FRIDAY 6/13/14; BOE Warns of Rate Hike Before Q2 2015; PPI; Consumer Sentiment

Today is Friday the 13th so superstitious folks will avoid black cats and walking under ladders. A full moon occurs today and equities are typically bullish moving through the full moon. Asian markets trade mixed with the NIKK, SSEC and HSI up from +0.6% to +0.9% while Australia’s key index and the KOSPI lose -0.4% and -1%, respectively.

Japan’s Prime Minister Abe says cuts to the corporate tax rate are planned over the coming years. The BOJ leaves policy unchanged with Governor Kuroda saying a moderate recovery is ongoing. Japan’s steel, metal and commodity stocks trade higher. The dollar/yen moves higher to 101.87 from a low of 101.67. Thus, the weaker yen sends the NIKK higher overnight. Yesterday the dollar/yen dropped from above 102 down to the 101.67 low so the stronger yen created the stock market selling in the States.

China’s retail sales data is better than expected and bank lending increases far more than expected over the last month. Chinese banks run higher gaining from +1% to +2%. The Aussie Dollar is at 0.9406 a seven-month high against the US Dollar. Iron ore and nickel prices continue leaking lower so metals and miners are slapped. Gold miners, however, trade higher, as gold catches a bid due to the Middle East turmoil.

The major European indexes are down -0.6% across the board. Euro 1.3574. Portugal’s 10-year yield is at 3.34% as the country does not take a final bailout payment since the economy appears to be rebounding. BOE’s Carney says interest rates may be raised sooner than investors expect. The current projection for the first rate hike is April 2015 so trades now expect a rate hike to occur in Q1 2015 rather than Q2 2015. A hike in rates would crimp mortgage lending and cool the runaway housing market. Carney is obviously very worried about the rapid rise in house prices creating economic instability. Pound 1.6974.

The higher house prices in London are now spreading throughout the UK. House developers such as Persimmon, Bellway, Baratt Development and Taylor Wimpey are all down -5% collapsing on Carney’s words. UK construction data is strong but does not aid the builders today. The spike in oil prices due to Iraq turmoil sends Easy Jet down -3.7% and Royal Dutch Shell up +1.3%.

Iraqi refugees are fleeing to the northern Kurdish region.
















[Text is Redacted: Purchase June 2014-06 to Read the Complete Chronology]

TRAN recovers +0.8% to the 8043 level testing the 20-day MA at 8047 from the underside. The biotech sector finishes down with IBB -0.1%. Utilities outperform with UTIL up +0.6%.  The retail sector, consumer staples and consumer discretionary finish flat to negative showing that challenges remain for the great American consumer. Crude oil pauses after the strong run higher in recent days. WTIC oil 106.77. Brent oil 113.50.

PCLN drops -3% and OPEN bounces +48% on the takeover news announced this morning. YELP is up +14% and GRPN +4% feeling love from the takeover talk. IGT jumps +11% on takeover chatter and EXPR gains +21% on news last evening about Sycamore Partners launching a move to acquire this retailer. MNKD gains +8%. Russia’s VIP drops -4%. TRLA bounces +3% saying that home buying is picking up but the homebuilders sell off with XHB -0.4%. Aluminum feels some love with AA up +3.6%. Copper gains +0.5% to 3.03 after dropping -5% over the last couple weeks.

For the week, the SPX loses -0.7%, the first down week after three strong up weeks. The INDU is down -0.9%, COMPQ down -0.3% and RUT loses -0.2%. The broader market is down more than tech and the small caps. TRAN drops -2% this week as crude oil (think fuel and energy costs) runs higher. WTIC crude oil gains nearly +4% due to the Iraq turmoil. Energy is the latest darling of long traders. XLE jumps +1.7% this week. Industrials and utilities take it on the chin. XLI -1.5%. UTIL -1.4%. XLU -1.2%. INTC catapults +6% this week. Semiconductors are on fire with SOX gaining +1.7% this week and up a huge +12% over the last month.

Under the Friday night cover of darkness, the IRS says the Lois Lerner emails are lost due to a computer crash. The IRS and Whitehouse had over one year’s time to turn over records but has refused to do so and now says the records are lost. The IRS scandal continues where conservative and Tea Party organizations were targeted and harassed by the IRS to help President Obama win the November 2012 presidential election. Lois Lerner is at the center of the investigation but refuses to testify and now the records have been apparently destroyed.

The continuing games by the politicians and government departments are sowing the seeds for dangerous social unrest in the future. Folks realize more and more each day that there are two sets of rules in America; one for the elite political and wealthy class and the second for everyone else. The social classes (rich versus poor) are separating and developing animosity towards each other due to the Fed and other central bankers making the rich richer while the middle class and poor folks carry their water. Government corruption, lies, incompetence and cover-ups only serve to fuel this future social unrest. Perhaps the US is headed towards another decade of civil disobedience and multi-city protests and violence like the 1960’s?

The unprecedented Fed and other central banker intervention has destroyed price discovery and twisted inter-market relationships into a knot. There is likely from 10% to 80% of fluff under the equities markets that will have to be reconciled at some point forward. The BOJ money-printing that destroyed the value of the yen over the last 18 months created the European stock and bond market recovery. The world is awash in easy money. To prove the ridiculousness, the French 10-year yield is under 1.70% at levels not seen since 1740. Yes, the year 1740 nearly 300 years ago. The Spanish 10-year yield is under 2.70% at the lowest yield since 1789.

In addition to the bond market gains, the European stock markets are at or near 6-year highs fueled by the weaker yen and other global central banker intervention. The European indexes print new highs as the continent remains mired in high unemployment, recession and depression. The final chapter of the Keynesian sugar-high saga, worshipped by Fed heads Greenspan, Bernanke and Yellen, as well as BOJ’s Kuroda, BOE’s Carney, ECB’s Draghi, and the PBOC, has yet to be written.