Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report.
Please scroll down for the section What To Do Now.
EGYPTAIR CRASH PUTS A BID UNDER OIL AND GOLD AND LEADS TO RISK ON MODE, G7 COMMENTS THE NEXT MARKET MOVING EVENT
This is what you need to know today.
EgyptAir
Concerns that terrorism caused EgyptAir crash has but a bid under crude oil and gold.
Risk On
Bid under oil and gold is migrating to all commodities. Stock investors look at bid under commodities as ‘risk on mode’ and have started aggressively buying stocks across the globe.
Short Memories
At least for today, investors have short memories. Rate increase fears have drifted into the background.
Dollar is stronger against most currencies including euro and yen. A strong dollar is negative for commodities. However, at least temporarily momo crowd is taking over commodities oblivious to the strong dollar.
The Next Market Moving Event
The next market moving event is the commentary from G7 meeting. G7 central bank governors and finance ministers are meeting in Japan into the weekend.
Markets
Interest rates are range bound.
Our very, very short-term early stock market indicator is positive.
Gold futures are at $1259, silver futures are at $16.64, and oil futures are $48.70.
S&P 500 resistance levels are 2063 2100, and 2111; support levels are 2038, 2017 and 2000.
DJIA futures are up 52 points.
CRITICAL FOMC MINUTES AHEAD, STOCKS, INTEREST RATES AND CURRENCIES STUMBLE ON GOOD DATA FROM THE U. S. AND JAPAN, BUT GOLD MOMO OBLIVIOUS
This is what you need to know today.
Good Data From The U. S. And Japan
Japan matters because it is still the third largest economy in the world. GDP in Japan grew at 1.7% vs 0.3% consensus.
Digging into the internals of the economic data from the U. S. that we shared with you yesterday morning, there are a large number of positives.
Flattest Yield Curve
The yield curve refers to difference between yields of treasuries of different maturities.
The yield curve is now the flattest since 2007.
As investors analyzed the positives inside the economic data from yesterday, they ran up yields on two year treasuries. Now the spread between two and 10 year is only 96.6 basis points.
All Markets React But Gold
All markets have reacted to the flattening yield curve with the exception of gold and oil.
Stocks, bonds and commodities with the exception of gold, silver and oil stumbled. Dollar rose.
Gold and oil are oblivious to the new important data. This is not a surprise. Ever since momo crowd took hold of gold in 2009, momo crowd has consistently exhibited total disregard for the data.
Momo crowd is new to oil and we do not have any historical comparisons of momo crowd behavior in oil.
Critical FOMC Minutes
Minutes of the last FOMC meeting will be released this afternoon. given the new good data, these FOMC minutes have become very critical and are likely to be market movers. Investors will be looking for clues to the timing of the next rate hike.
Markets
Our very, very short-term early stock market indicator is negative.
For liquidity reasons we are switching to July oil contract.
Gold futures are at $1272, silver futures are at $17.02, and oil futures are $48.85.
S&P 500 resistance levels are 2063, 2100, and 2111; support levels are 2038, 2017 and 2000.
DJIA futures are down 54 points.
HOTTER HEADLINE INFLATION, STRONG INDUSTRIAL PRODUCTION, MIXED HOUSING AND 40 YEAR SECRET REVEALED
This is what you need to know today.
Inflation
April Consumer Price Index (CPI) came at 0.4% vs. 0.3% consensus.
As our long time readers know, our models do not use the headline number but use the Core CPI; Core CPI came at 0.2% vs. 0.2% consensus.
Higher headline CPI slightly adds to the case for the Fed raising interest rates.
It is important to remember that Fed’s favorite inflation gage is PCE deflator and not CPI.
Strong Industrial Production
April Industrial Production came at 0.7% vs. 0.2% consensus. This is a very strong number indicating that the U. S. economy is doing well. This number flies in the face of many doomsday prediction gurus.
Mixed Housing
Housing starts came at 1172K vs. 1135K consensus.
Our models use building permits as they are the leading indicator; building permits came at 1116K vs. 1130K consensus.
40 Year Secret
Holdings of U. S. Treasuries by Saudi Arabia have been kept a secret for 40 years. Now the secret is revealed. Saudi held $116.8 billion worth of U. S. Treasuries as of March 2016.
The insight here is that if oil prices fall again, Saudi Arabia may start selling U. S. Treasuries causing rates to rise.
Gold
Less informed investors are falling all over themselves in reaction to Form 13F reports by famous money managers. This is especially true in gold. The column by Nigam Arora in Forbes from about four years ago is still evergreen. Please read Why Buying Gold After Paulson and Soros Is Foolish.
After lightly selling into the rally yesterday morning, Smart Money has been inactive in gold and silver.
Markets
Momo crowd continues to aggressively buy oil. Brent is leading and WTI is following.
Currencies are mostly range bound with slightly weaker yen.
Aussie jumps on indications that Reserve Bank of Australia will not make additional rate cuts in the near future.
Interest rates and bonds are range bound.
Our very, very short-term early stock market indicator is negative.
Gold futures are at $1274 silver futures are at $17.19, and oil futures are $47.87.
S&P 500 resistance levels are 2063, 2100, and 2111; support levels are 2038, 2017, and 2000.
DJIA futures are down 44 points.
THE BATTLE BETWEEN WEAK DATA FROM CHINA AND RISE IN OIL, A BIG OIL BEAR FLIPS
This is what you need to know today.
The Battle
Stocks are facing the battle between weak data from China and the rise in oil. Lately, rise in oil lifts the stocks. However, weak data from China tends to crater the stocks.
Machines will jump on which ever side appears to be winning exaggerating the move.
Oil Bear Flips
Goldman Sachs (GS) has been the biggest bear on oil, predicting oil in $20s. Today with oil at $47 Goldman has flipped from bearish to bullish. Goldman claims that the supply glut has turned into a short-fall. However, Goldman also says that the market will flip into a surplus in the first half of 2017.
Gold And Silver
Gold and silver are going up for a ride with oil.
Markets
Dollar is weaker against euro but stronger against the yen.
Interest rates are drifting higher and bonds are drifting slightly lower.
Our very, very short-term early stock market indicator is neutral.
Gold futures are at $1289, silver futures are at $17.40, and oil futures are $47.16.
S&P 500 resistance levels are 2063, 2100, and 2111; support levels are 2038, 2017 and 2000.
DJIA futures are down 13 points.
WHAT TO DO NOW
Looking ahead and not only in the rear view mirror, consider continuing to hold existing core portfolio positions. Based on individual risk preference, consider 30 – 42% of assets in cash or treasury bills, and short to medium-term hedges of 30% of non-cash positions.
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