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Let’s Call This Week’s Trading ‘The Big Yawn’ Ahead of Holiday

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May 24, 2016

(Tuesday Market Open) If this week’s trading continues in the same style as it has in the early going today and it did yesterday, we may be able to refer to it as The Big Yawn. Where’s the oomph?

Investors appear to be in a wait-and-see mode as talk of an interest-rate hike in June gains ground ahead of the long Memorial Day weekend. As is the case in most holiday weeks, trading is slow and volume is low.

Yesterday’s choppy trading left the major benchmarks all in the red while oil prices also dipped again as the disruptions worldwide unwind and some analysts say that investor focus is now shifting back to oversupply. The Dow Jones Industrials (DJIA) and the Nasdaq (COMP) both slipped 0.1 while the S&P 500 (SPX) skidded 0.2, settling at 2,048, below the 2,050 support level.

West Texas Intermediate (WTI) crude prices fell to $47.92 a barrel at the close on Monday, its fourth day of losses, but that didn’t stop Citigroup from declaring that the worst was over for the market, according to a research note it put out early today. Citi says a pullback in production among countries outside OPEC, the Organization of the Petroleum Exporting Countries, will power higher prices.

“Commodities markets appear to have turned the corner and, led by the petroleum market, are accelerating their price recovery from the lows of the last year,” according to Citi. As a result, it sees WTI prices climbing to $50 by the end of the year and $61 on 2017’s end.

We’ll see where inventory levels sit in the U.S. when the American Petroleum Institute releases data late this afternoon, while figures from the U.S. government's Energy Information Administration are reported on Wednesday. A preliminary poll Reuters took indicated that U.S. crude oil stocks likely fell by around 2.5 million barrels.

On the Fed front, lots of recent chatter from Fed officials about a “live” meeting June 15 has the markets upping expectations for an interest-rate hike then. CME Group FedWatch tool, based on 30-day Fed fund futures prices, is now measuring a 30% chance of a hike in June and a 58% likelihood in July. We may get a better read on that when Fed Chair Janet Yellen talks about her latest thoughts about the economy and monetary policy to a group in Cambridge, Mass., on Friday.

S&P 500

FIGURE 1: SPX STRUGGLES

A month ago, the S&P 500 (SPX), plotted through Monday's close on the TD Ameritrade thinkorswim platform, was on track to move ahead of the 2,100 support level. What’s happened since? It ended below the important 2,050 level. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

TSA Security Head Gets the Boot. Long, long lines to get through security at some of the nation’s largest airports coupled with outrage over hefty bonuses given to the Transportation Security Administration’s head of security appear to have led to his ouster, according to published reports. "Kelly Hoggan has been removed from his position as head of security at TSA, following our hearing on May 12 on mismanagement at TSA," the House Committee on Oversight and Government Reform posted on its Twitter account last night. That follows complaints from flyers who over the last two weeks have stood as long as three hours in lines at airports like O’Hare—and yes, missed flights—and the hearing at which lawmakers castigated the TSA for giving Hoggan $90,000 in bonuses at a time when watchdog tests revealed screeners routinely allowed weapons to pass through security, according to USA Today.

Hello Vietnam! Yes, Vietnam now stands in good standing in the U.S., according to President Barack Obama’s declaration yesterday. He rescinded a decades-old debate on sales of lethal military equipment to the country that was once our enemy. Why? Because the president is hoping to end an extremely long process of normalizing relations between the two countries after five decades since the Vietnam War. There apparently is also a China connection, according to some analysts, that is in response to China’s build up in the South China Sea. When all was said and done on that front, Obama managed to sneak in a quick, no-frills dinner with chef and TV personality Anthony Bourdain, a huge fan of Vietnamese street food. Bourdain tweeted that the bun Cha dinner with Obama cost $6. “I picked up the check,” he added.

Wait! How Much Do You Want for Seeds?  Wow! It’s a record-breaking $62 billion bid for Monsanto (MON) from Bayer AG (BAYN), the German-based mega national chemical and pharmaceutical giant. The deal still needs an OK from MON, but would be considered the largest takeover, ever, in a move to clutch an important spot in the farm supplies industry, which is consolidating at a rapid pace. Some analysts are suggesting that the $122 per-share cash offer isn’t enough, though the stock closed Monday at $109.99, up 4.4%.  

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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