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09Jun2016 Pre-Market Commentary: Futures Lower, DOW Rejects 18 K Level, Fed Rate Hike Unlikely, Crude Prices Slip, US Dollar Gains Overnight

Written by Gary

US stock future indexes are down fractionally (SPY -0.4%) as the DOW rally sputters at 18,000. It is too early to tell if the DOW is consolidating for a jump higher or if it will push the markets lower. The technical aspect allows for a shakeout lower, the longer view bias continues to be to the bull side. The dollar has hit a five-week low, gasoline profit margins have fallen to their narrowest seasonal levels and crude prices have dramatically fallen.


Here is the current market situation from CNN Money

Markets in Asia got off to a downbeat start despite a solid session stateside which saw the Dow close above 18,000. Consumer inflation in China eased for the first time in eight months, rising an annual 2% in May, while the Nikkei fell under pressure due to a strengthening yen and Japanese machine orders that plunged 11% M/M. While some of the decline can be attributed to the Kumamoto earthquakes, the figure likely means the nation's business investment will remain weak for most of 2016.

Gasoline profit margins have fallen to their narrowest seasonal levels since 2010, dropping by $5/bbl in slightly more than two weeks, as high imports keep U.S. inventories elevated even as gasoline demand rises. "We're seeing the economics change to the point that many refiners along the coast are looking at maximizing jet fuel and diesel at the expense of gasoline," analyst Andy Lipow told Bloomberg. Related tickers: WNR, HFC, CVRR, VLO, TSO, NTI, ALJ

INDEXES

The June S&P 500 closed higher on Wednesday as it extends the rally off May's low. The high-range close sets the stage for a steady to higher opening when Thursday's night session begins trading. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term.

If June extends the rally off May's low, weekly resistance crossing at 2133.40 is the next upside target. Closes below the 20-day moving average crossing at 2076.18 are needed to confirm that a short-term top has been posted. First resistance is today's high crossing at 2119.00.

Second resistance is weekly resistance crossing at 2133.40. First support is the 20-day moving average crossing at 2076.18. Second support is May's low crossing at 2022.50.

The Dow closed higher on Wednesday taking the lead from commodities and the rally in crude oil as it extends the rally off May's low. The high-range close sets the stage for a steady to higher opening when Thursday's night session begins trading. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term.

If the Dow extends the rally off May's low, April's high crossing at 18,160.57 is the next upside target. Closes below the 20-day moving average crossing at 17,725.80 would confirm that a short-term top has been posted.

First resistance is the reaction high crossing at 18,084.66. Second resistance is April's high crossing at 18,160.57. First support is the 20-day moving average crossing at 17,725.67. Second support is May's low crossing at 17,331.07.

What Is Moving the Markets

Here are the headlines moving the markets.

Drop in U.S. jobless claims points to labor market strength

WASHINGTON - The number of Americans filing for unemployment benefits unexpectedly fell last week,

Futures down as oil falls; jobless claims data awaited

(Reuters) - U.S. stock index futures were lower on Thursday as a rally in oil prices ended, and ahead of weekly jobless claims data, the first labor report since dismal May payrolls numbers jolted markets last Friday.

Markets may be too complacent over Brexit risk, BlackRock says

LONDON (Reuters) - Financial markets, particularly equities, may be under-pricing the risk of Britain leaving the European Union, the world's largest asset manager said on Thursday, two weeks before Britons vote in a referendum on EU membership.

Apple case against Samsung should go back to lower court: Justice Department

SAN FRANCISCO/SEOUL (Reuters) - The U.S. Department of Justice asked the Supreme Court to overturn an appeals court ruling that had favored Apple Inc over Samsung Electronics Co Ltd in smartphone patent litigation, and asked that it return the case to the trial court for more litigation.

Honda recalls more vehicles in Japan over Takata air bags

TOKYO (Reuters) - Honda Motor Co said on Thursday it was recalling around 784,000 vehicles in Japan, part of an expanded recall for potentially deadly Takata Corp airbags.

Spotify co-founder Ek says no intention to sell

STOCKHOLM (Reuters) - Daniel Ek, co-founder of Swedish music streaming service Spotify which has the biggest paid subscriber base in the world, said on Thursday he had no intention of selling the company.

Vodafone to merge New Zealand unit with Sky Network in $2.4 billion deal

SYDNEY/WELLINGTON (Reuters) - Vodafone PLC said it was merging its New Zealand unit with the country's biggest pay-TV firm, Sky Network Television , in a $2.4 billion deal that will enable it to offer customers packages of entertainment, broadband and mobile.

XpressWest, seeking to build U.S. high-speed rail, ends deal with China group

(Reuters) - XpressWest, the private U.S. firm proposing to build a high-speed rail link between Las Vegas and Los Angeles, terminated a joint venture with Chinese companies less than nine months after the deal was announced, citing delays faced by its partner.

Disparate laws, low fines mean corporate bribery often pays: OECD

PARIS (Reuters) - A mixed set of rules internationally and low fines in some countries mean that bribery often pays off for companies even when they get caught, inter-governmental think-tank, the OECD, said on Thursday.

Soros Returns To Trading With "Big, Bearish" Bets On Economic Turmoil

One month ago, we were stunned to report that none other than billionaire Carl Icahn had taken the net exposure of his hedge fund, Icahn Enterprises, from a modest net 25% short - his recent negative bias on the market was hardly a secret - to a practically apocalyptic, 149% net short which is about as close to betting on a market crash as one could get.

Then last month, billionaire trader Stanley Druckenmiller warned that œthe bull market is exhausting itself and in a presentation titled "The Endgame", he explained why he too is dumping equities and buying gold.

It turns out Icahn and Druck weren't the only iconic traders betting on a market crash.

In a stunning one-two revelation, the WSJ reports that after a nearly decade-long hiatus, not only has George Soros returned to trading, "lured by opportunities to profit from what he sees as coming economic troubles", but that he has personally directed "a series of big, bearish investments", meant to profit from the coming economic turmoil .

The last time Soros became closely involve ...

And An Even Louder Warning From Goldman: The "Yellen Call" Is Back And Will Limit Further Market Upside

Last November, when the S&P was trading just north of 2000, Goldman's Charles Himmelbrg revealed his first tactically bearish reason (even as the overall firm was rolling out a se to Top 6 bullish Trades 5 out of which were stopped out at a loss just months into the new year) why stocks are unlikely to go much higher. He dubbed it the "Yellen Call", which was effectively an argument that US risk rallies will be "self-limiting" as a result of Fed intervention, and explained it as follows:

US equity upside: Limited by the 'Yellen call'

We see limited upside to equities in 2016. Our US Portfolio Strategy team has a 2016 price target of 2,100 for the S&P 500, suggesting a very modest return of 5% (from current levels). Their framework assumes that 1) earnings per share will rise 10.1%, driven partly by 'base effects' in the energy sector and partly by improvements in global growth more generally, but that 2) the price-earnings multiple will fall approximately 5% (to 16.3x from 17.1x), as typically happens during rate-hike cycles. And, due to the delayed timing of rate hikes, the downside risk to price-earnings multiples is probably greater this year because the positive growth surprises that would normally accompany rate hikes are arguably behind us. Since our US GDP forecast envisions mild deceleration in 2016, equities and other risky assets will likely bear the brunt of rate hikes without the usual buffer of better growth data.

We also see a risk that the 'Bernanke put' will gradually be replaced by the 'Yellen call'. The 'Bernanke put' captured the intuition that when the risks to growth, inflation and market sen ...

Frontrunning: June 9



European Bond Yields Hit Record Lows as Stocks Tumble (WSJ)

Oil prices soften on profit taking after hitting 2016 highs (Reuters)

Wooing Sanders supporters will be tough task for Clinton (Reuters)

Clinton ally Warren weighs potential VP role, sees hurdles (Reuters)

Rise of the Machines Fueled by Higher Asia Manufacturing Wages (WSJ)

Iraqi PM Abadi stakes leadership, IS campaign, on Falluja battle (Reuters)

San Francisco Is Bracing for Life After This Tech Bubble (BBG)

U.S.-backed forces tighten grip around Islamic State in Syria's Manbij (Reuters)

PepsiCo Weighs Another Fix to Diet Pepsi (WSJ)

Draghi Says Economic Cost of Reform Delay Too High to Ignore (BBG)

Saudi Property Stocks Named in Kingdom's Post-Oil Plans Soar (BBG)

Brexit Vote Looms Large for U.K.'s Car Industry (

Why Investors Can't be Complacent About Inflation Let Downs

Forecasters have consistently over-estimated inflation since the start of 2015, but markets may be discounting predictions too much.

Oil and China: 'Teapots' Mean Real Demand Not So Stout

So-called teapot refineries have made it even trickier to peer through China's already muddy oil-demand picture.

Time to Cut Power to This Hong Kong Lighting Play

Tech Pro Technology's rebuttal to criticism doesn't address the uncomfortable suggestion that its stock is its currency, and its high share price is integral to the business.

04 June 2016 Initial Unemployment Claims: Rolling Averages Improve

Weekly Initial Unemployment Claims

The market expectations for weekly initial unemployment claims (from Bloomberg) were 262,000 to 285,000 (consensus 270,000), and the Department of Labor reported 264,000 new claims. The more important (because of the volatility in the weekly reported claims and seasonality errors in adjusting the data) 4 week moving average moved from 277,000 (reported last week as 276,750) to 269,500. The rolling averages generally have been equal to or under 300,000 since August 2014.

Capitol Report: These five areas of the U.S. are adding jobs faster than anywhere else

If you live in the suburbs south of Nashville, Tenn., near Brigham Young University in Utah or just across the Washington, D.C. border in Virginia, you are in luck. Employment is rising faster in those areas than anywhere in the United States.

Economic Report: Jobless claims drop 4,000 to 264,000

Initial U.S. jobless claims fell to 264,000 in early June and touched the lowest level in six weeks, showing that layoffs remain low despite a nationwide slowdown in hiring.

The Wall Street Journal: USA Today's top editor to become CEO of TheStreet

David Callaway will end a nearly four-year tenure at the Gannett daily.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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