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Squawk Box Topics (Week of July 16th, 2012)

Broader Market Re-Cap:  The broader markets ended the previous trading week mixed as concerns about a global slowdown and the domestic fiscal crisis were weighed against solid corporate earnings from financial giants JP Morgan Chase and Wells Fargo on Friday.  In U.S. economic news, the U.S. trade deficit fell in May as the cost of oil declined while exports rose while U.S wholesale inventories rose marginally in May. On the jobs front, weekly jobless claims released on Thursday came in below forecasts at a new four-year low. Finally, the University of Michigan consumer sentiment report came in far below analysts’ expectations, providing further indications of a generally weak recovery.  The highlight of the week proved to be Wednesday’s release of FOMC minutes which confirmed market assumptions that growth has been weaker in recent months, but did not produce any hint of further policy action that the markets had been looking for. In corporate news, JPMorgan Chase & Co, the biggest U.S. bank, said it had lost $5.8 billion in 2012 from disastrous credit bets and that traders might have tried to conceal the extent of the losses earlier this year. However, JPMorgan led the Dow higher on Friday as it reported a $5B profit in the second quarter after accounting for the trading loss. In other earnings news, Wells Fargo & Co reported a 17% increase in second-quarter profit on strong mortgage banking income and improved credit quality.

For the previous week, the DJIA rose 0.04%, the S&P 500 gained 0.16%, while the Nasdaq fell 0.98%.

To begin the current week, the S&P 500 is up approx. 7.8% in the year-to-date period.

Technical Update:  The S&P 500 has continued to trade above its current major support band (1,290 – 1,300), finishing out the latest week at the 1,356 mark.  The market will need to hold this 1,290 – 1,300 support range in order to maintain its current bullish technical stance.  Since May 18th 2012, the S&P 500 has moved within a fairly large trading range of 1,265 to 1,375.

Key Technical Levels (S&P 500):

  • On the upside (resistance) – 1,365, 1,375, 1,390 & 1,400 are the next major levels in range on the charts.
  • On the downside (support) – 1,350, 1,340, 1,330, 1,310, 1,300, 1,290 & 1,265 are the next major marks in range on the charts (50-day moving avg. = 1,343; 200-day moving avg. = 1,311).

Economic Data: We are scheduled for a fairly heavy week on the economic data front, highlighted by Monday’s Retail Sales, Wednesday’s Fed Beige Book & Thursday’s Weekly Jobless Claims.  See below for full list of weekly economic reports.                                                                                                                                                                                          

Corporate Earnings: U.S. corporate earnings season heats up this week, with numerous market moving names reporting results.  See below for breakdown of major announcements scheduled for release.

Crude Oil: To begin the week, Crude Oil continues to trade at depressed levels…Currently, NYMEX WTI Crude Oil is trading around $87 a barrel & Brent Crude is trading near $103 a barrel.  Since May 1st, 2012, NYMEX WTI Crude Oil is down approx. 18% while Brent Crude is down approx. 14%.

Retail Sales Disappoint: 3rd consecutive monthly drop in a row: the longest since December 2008 – report raising hopes the Federal Reserve could launch more QE.

WSJ Marketblog: Q2 earnings expectations of the S&P 500 indicate worst growth rate since Q2 2009.

Asset Manager Fund-Flow Update (Week Ending July 11h):

  • Equity Funds (excluding ETFs) saw $1.3BN of net inflows vs. $550MN in net outflows from the prior week
  • Domestic equity funds saw $900MN in net inflows compared to $900MN of net outflows from the previous week.
  • Global equity funds saw $350MN of net sales, which was the same as the prior week.
  • Excluding ETFs, Real Estate emerged as the strongest sector, while flows within the Technology sector were the weakest.
  • Including ETFs, Real Estate emerged as the best, while Industrial/Consumer saw heavy outflows
  • However, Lipper data showed that money flows were steady out of equities and shifting into money markets ($19.1BN of net sales compared to $7.7BN of net outflows)
  • Weekly asset manager fund returns were down by an average of 1.52% (-2.48% 2QTD)
  • Nuveen emerged as the best performer on the MF return end, while Calamos had a weekly loss of 2.58%

Emerging Trends/Topics:

  • Analysts are anticipating to see de-risking flow momentum to continue over the next 3-6 months stemming from (1) lower AuM => lower mgmt fees, (2) declining performance fees, (3) reduced distribution fees (from sales/AuM levels), and (4) negative B/S marks (nonoperating income).
  • Morningstar reported that for the month of June, Long-term mutual funds had $11.4BN in total net inflows including $3.7BN in equity outflows and $14.7BN in fixed income inflows. The level of overall flows was below the trailing six month average of $27.9BN.
  • Equity flows were once again negative – 10 of the past 12 months – as domestic equity dragged down the asset class with $8.5BN of outflows. International equity funds increased sequentially to $4.8BN and continue to be the bright spot for equity flows year to date. Money is still pouring into fixed income funds, which have hit $146BN of inflows YTD
  • ETF flows were robust at $21 billion of net inflows including $14 billion in equity inflows and $5 billion in fixed income inflows


MONDAY (7/16)

– 8:30 AM – Retail Sales – Jun – Expectations = 0.20%

– 8:30 AM – Empire Manufacturing – Jul – Expectations = 3.8

– 10:00 AM – Business Inventories – May – Expectations = 0.20%

– Citigroup Earnings – BMO

– Japanese markets are closed

– The IMF releases its updated World Economic Outlook report

TUESDAY (7/17)

– 8:30 AM – CPI – Jun – Expectations = 0.10%

– 9:15 AM – Industrial Production – Jun – Expectations = 0.30%

– 10:00 AM – NAHB Housing Market Index – Jul – Expectations = 30

– Goldman Sachs Group Earnings – BMO

– Intel Earnings – AMC

– Johnson & Johnson Earnings – BMO

– Yahoo Earnings – AMC

– Fed Chairman Ben Bernanke testifies on monetary policy and the economy before the Senate Banking Committee. He’s likely to be grilled on the Fed’s knowledge of Libor manipulation. The market will also be attuned to any suggestions of easing by loosening credit standards. 


 – 8:30 AM – Housing Starts – Jun – Expectations =743K

– 8:30 AM – Building Permits – Jun – Expectations = 765K

– 2:00 PM – Fed’s Beige Book – Jun

– American Express Earnings – AMC

– Bank of America Earnings – BMO

– Honeywell International Earnings – BMO

– International Business Machines Earnings – AMC

– Fed Chairman Bernanke reprises his Senate testimony before a House committee


– 8:30 AM – Weekly Jobless Claims – Expectations = 365K

– 10:00 AM – Existing Home Sales – Jun – Expectations = 4.65M

– 10:00 AM – Philadelphia Fed – Jul – Expectations = -10

– 10:00 AM – Leading Indicators – Jun -Expectations = -0.20%

– Google Earnings – AMC

– Microsoft Earnings – AMC

– Morgan Stanley Earnings – BMO

– Verizon Communications Earnings – BMO

– Spain auctions bonds

FRIDAY (7/20)

 – General Electric Earnings – BMO

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