Markets Poised ahead of Earnings, Data and FOMC

“By the Time I Get to Phoenix.... she’ll be rising….and she’ll find the note I left hanging on her door, and she’ll laugh when she reads the part that says – I’m leavin’…By the time I get to Oklahoma , she'll be sleepin', she'll turn softly and call my name out loud......” - Glenn Campbell -1967 - when he made history by winning 4 grammys in both country and pop music. (in this comparison - "I" is Benny and "she" is (are) global investors)

Will we be calling Benny's name out loud come January? Will we laugh when he get to the part that says “I’m leaving”? Leaving? Now? So soon? Who will drive policy? What will they think and do? Will the market sell off? We have seen how the fight has already begun.....expect this conversation to continue through the summer as the speculation grows and as investors wonder - Is there a “dark horse” in the race that has yet to emerge? And if so - what does it mean for monetary policy moving forward....?

This week we have a slew of both earnings reports and macro data reports to deal with….and these macro reports could be the very catalysts that the market needs to move higher (or lower). Up til now – the market has had little reaction to this quarters earnings reports…. in fact no matter how you cut it - companies have been beating estimates by very narrow margins....currently running at 3.2%....which is half the rate of growth over the past 4 yrs.....

***** PUBLIC SERVICE ANNOUNCEMENT***** - Companies are barely beating the hurdle - a hurdle that has been falling for months - so even these 'beats' suggest that the earnings season is not as healthy as the markets may be telling us..... quarterly profits growing at 1.8% and weak macro economic data - yet the market is still up by some 5% this month and 18% ytd... as investors do not seem to care about the fundamentals - but do seem to care about FED policy - which takes us back to Glenn Campbell.......

Last week was an interesting week - lots of earnings and not much movement really - stocks traded in a very tight range...1670/1695.....and on Friday - the weakness was clear from the opening...stocks dropped to the lows and fought all day to recover as the big investment banks are doing their best to keep prices well above the June highs of 1648. I mean every day last week we watched as stocks made lower lows in an attempt to correct...but that was not to be. The market is in limbo....currently in overbought territory - the market needs to digest - thus the failure to launch higher.......

But this week is full of data....both earnings related and macro related as well as month end 'window dressing'... Will this week keep the momentum going - will the market pierce 1700 or will we continue to trade in a tight sideways pattern? And while the major indexes did end the week slightly higher - prices have stopped really advancing.......Of concern on Friday was Consumer Confidence.....


The U of Mich - US Consumer Confidence advanced to a 6-yr high.... The report showed that the consumer sentiment index for July was revised up to 85.1 from the preliminary reading of 83.9 all while economists expected the index to be revised to 84.0. With this revision, the index is at its highest level since July of 2007. (Bravo!). I don’t know about you, but do you really see this much renewed confidence? I mean many of the global macro reports as well as US macro reports have been weak for much of this year, so a JUMP to the highs of 2007 seems a bit suspicious? The monthly increase showed an improvement in the assessment of current economic conditions to 98.6 in July from 93.8 in June. While the read on consumer expectations DROPPED to 76.5 in July from 77.8 in June.

So consumer expectations decreased yet current conditions increased?

Aside from earnings - the markets and investors will be focused on Wednesday's data. We have the first stab at 2nd Qtr GDP - exp range from 0.5% to 1.5% and this will be very interesting as the gov't has changed the calculation of this statistic...beginning Wed - the new calculation will be revised back to 1929 to include the impact of creative artworks (movies, TV, theater, music) as well as money spent on R&D to recreate a data point that is more reflective of the 21st century.....if we remained with the current calculation - then GDP would definitely be sub 1% if not negative - so what will the market think?

In addition - the FOMC rate policy meeting is set for Wed afternoon and although it is not widely expected to announce plans to taper its QE program the market will be looking for any signals regarding the September meeting. Many economists still expect the FED to begin to taper in September so the markets remain skittish. Recall the move in interest rates and the markets following the last press conference....so this time expect Benny to 'jawbone' rates lower as he focuses on continued support and fiscal concerns and if the market assumes no taper in September then a challenge of 1700 is on the horizon......If it hears the possibility of tapering - then a move lower will be the path of least resistance.


Other macro data this week includes: Today - Pending Home Sales - exp of -1% and the Dallas Fed Survey of 7.3, Tuesday - Case Shiller Home Price Index, Wed - Mortgage Apps, ADP employment report - exp of +180k job, FOMC rate decision and GDP, Thur is the usual - Init Jobless Claims, Cont Claims, along with ISM Milwaukee exp of 52, Chic Purch Managers exp of 54, ISM Manufacturing exp of 52, Vehicle Sales. Friday is the other big day....Non Farm Payrolls....exp of +185K jobs....and the change in Unemployment exp is for a drop from 7.6% to 7.5%, Personal Inc and Spending, ISM NY, and Factory Orders.... Earnings this week include healthcare, energy and consumers....


We remain stuck in the 1670/1700 range - US futures are down 3 at the moment trading at 1683.... the uptrend line is now at 1675......and if we pierce this today - then expect a rash of selling that may eventually take us down to 1655 level - that will fill the gap created in early July. If we break that - then the 50 DMA is the next target at 1638 ish.

Overnight in Asia - stocks fell ahead of a speech by BoJ governor Kuroda. The Nikkei once again takes it on the chin - down some 3% on top of Friday's 3% move lower as the Yen strengthens as equities have been driven by hope and fear on the back of the bold economic policy initiated by PM Abe. In addition Japanese retail sales missed exp and Chinese profit growth at some of the largest industrial companies slows. Nikkei - 3.2%, Hong Kong - 0.54%, China - 1.7% and ASX +0.09%.

In Europe – markets are all slightly better - as investors continue to focus on last week's survey of Purch Managers showing EZ activity expanded in July for the first time in 2 yrs..... which projects increased growth and activity in the months ahead. China continues to be a main concern as investors begin to hope that the slowdown there has bottomed out. Excitement is building around 2 announced mergers.....the $8.6 bil purchase of Elan by Perrigo and the proposed merger of Publicis and Omnicom..... FTSE +0.24%, CAC 40 +0.31%, DAX +0.27%, EUROSTOXX +0.24%, Spain +0.43% and Italy -0.64%.

Brocolli & Fava Bean Risotto

When you are making a vegetable risotto – you can really choose any vegetable you prefer – this way it is always different and always exciting. Sometimes you can make the risotto to reflect the time of year. In the summer it might be today’s dish, Fall – could be butternut squash or corn, Winter might be a winter beet and spring may bring a spring pea risotto. Either way – you get to create as you go.

For this you need: broccoli florets (cut into small pieces) stems separate and also cut in small pieces. Fava beans, s&p, olive oil, chopped scallions, chopped shallot, Arborio rice, dry white wine, vegetable stock (about 7 cups), butter, fresh grated Parmegiana or Grana Padano Cheese.

Steam the florets for 1 minute – remove, Steam the stems until very tender, about 4 minutes. Keep the water..do not toss. Put the stems (only) in the food processor, and process until smooth. You may have to add some of the water to make a smooth mixture. Scrape out the puree into a small bowl, and set the florets and puree aside.

Heat the olive oil in a heavy pot over med heat, add the scallions and shallots and sauté until translucent – maybe 5 mins.

Nest add the rice, and stir to coat with the oil. Continue to cook so that rice begins to become translucent. Maybe 2 or 3 min). Pour in the wine – do not overdo….maybe like ½ cup, and stir until evaporated. Add a ladle of the hot stock – stir. Stirring constantly, until all of the stock has been absorbed.

Continue to add hot stock one ladle at a time - just enough to completely moisten the rice—and cook until each successive batch has been absorbed. After the risotto has cooked for 15 minutes, add the broccoli purée and the fava beans. Stir to mix well. About 3 minutes after that, stir in the broccoli florets. Stir constantly, and adjust the level of heat to medium/med low so the rice is just simmering while adding the stock, Continue until the rice mixture is creamy but al dente. This should be no longer than 20 mins from the first ladle.

Remove the pot from the heat. Add the butter, until melted, then the grated cheese. Adjust the seasoning with salt, if necessary, and pepper. Serve immediately, ladled into warm bowls.


Buon Appetito.