Tone Turns Negative Ahead of the Weekend

And the posturing continues….traders jockeying for position as everyone speculates about what the next catalyst will be......

Yesterday - the dollar strengthened a bit (causing oil to weaken a bit)  ahead of the FED announcement next week.....giving traders a reason to take some money off the table in early trading.....With the FED meeting only days away now - everyone is ready to offer up their assessment and then the proper stance going into the 2 pm Wednesdayannouncement.....….now while we still don’t know the details – the ‘risk’ is just how ‘aggressive’ the FED be in their comments....will she be very hawkish or just slightly so?  Will she – as discussed yesterday – say with clarity and certainty that a 25 bps increase will take place at the July meeting or will she continue to sit on the fence and say it 'may be appropriate'  to consider a rate increase in the near future? 

This is key…..it will be the tone and choice of words that will set the scene…..words like ‘may be appropriate in the future’ give her cover to play both sides.....Words like 'expect a rate rise in July' are much more specific - leaving nothing open to interpretation......So which will it be?   Right now Fed fund futures put a 27% chance of a hike in July, a 40% chance of a hike in September and a 59% chance of a hike in December – which does help to explain why they can’t break this mkt just yet…..

Now in yesterday’s note – futures were pointing lower in pre-mkt trading – not big – but low enough to bring us to short term support at 2111….we discussed what happened if – If we tested and held and if we tested and failed…..I was not convinced that ‘testing and failing’ was the option – it just did not feel heavy enough just yet – even considering the news that George Soros made a  ‘big bet’  against the mkt….so what happened?  We tested and held – felt a bit dicey for a bit, but in the end – they managed to defend the position and take back some of the losses to end the day only down 3.6 pts on the S&P at 2115.

But this morning - the tone is decidedly different.....US futures are down 13 pts - sending futures below 2100......as the sun rises over 'the pond'......

Overnight in Asia - mkts tumbled...the dollar 'strength' being the scapegoat.......commodities take it on the chin as a result....Australia - (resource heavy) closes lower by 1% , Banks in that country also under pressure due to their large exposure to that industry....China is still closed for a holiday, so traders took it out on Hong Kong....sending that mkt down by 1.2%. Japan?  Well - core machinery orders for April crashed.....the report showed an 11% decline and this screams of contraction........sending that mkt down by 0.4%......the only thing that helped stop the bleed is the fact that we can probably expect more stimulus from the BoJ (Bank of Japan)......if that is even possible anymore.....Money flowing  into Japanese gov't bonds sending those already negative yields further into the abyss.....

In Europe - mkts there are choking.....repeat:  dollar strength, falling oil and other commodities, uncertainty over FED and BREXIT, and just sheer exhaustion.....And all of this news? Well it is sending investors into gov't bonds.....(think SAFETY).....but this rush into gov't bonds is pushing yields even lower.....the German 10 yr is at 0.0025%.....Mkts getting crushed...FTSE -1.6%, CAC 40 - 1.85%, DAX - 2.12%, EUROSTOXX -2.1%, SPAIN -2.3% and ITALY -2.4%

Marius Daheim - senior rates trader at SEB AB in Frankfurt, Germany had this to say:

"The environment is fundamentally supportive of these low yields, and there is nothing in sight that could trigger a trend reversal..."

Here at home.....the rush continues....money is racing into US Treasuries damping all expectations that the FED will signal a rise at anytime in the 'near future'.....  Capisce?  Not June, Not July.....etc... but until investors 'hear it from the horse's mouth' they too will err on the side of caution.........Once she confirms a nothing done...look for the mkt to stabilize......

As noted yesterday as well - the World Bank cuts its global growth forecast (not helpful)  and George Soros took some of his billions and made a very public bearish bet.....Now remember - he has already made this bet, he has already taken the position.....Yesterday is when he told everyone about it....

Just like Icahn does - he takes a position and after setting it up - he tells everyone and boom - like sheep the herd follows....Think about his Apple trade both ways.....first he went long and then made a big splash about his position only to watch the stock rally and then he gets out and only after he is out does he tell everyone and BOOM the stock crashes..   

 Now - do not misunderstand me - I am not accusing anyone of doing anything illegal....investors (Soros and Icahn)  are just putting money to work and then 'talking their book'.....it is NOT their issue how other investors react......but it is helpful.....

Also brewing on the back burner are 2Q earnings ..... 1Q saw an 8% drop in earnings… and Fact Set tells us that the 2Q earnings are on target to show a 4.8% decrease year over year… - marking the 5th consecutive qtr of year over year declines and the 3rd consecutive qtr of ‘negative growth’ since the 2008-2009 time frame….and this may be the reason that Soros is betting big against the mkt….History shows that when corporate profits go negative (and this will be the 3rd Qtr of negative growth)  the mkt usually suffers a broad correction…. some suggest 20% (bear mkt) and if so - then that means an S&P at 1690......the last time we saw that was in October 2013.....But we can only get a real correction if the FED backs off and that ain't happening anytime in the next 4 months.....(think Presidential election..)

There is no eco data today to influence the mkts....so we are back to the technical's...Yesterday I pointed out how 2111 was key.....and while we held it yesterday - we do not appear to be able to hold it this morning...with futures down 13 pts in early trade - that would mean that the S&P would open at about 2102.....it will then immediately test the round lot at 2100 to see who is home.....if no one answers then look for the algo's to push it lower...buyers know this - so they will back off and watch the sellers trip over each other to get out.....A really ugly day would take us down to the 50 dma at 2075, which means a loss of 1.7%... and this is not out of the question seeing that European mkts are all off better then 2% across the board. 

On a side note - Elizabeth Warren came out stumping for Hillary - (No surprise) but my head hurts already.....4 months of listening to Warren is enough to drive anyone to drink or better yet - JUMP!
 

Veal Milanese

This is a simple, simple dish to make and you can do so much with it after you make it.  You can eat it just as it, you can make Capriccioso with it, you can put it on sliced Italian bread and make a sandwich with it....no matter what you do - you are sure to enjoy it.

For this you need:  Thinly pounded veal cutlets, seasoned Italian breadcrumbs,  eggs, flour, olive oil.

Preheat the oven to BROIL

Set up the production line....  first a bowl of flour, next a bowl of scrambled eggs (for the egg dip) and then a bowl of the seasoned breadcrumbs.   Dredge the cutlet in the flour, dip in the egg wash and then dredge in the breadcrumbs. 

Once complete - take a broiling pan and add olive oil - place in the oven to heat up - do not leave it unattended - the oil will catch on fire if it gets too hot....  Once it is hot enough - dip the cutlets into the oil one side and then flip to the other side and broil.  Once one side is cooked, flip the cutlet and cook the other side. 

Remove and serve family style in a large platter in the middle of the table.  Serve this with roasted potatoes and a large mixed green salad.  It is a simple dish and easy to make. 
Any leftovers can be used in sandwiches the next day.

A couple of slices of Italian bread, roasted peppers, sliced provolone, lettuce, onions and an olive oil and balsamic dressing.  Heat the cutlet up and place it on the bread and BOOM - you got lunch.....

 
Buon Appetito.