CENTRAL BANK MEETINGS

Investor focus was shifting to the two major central bank meetings later this week. The U.S. Federal Reserve holds a policy meeting on Wednesday, where it is widely expected to deliver its second interest rate hike for the year.

U.S. inflation data due later in the day will also add to speculation over the path for U.S. interest rates later this year. Markets are currently pricing a slightly more than 1 in 5 chance of a fourth interest rate hike by the end of the year.

On Thursday, the European Central Bank meets and some expect the Bank to provide guidance for an ending of its massive bond-buying program at the end of this year.

Due at 0900 GMT is the ZEW index of economic sentiment, which may provide markets a glimpse of whether recent economic data misses in Europe have dented sentiment in corporate Germany.
In currencies, the dollar was 0.1 percent lower against a basket of peers. .DXY

On the safe haven yen, the dollar jumped to a three-week top JPY= of 110.49 in early deals. It was last at 110.25.

Helping calm markets were comments from Italy’s new coalition government that it had no intention of leaving the euro zone and planned to cut debt.

The euro EUR= was just below a three-week high of $1.1840, up 0.1 percent on the day.

In commodities, U.S. crude CLc1 was rose half a percent to $66.39 per barrel, while Brent LCOc1 climbed half a percent to $76.86. Spot gold XAU= slipped 0.2 percent to $1,296.95 an ounce.

4 reasons Wall Street banks have the hots for Europe in 2018

European Stock Markets

U.S. stocks at record highs. Bitcoin soaring more than 1,700% in a year. And emerging markets equities on track for their best annual performance since 2009.

After a bumper 2017 for several assets, traders can easily be forgiven for worrying about financial bubbles and questioning if 2018 can bring any returns at all. But while money managers, by one measure, are the most bearish on stocks since the financial crisis, there’s one region that’s lagged behind this year and but could outperform in 2018: Europe.

In the year-ahead outlooks from the major investment banks, the continent emerges as one of their favorite plays, with four things swinging in the Europeans favor: 1) Earnings are great, 2) the economy is also great, 3) the ECB is still super accommodative, and 4) the worst of the euro strength is in the past.
“The euro area is enjoying a period of robust and above-trend synchronized growth, across both geography and industry,” Citi said in its year-ahead report, forecasting a 17% rally for the Stoxx Europe 600 SXXP, -0.15%  next year.

While many investors worry that we are late in the cycle, Citi economists think that we are ‘either later in the recovery phase of the business cycle or early in the boom phase’. They expect a pickup in investment, which is usually facilitated by bank lending

But even with some stellar economic data coming out of the region lately, the Stoxx Europe 600 index SXXP, -0.15%  has significantly underperformed other regions in 2017, up 8%. In comparison, the S&P 500 index SPX, -0.08%  is on track for a 20% 2017 rally and emerging markets 891800, -0.12%  are looking at a 29% gain.


That’s partly because the euro EURUSD, +0.0421% woke from its slumber this year and because Europe is relatively low on tech companies, which have been a key factor in the global rally.
Next year, however, the investment banks largely expect European stocks to race past their U.S. counterparts and perform more in line with emerging markets. Here’s an overview of their forecasts.

	Bank	European stocks	Potential upside*	U.K.’s FTSE 100	Potential upside*
J.P. Morgan	MSCI Europe: 1,720	+6%	7,750	+2.7%
Morgan Stanley	MSCI Europe: 1,700	+4.7%	7,780	+3.1%
Goldman Sachs	Stoxx 600: 420	+7.4%	8,000	+6%
Citigroup	Stoxx 600: 460	+17.6%	8,200	+8.7%
Deutsche Bank	Stoxx 600: 395	+1%	7,500	-0.6%
Société Générale	Stoxx 600: 385	-1.5%	7,000	-7.2%
UBS	Stoxx 600: 440	+12.5%	7,900	+4.7%
Bank of America	Stoxx 600: 430	+10%	N/A	N/A
Average	N/A	+7.2%	7,733	+2.5%
Compared to Dec. 19’s close

A 7.2% average forecast may not blow anyone’s socks off in a global 2017 context, but the strategists warn that the stellar returns seen this year are unlikely to be repeated in 2018.

After a long period of stagnation among European companies, there are finally signs of some serious profit growth. Forecasts of 15% earnings-per-share growth in 2017 are being thrown around, and strategists say at least 10% growth is realistic next year.

The upbeat forecasts for company profits are based on signs that Europe’s economic recovery finally has gained foothold, instilling more confidence in households and encouraging them to spend more. Additionally, companies are starting to invest more and borrow more money to expand sales.

“This [earnings recovery] is typical in what we have described as the ‘growth’ phase of the market, when earnings rather than valuation become the main driver of returns. Hence, we expect the profit outlook to be critical in determining future market returns,” strategists at Goldman Sachs said.

Nasdaq shapes up for another record, while Dow futures add 100 points

Global Stock Markets

U.S. stock futures on Tuesday pointed to a rise at the open, putting the Nasdaq Composite on track for another record.

Investors are weighing up a raft of corporate earnings and departing Federal Reserve Chairwoman Janet Yellen’s announcement that she will leave the central bank altogether, rather than stay on as a Fed governor.

S&P 500 futures ESZ7, +0.36% rose by 9 points, or 0.3%, to 2,591, while Dow Jones Industrial Average futures YMZ7, +0.46%  moved up by 106 points, or 0.4%, to 23,502. Nasdaq-100 futures NQZ7, +0.46%  added 30 points, or 0.5%, to 6,346.

On Monday, the S&P 500 SPX, +0.13%  and Nasdaq Composite COMP, +0.12% both gained 0.1%, leaving the Nasdaq less than 0.1% from last week’s all-time closing high. The Dow DJIA, +0.31%  tacked on 0.3%, as the blue-chip gauge and the S&P finished 0.6% and 0.5% away from their early-November record closes, respectively.

The three equity benchmarks are up between 15% and 26% for the year as of Monday’s close, helped by factors such as an expanding U.S. economy, growth in corporate profits and bets that the Trump administration will deliver tax cuts and other business-friendly policies.

The Monday announcement from Yellen, who could have stayed on as a Fed governor until 2024, gives President Donald Trump even more room to change the way the U.S. central bank operates.

Chicago Fed national activity index rose to 0.65 in October from 0.36 in September.

An October figure for existing-home sales is due at 10 a.m. Eastern. Economists polled by MarketWatch are expecting 5.45 million homes were sold.

Home-improvement chain Lowe’s Cos. LOW, +0.20%  and specialty retailerSignet Jewelers Ltd. SIG, -0.97%  fell 1.5% and 14%, respectively, in premarket trading after posting weaker-than-expected earnings before the open, while discount retailer Dollar Tree Inc. DLTR, +2.64%  gained 0.9% after its stronger-than-anticipated results.

Packaged-foods heavyweights Hormel Foods Corp. HRL, +0.85%  and Campbell Soup Co. CPB, +0.42% also released results, leaving Hormel up by 1% while Campbell shed 7%.

Medical-device maker Medtronic PLC MDT, -0.74% posted earnings before the open as well, beating forecasts. The stock was up 3% in premarket trading.

Shares in Intuit Inc. INTU, +0.79%  traded 0.8% lower in premarket action. The maker of TurboTax and other accounting software posted better-than-expected quarterly results late Monday, but some analysts said the company’s guidance was disappointing.

Agilent Technologies Inc. A, +1.70%  fell 4% premarket after the maker of scientific equipment late Monday posted better-than-anticipated quarterly earnings but gave a profit forecast that fell short of expectations.

Shares in AmerisourceBergen Corp. ABC, -1.75%  could see active trading after the drug distributor late Monday agreed to buy independent wholesaler H.D. Smith for $815 million.

European stocks SXXP, +0.52% traded higher, while Asian markets mostly closed with gains. Gold futures GCZ7, +0.10%  were advancing, while oil futures CLJ8, +0.12%  and the ICE U.S. Dollar Index DXY, +0.02% were little changed.

Stock futures rise with eyes focused on retail earnings

Global Stock Markets

U.S. stock indexes were set to open higher on Tuesday, as upbeat results from some retailers and cyber security firm Palo Alto helped pre-market sentiment. 

Palo Alto (PANW.N) gained 9 percent after higher demand for its cloud-based services helped the firm beat revenue and profit estimates.

Urban Outfitters (URBN.O) rose more than 5 percent, while Dollar Tree (DLTR.O) was up 3 percent after posting their quarterly reports.

Lowe’s (LOW.N) fell slightly even as the second largest U.S. home improvement chain reported strong sales and profit on higher demand for supplies and rebuilding material after hurricanes struck several parts of the country.

Signet Jewelers (SIG.N) tanked 16 percent after reporting weak same-store sales and a surprise quarterly loss.

Wall Street closed higher on Monday, with the merger of two mid-size chipmakers lifting tech shares and a broker upgrade for Verizon (VZ.N) boosting telecoms stocks.

As third-quarter earnings wind down and no major economic data scheduled, trading volumes were thin and expected to get even quieter in the run-up to the Thanksgiving holiday.

Federal Reserve Chair Janet Yellen said on Monday she would resign her seat on the Fed’s Board of Governors once Jerome Powell is confirmed and sworn in to replace her.

At an event later in the day, Yellen is expected to answer questions on her term atop the central bank and the direction of policy and Wall Street oversight in the years ahead.

A report by the National Association of Realtors due at 10:00 a.m. ET (1400 GMT) is likely to show existing home sales increased 0.7 percent in October.

Oil prices rose ahead of an OPEC meeting next week at which major crude exporters are expected to extend production cuts, though rising U.S. output capped gains.

AK Steel (AKS.N) rose about 5 percent after Credit Suisse upgraded the stock to “outperform”.

Futures snapshot at 7:02 a.m. ET:

Dow e-minis 1YMc1 were up 68 points, or 0.29 percent, with 21,660 contracts changing hands.

S&P 500 e-minis ESc1 were up 7 points, or 0.27 percent, with 135,936 contracts traded.

Nasdaq 100 e-minis NQc1 were up 20.5 points, or 0.32 percent, on volume of 23,656 contracts.

Why is Everyone Calling for a Crash

FM Wealth Management Newsletter

Last week the S&P (SPX) dropped and held to the support region estimate that we set out within 3 points, and began a rally up after reaching that level.

 
Not withstanding all the Hindenburg like prediction, regarding market valuations and near record low volatility.  We are only scratching the surface of all the reasons analysts have been putting in front of investors as to why this market is, in their opinion, “too high.” You may ask is this time different? Is it possible that we have finally conquered the boom and bust business cycles and therefore stock market will rally on forever?

Absolutely not.

But it is also ridiculous for economists and seasoned investors to suggest that because their methods of market evaluation have failed them, that they therefore need to conclude that we need to prepare for a market crash, it does make us question the logical of perspective of their analysis.
In other words how does one come to the conclusion that if an analysis method is not working, then you must prepare for a crash?

If one understands the nature of technical divergences, then you can also come to an understanding of fundamental divergences, and of course this would begin to explain why most standard methods of evaluating the stock market have been useless for two years now.

If we look at a statement by MIT Nobel Laureate, Paul Samuelson who recently stated, that even John Maynard Keynes was challenged for altering his position on some economic issue. Keynes replied to this challenge by saying, “When my information changes. I change my mind. What do you do?” So should they begin to see that fundamental nature of the stock market has changed, and therefore have people changed their minds? No-way. Instead they choose simply continue to apply their old analysis methods and of course conclude that we are going to crash.

In other words we saying that this “Market melt-up” would have the effect of breaking down old paradigms and correlations, thereby leaving many confused as to the nature of the market.
So did anyone take notice of this very thing happen?  Yes they did. In early 2017, Andrew Sheets at Morgan Stanley began to take notice, and noted that  that while ‘crash’ is not a term used lightly adding that “our editors here at Morgan Stanley won’t let us use it without a good reason” he “struggles to think of another word to describe just how much, and how sharply, cross-asset correlations have fallen. In just four months, we have gone from a market of unusually close linkages across markets, to one with usually divergent returns.”

Our objective methodology allowed us to attain a 30% gain off the 2016 lows, despite our invalidated expectations for a break out set up to occur. What were are trying to say here is that anyone who analyses the Markets needs to develop methodologies that give them advance warning as to when their primary expectations are wrong, rather than stubbornly clinging to something that is not working.

When the market changes, what should we do?
As long as the S&P does not break down below last week’s low, it should be able to take us to 2610 SPX or possibly even higher. Having said that we are acutely aware that the depth of the drop last week has certainly weakened the SPX.

If it were not for the IWM pattern we saw, we would almost assume the SPX has topped. Because of this IWM pattern we saw it is still likely set up to rally in the coming weeks to the 150+ region before a larger degree top is made – as long as it does not break 143.90. For this reason, we still will retain an open mind that the SPX can reach higher targets.

Futures fall on weaker oil prices; inflation data eyed

US Stock Markets

U.S. stock futures pointed to a more than 100-point fall in the Dow Jones Industrial Index at opening on Wednesday as a slide in oil prices hit global markets and concerns about the fate of U.S. tax cuts continued to weigh on the mood. 

Oil prices slipped for the fourth day running after the International Energy Agency issued a gloomy outlook for demand. Oil majors Exxon (XOM.N) and Chevron (CVX.N) were down about 0.7 percent in premarket trading.

Among other early decliners, Target (TGT.N) slipped 3.5 percent after the retailer’s holiday-quarter profit forecast looked weaker than Wall Street estimates.

IBM (IBM.N) fell more than 1 percent after Warren Buffett’s Berkshire Hathaway cut its stake in the company by 32 percent.

Snap (SNAP.N) was down 2 percent after shareholders including T. Rowe Price and Soros Fund slashed stakes in the Snapchat maker.

With the quarterly earnings season winding down, the market has taken a breather after a rally to record highs last week. Traders also await October inflation and retail sales reports due at 8:30 a.m. ET (1230 GMT).

Core inflation is forecast to rise 0.2 percent compared with a 0.1 percent increase in September, while monthly retail sales for October are seen unchanged.

Shanghai nickel and zinc tumbled alongside steel, with the commodities still reeling after indicators on Tuesday pointing to slowing industrial output growth in China. MET/L

Futures snapshot at 6:45 a.m. ET:

Dow e-minis 1YMc1 were down 119 points, or 0.51 percent, with 35,242 contracts changing hands.

S&P 500 e-minis ESc1 were down 12.75 points, or 0.49 percent, with 228,022 contracts traded.

Nasdaq 100 e-minis NQc1 were down 30.5 points, or 0.48 percent, on volume of 38,113 contracts.

Stock Futures & Tax Reforms

Global Stock Markets

U.S. stock index futures were marginally lower on Monday as uncertainty over the future of President Donald Trump’s tax reform plan weighed on the sentiment. 

U.S. Senate Republicans have unveiled a new tax plan that differs from the House of Representatives’ version and there are few signs of a compromise.

Hopes of lower taxes, one of Trump’s main campaign promises, have helped drive the S&P 500 up 20 percent since the 2016 presidential election.

Shares of General Electric (GE.N) jumped 2.2 percent after the industrial conglomerate said it would halve its quarterly dividend, a move that is expected to save about $4 billion in cash annually. Chief Executive John Flannery is expected to announce restructuring measures later in the day.

The S&P 500 and the Dow Jones Industrial Average ended the week lower on Friday for the first time in nine weeks.

Philadelphia Federal Reserve President Patrick Harker said on Monday that he expected to back an interest rate hike next month despite caution over low-inflation.

Oil was largely steady near two-year highs, trapped between a bullish push from tension in the Middle East and downward pressure from evidence of rising U.S. production. [O/R]

Toymaker Mattel (MAT.O) jumped about 24 percent after a report that rival Hasbro (HAS.O) has made an approach to acquire the company.

JD.com (JD.O) rose nearly 6 percent as China’s second largest e-commerce firm reported revenue that beat estimates, as the firm attracted more shoppers.

Futures snapshot at 6:56 a.m. ET (1056 GMT):

Dow e-minis 1YMc1 were down 50 points, or 0.21 percent, with 23,218 contracts changing hands.

S&P 500 e-minis ESc1 were down 4 points, or 0.16 percent, with 140,616 contracts traded.

Nasdaq 100 e-minis NQc1 were down 7.75 points, or 0.12 percent, on volume of 26,385 contracts.