There is quite a lot to be said for the constructive influence on equities of the typical early quarter upbeat corporate earnings announcements. Yet that is all part of the Sarbanes-Oxley era game. Corporate executives have become very accomplished at under projecting and then outperforming. And along with still present (if waning) central bank accommodation, the equities find that a reason to continue higher after the sort of brief reactions we have seen ever since the September S&P 500 future gapped above the 1,900 area in late May.
However, after two months up, the inability of the recent churn to breach the extended weekly topping line and oscillator resistance that moved up to the 1,990-93 area this week is vexing. As we noted recently, this is by nature the condition for either the next major up acceleration, or a more major correction than seen since April. And there hasn’t been a full blown correction since back in the fall of 2011.
So what could possibly crystallize that important interim decision on the equities leaving the churn to exhibit the next significant interim swing? Is the quiet activity early this week the sunshine before the storm?
Mid-to-late week reports and events
Even aside from any of the global geopolitical disruptions which may flare up or cool down sufficiently to affect the equities(CME:ESU4) at any time, there is a natural confluence of reports and events, which will impact the equities from tomorrow through the end of the week. While Wednesday’s typical range of late month Eurozone confidence indicators may have some impact, which will most certainly be minor compared to the first look at U.S. Q2 GDP.
And in the context of the importance of the improvement of U.S. Employment figures of late, it is important to note that the ADP Employment Change slightly precedes the GDP number. And what should follow it but the FOMC interest rate decision and statement. Quite a confluence right there on Wednesday.
While the additional QE cut to a mere $25 billion is expected, there is also rumbling from some hawks that this is the meeting where the Fed must begin to mention a greater potential for rate hikes earlier than previously expected. We disagree, because Janet Yellen is not likely to allow the committee to make such a radical move at a non-press conference meeting after she has been so careful to not upset the equities. Don’t look for any cats among the canaries, even of the GDP number comes in any better than expected; the FOMC also knows that can be subject to revision.
Thursday is a bit less exciting, yet does still have all of the important end of month economic data. But Friday is the huge influence on the typical early month release of the U.S. Employment report. And what that means in this case is we will also see the global Manufacturing PMI’s without the benefit of knowing what the Services PMI’s are going to tell us. As a post mortem on all that, U.S. Michigan Consumer Confidence and Construction Spending also hit about 90 minutes after the Employment report. Those are not likely to have too huge an impact unless they are way off estimates.
So here we are in the early week sunshine of earnings announcements assisting the equities after last Friday’s selloff. And because it is also very typical those are offsetting weak economic data (like this morning’s weak Japanese Retail Sales), the govvies have the bid as well and foreign exchange is back to churning sideways. But we suggest keeping umbrellas at the ready for later this week.