranche of bailout funds. Greece is to meet with the European Union, International Monetary Fund and the European Central Bank leaders to secure their next bailout tranche despite the reform targets being unmet to date.
Greece is lobbying to extend the target reforms two years as the country is in a deep recession with unemployment high and further government cuts worth about 5.5 % of their GDP. The monthly T-Bill sales seems to be Greece's total source of market funding with the ECB holding about $3.0 billion euros in government bonds. Greece has a credibility issue in the negotiations, so it may be likely that more stringent targets may be spread out for a show of faith to go with any potential extensions.
German Chancellor Angela Merkel and French President Francois Hollande took a hard line with Greece today making clear that the reform targets must be met in order to qualify for the bailout agreement. The troika will be evaluating the progress in Greece which should determine the fate of the ailing country.
The German economic growth has slowed to 0.3% in the second quarter indicating that the stronger country cannot shoulder the Euro debt crisis for very long. Germany's Constitutional Court will announce its decision on the permanent Euro Zone bailout plan and the reforms on September 12th. The Euro Zone has equipped their two funds, the European Financial Stability Facility (EFSF) temporary fund and the European Stability Mechanism (ESM) the permanent fund to aid in lowering the borrowing costs of ailing nations. A formal request via a 'memorandum of understanding' must first activate the procedure with reforms to qualify for the aid. The two funds can then purchase the government's bonds at auction or perhaps issue a credit line.
As the growth is monitored and the austerity measures are imposed on the fragile nations, the market will regard action in the Euro Zone as positive. Any retraction from the Euro leaders may be regarded as extremely negative for the market. The European Union finance ministers hold their meeting September 14th and 15th. The European Central Bank has its next policy meeting on September 6th. It is thought the ECB may initiate action to be sure that the Spanish and Italian borrowing costs remain sustainable. Yields on the Spanish 10-year bonds decreased to 6.24%. Spain to date, has yet to request a full bailout.
Italy's parliament approved a $4.5 billion euros worth of spending cuts for 2012. The Italian bond yields are still non-sustainable at about a 5.7% level. Italy's economy contracted second quarter by about 0.7 %. Egypt has applied for a $4.8 billion loan from the International Monetary Fund (IMF). IMF Chief Christine Lagarde replied that the fund will review the fiscal, monetary and structural issues maintaining that the IMF would be a partner in "an Egyptian journey" of economic reform! Egypt's economy had grown 2% in the 2011/1012 fiscal year lower than the typical 5% of previous years.
The revolution overthrowing Hosni Mubarak in 2011 could have pressured the tourist trade! Fitch's credit rating agency cut Egypt's rating to BB-plus with a negative outlook in June, but Standard & Poor's credit rating agency took the country off CreditWatch negative today.
On the stock side: JP Morgan Chase and Co. (JPM) was down 1.58 % to $37.23. Citigroup Inc. (C) was down 2.94 % to $29.59. Bank of America (BAC) was down 0.82 % to $8.15. Alcoa Inc. (AA) was down 2.82 % to $8.62. Boeing Co. (BA) was down 3.35 % to $70.36. Caterpillar Inc. (CAT) was down 1.23 % to $87.63. General Electric Co. (GE) was down 0.66 % to $20.64. Halliburton Co. (HAL) was down 1.49 % to $34.15. Hewlett Packard Co. (HPQ) was down 8.15 % to $17.64. SPDR Select Sector Fund - Financial (XLF) was down 0.99 % to $15.05.
E-Mini S&P 500 Chart
(click to enlarge)
We maintain a bearish bias unless the (September) E-Mini S&P 500 penetrates $1424.75. Friday, we anticipate an inside to lower day! Thursday's range was $1418.00 - $1398.00. The market settled at $1400.00. Our comfort zone or point of control for this market is $1407.00. Our anticipated range for Friday's trading is $1413.50 - $1388.50.