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.
A TRILLION DOLLARS OF BONDS MOVE FROM NEGATIVE TO POSITIVE YIELD, MOMO SELLS GOLD ON HOTTER INFLATION, QUADRUPLE WITCHING
This is what you need to know today.
The Big Insight
The big story is that about a $ trillion of bonds have moved from a negative yield to a positive yield over the last two weeks. No central bank has raised the rates.
The insight here is that central banks can quickly lose control especially on negative interest rates and negative interest rates can quickly disappear.
Hotter Inflation
Core CPI came at 0.3% month-over-month vs. 0.2% consensus. This means inflation is running hotter than expected.
CPI is not Feds favorite indicator. Having said that Core CPI has now run over 2% year-over-year for the 10th month in a row. 2% is the inflation target that Fed, ECB and BOJ have set.
Momo Sells Gold
Historically gold is a hedge against inflation. This morning, momo crowd sold gold on hotter inflation. The reasoning seems to be that hotter inflation is more likely to cause Fed to raise interest rates.
Quadruple Witching
Today is quadruple witching when index futures, index options, stock options, and single stock futures expire. Some of the volatility of the last two days can be attributed to quadruple witching.
Oil
Oil has broken support at $43.00 on fear of higher U. S. production. BHI will announce rig count at 1:00 pm ET. If the rig count increase is less than five, it may move oil up.
Markets
Our very, very short-term early stock market indicator is neutral.
Currencies, interest rates and bonds are range bound awaiting Fed and BOJ.
Gold futures are at $1313, silver futures are at $18.93, and oil futures are $42.96.
S&P 500 resistance levels are 2150, 2165 and 2200; support levels are 2120, 2100, and 2063.
DJIA futures are down 21 points.
A TON OF NEW DATA, ACTION BY BOJ COULD HAVE DRAMATIC RESULTS FOR STOCKS
This is what you need to know today.
New Data
Industrial Production came at -0.4% vs. -0.3% consensus.
Capacity Utilization came at 77.5% vs. 75.7% consensus.
Retail Sales Ex-auto came at -0.1% vs. +0.3% consensus.
Initial Jobless Claims came at 260K vs. 265K consensus.
Core PPI came at 0.1% vs. 0.1% consensus.
Empire Manufacturing came at -1.99 vs. 0.0 consensus.
Philadelphia Fed came at 12.8 vs. 0.0.
What Does This All Mean?
It comes down to employment being strong and retail being weak. Overall this data indicates that the economy is slightly stronger than the consensus.
Initial reaction in the markets was to run up stocks, gold, bonds, euro and yen. As market participants dug deeper, they sold stocks, bonds, euro and yen erasing all of the initial gains and in come cases creating losses.
BOJ
Action by the Bank of Japan could have dramatic results for stocks. Please see yesterday’s post on negative interest rates for details.
Markets
Our very, very short-term early stock market indicator is neutral.
Oil is trading under $44 on concerns about higher U. S. production.
Gold futures are at $1332, silver futures are at $19.04, and oil futures are $43.73.
S&P 500 resistance levels are 2132, 2150 and 2165; support levels are 2100, 2063, and 2038.
DJIA futures are up 33 points.
EXPECT ATTEMPTS AT RELIEF RALLIES ON OVERSEAS DATA, REVERSAL OF FORTUNE IN OHIO
This is what you need to know today.
Relief Rallies
Expect attempts at relief rallies in stocks, bonds and gold on weak overseas data from Japan and Europe.
Eurozone
Industrial Production came at -1.1% vs. -0.9% consensus.
Japan
Industrial Production came at -0.4% vs. -0.2% consensus.
Oil
API data showed a build of 1.44 million barrels vs. consensus of 4 million barrels. Oil first jumped up on this better than expected number. However on rumors that EIA data, to be released at 10:30 am ET, will be worse than consensus oil is being aggressively sold as of this writing.
Reversal Of Fortune
In the U. S. presidential election, Ohio is a battle ground state. Until now in most polls Clinton had been leading. In a new poll Trump leads Clinton by 5 points.
To attract women voters, Trump is proposing a new plan of six-week paid maternity leave and more child care expenses becoming tax deductible.
Markets
Our very, very short-term early stock market indicator is neutral.
Gold, silver, bonds and currencies are attempting a relief rally.
Gold futures are at $1324, silver futures are at $19.05, and oil futures are $44.43.
S&P 500 resistance levels are 2132, 2150 and 2165; support levels are 2100, 2063, and 2038.
DJIA futures are down 24 points.
STOCKS AND BONDS TO FALL ON FEROCIOUS SELL-OFF IN JGBS AND LOWER OIL DEMAND AFTER A BOUNCE YESTERDAY ON DOVISH BRAINARD SPEECH
This is what you need to know today.
Brainard Speech
Brainard speech was ultra-dovish causing stocks, gold, bonds and oil to bounce. It was not much of a surprise since historically Brainard has been the most dovish FOMC member.
Ferocious Sell-Off In JGBs
Japanese government bonds experienced the worst sell-off in about 20 years. The real story here is the Bank of Japan (BOJ) considering maturity range adjustment. In plain English, this means that Bank of Japan is looking into buying more shorter duration bonds and less longer duration bonds. This is causing yields to rise on longer duration bonds.
The most dramatic effect may be repatriation of money back to Japan, causing a sell-off in markets worldwide.
Lower Oil Demand
In its new report, IEA estimates global oil demand growth to be 1.3 million barrels per day in 2016 compared to its prior estimate of 1.4 million barrels.
IEA also lowers its demand estimate for 2017 by 200,000 barrels per day.
Oil is falling on the news.
Markets
Our very, very short-term early stock market indicator is negative.
Gold and silver are seeing buying by the momo crowd but selling smart money on up-spikes.
Interest rates and bonds are range bound but bonds are likely to come under pressure.
All of the foregoing may quickly change on rumors about the Fed.
Gold futures are at $1329, silver futures are at $19.14, and oil futures are $45.45.
S&P 500 resistance levels are 2150, 2165 and 2200; support levels are 2120, 2100, and 2063.
DJIA futures are down 145 points.
BRAINARD KEY TO THE DIRECTION OF THE MARKETS, INTEREST RATES BREAK RESISTANCE, CLINTON ILLNESS AND MEXICO WEAKNESS
This is what you need to know today.
Brainard
Brainard speech at 1:00 pm ET will determine the direction of the markets. Please see separate post on the subject.
Interest Rates
10-year U. S. Treasuries are at yield of 1.69% breaking heavy resistance at 1.60%.
German 10-year Bunds have moved from negative interest rates to above 0%.
Clinton Illness
Clinton is diagnosed with pneumonia. This is negative for Clinton and the markets as the markets have pretty much already awarded a win to Clinton.
Mexico Weakness
There is significant weakness in Mexican peso. It appears to be a result of Trump doing better in polls.
Silver
Silver has broken support at $19.
Markets
Our very, very short-term early stock market indicator is negative but expect stocks to be very volatile and move based on rumors related to Brainard and then her speech.
Oil, gold and silver continue to fall.
Bonds are lower as interest rates are rising.
Currencies are range bound.
Gold futures are at $1328, silver futures are at $18.98, and oil futures are $44.89.
S&P 500 resistance levels are 2120, 2132 and 2150; support levels are 2100, 2063, and 2038.
DJIA futures are down 50 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 27 – 38% of assets in cash or treasury bills, and short to medium-term hedges of 25% and very short term hedges of 5%.
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