The weakness in commodities continued to weigh down on the index markets yesterday. Crude oil futures (CLU15:NYM) fell -4.1% down to $45.08 a barrel, and gold futures (GCZ15:NYM) fell -0.50% to $1,089.40 an ounce. Aluminum and copper traded down to new six-year lows. It’s been a quick move down for a lot of big commodities and the sell off doesn’t seem like it’s over. Some oil traders say crude could fall as low at $30.00, and gas at the pump could fall under $2.00. Concerns about China’s economy slowing continue to overshadow global demand.
CRUDE OIL DRAG
The S&P struggled early selling off to 2080, and then bounce back before the 3:45 ET cash imbalance. Clearly crude oil was a drag on the stock market. One crude oil trader we spoke to at NYMEX said he’s concerned that the weakness in crude oil may start to be a drag on the global economy and may not be able to keep up with all the oil production. Part of the weakness in the commodities, and crude oil in particular, is data showing Chinese factory-floor activity slipped to a two-year low. Crude oil is now down 50% from a year ago.
At the end of the day, the S&P closed off 1.5% from its record high close, set on May 21. While the bears may make an attempt on the downside, we don’t think the S&P will go that far. A friend from Deutsche Bank London told me that now that the risk has been removed from the Greek credit crisis, and “seems” to be moving beyond the China ‘bubble’ story, his desk has been cutting back positions and starting to give some traders time off. He also said that the level of customer trading has dropped significantly over the last two weeks as more Europeans go on holiday. JP Morgan said the “The next month will be very, very boring and quiet. This would be the case regardless, owing to normal August seasonality, but anticipation of the 9/17 Fed decision will paralyze investors even more until at least 9/4. The SPX will see a lot of sharp swings during this period but investors should not use this vapid volatility as justification for a fundamental narrative that is probably just specious conjecture. Fed liftoff is approaching, and that should help bring an SPX break-out, but this may not be clear until 8:31 am ET on Sept 4.
For me, this is the same show being run over and over, and I will say it again: I do not think the S&P is going up or down sharply, but I do think we are going into a season where there could be some wild swings…
In Asia, 8 out of 11 markets closed lower (Shanghai Comp. +3.36%), and in Europe 7 out of 12 markets are trading modestly lower this morning. Today’s economic schedule starts with Gallup US ECI, Redbook, Factory Orders and earnings from CVS, DIS, AET, MGM, K, EMR, CHD, COH, MNK, TDG, REGN, PH, WLK, HCP, MOS, EXPD, Z, GNW, HAR, FSLR, H, SNI, NBR, PZZA, SMG, LPX, G, CZR, ATVI, ODP, BLMN, DVN, CERN, PAA, ETR, MDRX, and WNR.
Our View: I think we see some type of Turnaround Tuesday to the upside today. In the world of S&P flip-flopping, people have flipped back to the short side again, and if I am right we should trade back up to ESU 2100.00. Our view is we lean to buying weakness.
“S&P 500 Futures Down -0.45% on the first Trading Day of July”
As always, please use protective buy and sell stops when trading futures and options.
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In Asia 8 out of 11 markets closed lower : Shanghai Comp. +3.69%, Hang Seng -0.02%, Nikkei -0.14%
- In Europe 7 out of 12 markets are trading lower : DAX UNCHED%, FTSE +0.06%, CAC +%, MICEX +0.67%, at 6:00 am CT
- Fair Value: S&P -6.75 , NASDAQ -9.04 , Dow -84.03
- Total Volume: 1.5mil ESU and 4.4k SPU traded
- Economic calendar: Gallup US ECI, Redbook, Factory Orders .
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