MrTopStep's Index Futures Recap

MrTopStep’s Index Futures Recap – Monday December 28th

Last night on the globex open, the S&P 500 futures maintained a sideways trade through the early Asian session until around midnight before being offering throughout the European session and late in the globex session , making a low of 2040.25 around 6:00 am CT.

At the US regular trading hours open, the ESH15 traded at 2046.25 and found it’s high of day early in the opening half hour at 2046.75 before sells took the futures down to 2035.25 more than 10 handles from the open before rebounding into mid day making an afternoon high of 2048.50 into the close on a $285 million MOC buy imbalance. The S&P settled the day at 2049.25, 2 handles lower on the lowest volume day of the year.

Heard across the news wires today was very little as many of the foreign markets as well as the U.S. economic calendars are slowing down significantly until the new year. Going into tomorrow, of interest will be “turn-around” Tuesday tomorrow as the equity markets will look to carry whatever “Santa” momentum they can into the year’s end. The 2050.00 yearly break even area continues to act pivotal.

From Barclays, 4 Themes for 2016

Theme 1: DM will continue to grow steadily, but EM remains weak

-Strong global consumer + trade/investment/manufacturing recession = mediocre but positive growth

Theme 2: Emerging Markets: still not sounding the all-clear

-The China slowdown – accrual accounting, not mark to market

-Broader ramifications – on EM and commodity countries

-Brazil – things should get worse before they get better

-Political dysfunction amid worsening economic and fiscal dynamics

Theme 3: The Fed lift-off cycle should proceed slowly as the Fed tests the limits of divergence

-But volatility regarding the Fed and China should increase as 2016 progresses

Theme 4: Poor liquidity has exacerbated market moves

-This is an ongoing theme that is likely to continue

The BofA Merrill Lynch Global Research team made the following 10 macro calls for the year ahead.

S&P 500: The ultimate “anti-credit play.” The Standard and Poor’s 500 Index is expected to reach 2200 by the end of next year, beginning a slow trajectory toward 3500 in 10 years. Gains in the year ahead imply a 5 percent return for the S&P, roughly equivalent to earnings growth or a 2016 EPS forecast of $125. With credit-sensitive investments the biggest risk in 2016, the S&P 500 could be viewed as the ultimate anti-credit play: large, liquid stocks with healthy balance sheets and above average cash balances.
Modest U.S. and global economic growth. Global GDP is forecast to grow by 3.4 percent, up from 3.1 percent in 2015, which is slightly below trend. Growth of about 0.5 percent faster than trend is forecast for Europe, the U.S. and Japan. In the U.S., GDP growth is expected to remain steady at 2.5 percent next year as a solid labor market offsets weak productivity growth.
Gentle rise in inflation. Globally, headline inflation is expected to inch up to 2.8 percent as the effects of commodities price drops begin to fade. Underlying inflation should remain stable, with key differences between developed and emerging markets. By year-end, U.S. unemployment should reach 4.5 percent, causing a gentle rise in inflation next year, including wage and price inflation at 0.5 percent and 0.2 percent respectively. Emerging market inflation could decelerate to 3.8 percent, down from 4.3 percent in 2015. The strongest El Niño weather pattern in 18 years represents a potential upside risk to inflation, particularly in Asia and Latin America.
Start of emerging markets recovery. For the first time since 2010, average annual growth in emerging markets should begin rising to 4.3 percent in 2016 from 4.0 percent in 2015. Excluding China, growth should pick up to 3.1 percent in 2016 from 2.6 percent in 2015. About three-quarters of emerging market economies could show signs of recovery by the middle of 2016, whereas Brazil could contract further to -3.5 percent as it struggles to climb out of recession. Investment likely will become the key driver of the emerging market recovery. Asset price returns of roughly 2.7 percent for external sovereign debt, 2.5 to 3.5 percent for emerging market corporate debt, and 1.0 percent for local currency debt are expected in 2016.
Interest rates: up from zero. The Federal Reserve is expected to carefully calibrate a rate hike over the next two years, with a 0.25 percent hike this month and three or four 0.25 percent increases in each of the next two years. Meanwhile, further quantitative easing is expected in Europe and Japan and a mixed bag of policies in the rest of the world. U. S. 10-year Treasuries could reach 2.65 percent, and the dollar should remain strong, rising by 4 percent to 6 percent. The confluence of modestly higher rates, a Fed liftoff, and more regulatory pressures will likely keep liquidity risks in bond markets at the forefront.
Divergent monetary policies: U.S. and China go separate ways. With the Federal Reserve set to raise rates and the People’s Bank of China likely cutting rates, divergent monetary policies will shape the rates and currency markets in 2016. More weakness in the renminbi (RMB) is expected, with the currency depreciating over 7 percent against the U.S. dollar in 2016. This could have negative effect spillovers on emerging Asian currencies and commodity markets.
Commodities under pressure. A strong U.S. dollar and restrained global growth could create downward near-term pressures on commodity prices – not just in metals, but also in energy and grains. Overall, commodity returns could be flat to down by as much as 3.7 percent next year. Oil balances are set to improve in the second half of the year, with the combination of global demand and lower non-OPEC output potentially pushing crude oil back up to $55 a barrel. Meanwhile, natural gas demand should remain robust, with the spread between gas and crude oil widening. Base metals will likely stay soft, with gold continuing to struggle as the dollar strengthens and rates rise.
Credit is complicated. Fundamental trends in the global credit markets are divergent, and there appears to be no single global credit cycle. Optimism is highest for U.S. high grade, with 3 to 4 percent of excess returns expected next year. The bear market for U.S. high yield continues, with expected total return losses of 2 to 3 percent. Persistent yield differentials between U.S. and global corporate bonds are expected to force global investors into the U.S. market, and with potential returns as high as 6 to 7 percent, 30-year corporate bonds could deliver equity-like returns in 2016. It could be a tough year for credit in emerging markets, with stark divergence in returns from nation to nation. Still, the overall forecast for emerging market credit is positive, with a 4.0 percent total return for high yield and 2.5 percent for investment grade.
Global investment strategy. Global stocks are expected to rise by 4 percent to 7 percent in the next year, with equity markets in Japan (strength across the board), Europe (banks) and the United States (high-quality cyclicals) among the standouts. BofAML’s asset allocation calls are long U.S. dollar, volatility and real estate; short commodities and other credit sensitivities; stocks over bonds; developed markets over emerging markets; and investment-grade over high-yield bonds. And with Main Street bulls and Wall Street risks, the best ways to invest could be to buy what the middle class buys: mass retailers, regional banks and investment grade bonds.

10.U.S. housing recovery continues. Further expansion of the U.S. housing market is forecast for 2016, with housing starts of 1.275 million, reflecting a recovery in household formation. Existing home sales could increase by 5 percent in 2016, while new home sales see a more robust 10 percent growth rate. Home price appreciation could slow in 2016, with prices up by only 1 percent, a reflection of home price overvaluation relative to income. Though the rise in interest rates poses some risk to the U.S. housing recovery, the Fed’s go-slow approach should prevent a painful rise in mortgage rates. Long term, there are signs of a structural shift in the housing market toward renting over home ownership, and, in turn, an increase in multi-family housing construction.

Danny Riley of MrTopStep has been asked to make an appearance on the radio at 7:55 a.m. CST and 11:55 a.m. CST Wednesday at www.rmastars.com. Danny is hoping that all of his followers will come out and listen to him as he discusses relevant market news and timely commentary on the S&P 500 and all tradeable markets.

Don’t forget to take advantage of the MrTopStep Year End Settlement Contest which can be entered by clicking on the link here: Contest!

Seen Today In The IM Pro Trading Room:

Dboy ( 10:25:44 AM ): I think we have found the early low now time to grind higher but dont want to be long above the LOD

william blount ( 9:47:45 AM ): heckuva lot easier to say ‘the market went UP aign this year “Ma and Pa’ than it is to say ‘hey, it is nusual to have a down year, trust us gain ‘Ma and Pa’

Floor Pivots For Tomorrow’s RTH E-mini

R3 2073.25

R2 2059.00

R1 2054.00

PP 2044.75

S1 2039.75

S2 2030.50

S3 2016.25

Tomorrow’s Notable Earnings: NONE

Tomorrow’s Economic Calendar:

Redbook

8:55 AM ET