THURSDAY 7/10/14; Japan Machinery Orders Collapse; Portugal Bank Contagion Across Europe and US; Wholesale Trade

Japan’s machinery orders collapse -14.3% the worst drop on record down for the second consecutive month. Capital spending is far weaker than anyone expected. The data is a very negative shock and surprise and immediately creates a negative market tone. Machinery orders are dropping with hopes of an economic recovery fading. The dollar/yen is 101.47 now testing the critical 101.00-101.50 support area. Technicians are watching this line in the sand since it is the base line of a descending triangle chart pattern and if the level fails, a sub 100 dollar/yen is on the way. The stronger yen (lower dollar/yen currency pair) sends the NIKK down -0.6% to 15.2K. Asian stocks trade mixed overall.

China’s trade data disappoints with drops in both exports and imports. So not only is the Chinese export economy slowing (providing cheap goods to US and Europe) but the much-needed domestic economy continues to show lackluster growth at best. SSEC is down slightly but HSI gains slightly. Traders remain optimistic expecting the PBOC to provide more easy-money stimulus. All global traders and markets are hooked on central banker heroin and cannot function without receiving daily fixes. Bank of China drops -1% in Hong Kong trading after CCTV, a state broadcasting company, accuses the bank lender of money laundering. Secretary Kerry and Secretary Lew wrap up meetings in China discussing cyber security.

Indonesia’s Jakarta Index bounces +2% on the expectation that the pro-growth candidate Joko Widowo has won the presidential election. The BSE initially drops -0.5% on further profit taking in India but rallies into the closing bell. Traders, analysts and businesses continue singing the praises for India moving forward. India’s Nifty Index leaps +1.4% on well-received government budget ideas.

Israel air strikes against Gaza continue. Israel troops and tanks are paused at the Gaza border ready to move forward. The tensions run high. Egypt is offering assistance to help find a peaceful solution. The sirens are sounding nearly non-stop in Israel as the anti-rocket systems continue knocking down the incoming Hamas missiles. Hamas escalates the hatred saying “all Israeli’s have now become legitimate targets.”

Dozens of bodies are found bound and gagged, murdered by Sunni extremists south of Baghdad. All the ISIS militant action is across Syria and Iran north of Baghdad. Of concern is this escalation of the Sunni against Shiite hatred now appearing south of the city. Iran is lost. The killing over the last month has created hatred between Sunni and Shiite families that will now last for a generation. ISIS is issuing passports with an official seal for the Islamic State they claim in Syria and Iran trying to bolster their legitimacy. It is amazing how fast the Iran landscape has deteriorated into ruin as President Obama fiddles.

Argentina beats Netherlands in the World Cup in a shoot-out after a nil-nil game. Argentina now faces Germany for the World Cup final championship. Interestingly, the football (soccer) match serves as a microcosm for the global markets and economy; a fight between the free-spending, crony, money-printing Keynesian approach to the world and the productive, budget-conscious, inflation-fighting (with the Weimar inflation decades ago still fresh in many German minds) Austrian approach to economics and the world, respectively. Which side will win in then end?

[Text is Redacted: Purchase July 2014-07 to Read the Complete Chronology]

At 10 AM, Wholesale Trade is up +0.5% for May. Inventories are in line but sales are light. US markets form a base and mount a recovery from the initial low prints. The VIX relaxes lower to 12.70 to aid the move off the bottom for equities. The DAX is down -1.7% below 9.7K a far cry from 10K. Folks continue to chase dividend yield stocks so KO, T and utility stocks trade positively. UTIL +0.5%. UAL is up +7% helping the airline sector move flat to higher.

Discount retailer FDO trades up +1.1% as a conference call paints a rosier picture than the earnings release an hour ago. VTR bounces +1.2% after tossing its auditing firm Ernst & Young. The auditor said it lacks independence in handling the Ventas financials after discovering a hanky panky romantic relationship occurring between employees of both companies.

The SPX is at the 20-day MA at 1959 making a critical bounce or die decision. Bounce. The SPX moves higher to 1963 and the major indexes have cut earlier losses in half. Copper bounces higher helping stocks to recover. A German company approaches TRW Automotive for a takeover so TRW bounces +7.4%. NKE is trading weak today losing -1.1%. VZ gains+1.4% the best stock in the S&P today. Traders, funds and Ma and Pa Kettle, are all tripping over each other to buy dividend stocks including telecoms, utilities and consumer staples, all believing this a great place to hide out even if a market down turn occurs. The rush into dividend stocks is analogous to a group of picnickers running for shelter under the one lone oak tree in the middle of a large field as a lightning storm moves in overhead.

European markets close and are a sea of red. US equities continue recovering moving steadily higher. At 1 PM, the 30-Year Bond Auction goes off at an above average demand at 3.369%.

The FTC sues AMZN for charging parents for unauthorized purchases made by their children. A similar suit occurred with AAPL a couple years ago. AMZN will likely have to add a software button, password function or other software fix to lessen the chance of children making unauthorized purchases on electronic devices.

At the closing bell, the SPX is down 8 points, -0.4%, to 1965, sitting directly at the 20 and 50-day MA’s at 1965. Price will pivot up or down from this support/resistance level tomorrow showing the preferred direction. The INDU is down 71 points, -0.4%, to 16915. The COMPQ loses 23 points, -0.5%, to 4396. The RUT drops 12 points, -1%, to 1162. The stock market recovers well off the lows early in the session so the bear move turns out to be bluster, for now. Retail stocks trade lower. RTH -0.7%. XRT -1.2%. Financials are weak. XLF -0.7%.

Utilities trade higher. UTIL +0.6%. XLU +0.7%. SUNE is up +0.7% at a new 52-week high. LB drops -2.7% so the skimpy models in sexy lingerie (Victoria’s Secret) could not stop the losses. Computer systems company CRAY gains +16%. SRPT drops -13%. Gold catches a bid on the Portugal banking crisis.

After the bell, PSMT beats on EPS by a penny but misses on the top line and is slapped -2% lower in AH trading. GPS announces lower June comps and is punished -2.5% in the knee-jerk reaction but improves to a -1% sell off. The troubled teen retailer lives up to its slogan since it ‘falls into the gap’. CUDA reports stronger revenue and trades higher. Rent-A-Center pre-announces an earnings warning so RCII is punished -11%.

Fed’s Fischer comments on the too-big-too-fail banks saying “breaking up the banks has no benefit” and he “does not see a reason to split-up the big banks.” Fischer says he does not see any asset-price problem in markets (no asset bubbles). As bears repeating, the Fed has never been able to forecast an asset bubble ahead of time in its entire 100-plus year history. He says the “stock market can go down without producing a financial crisis.” Fischer’s comments are intended to calm and sooth markets and his skills as a central banker (Fischer ran the Bank of Israel and is also the teacher/mentor of both former Fed Chairman Bernanke and current ECB President Draghi; the bankers are an incestuous bunch).

Fischer utters the new buzzword “macroprudential” that is gaining use in financial circles and is resurrected from decades ago to describe the use of a top-down approach in maintaining stable financial markets. A broad range of adverse economic scenarios are studied and financial institutions must undergo ongoing stress tests with the common goal of reducing the chance of systemic failure to the financial system. Data such as inflation, interest rates, growth (GDP) rates, exchange rates and asset prices are all monitored under macroprudential analysis to prevent another 2008 financial crisis, or at least attempt to prevent another crisis. The central bankers and media have a new buzzword so if you want to sound smart say macroprudential at the next cocktail party.

Fed’s Evans speaks dovishly saying an unemployment rate of 5.0% or 5.25% is a better Fed target. Evans comment reinforces Fed Chair Yellen’s mantra about ‘slack in the labor market’ so the Fed plans to keep rates low (ZIRP) for a long time. Perhaps the first rate hike will come in late 2015 instead of mid-2015 even though traders increasingly want to believe that a rate hike is coming sooner than expected due to concerns over inflation. US futures begin moving higher overnight choosing to run with the idea of continued Fed easy money accommodation.

President Obama is fund-raising with video showing him playing pool and drinking beer. The president will not visit the border area to view the immigration crisis first hand but says he has a lieutenant that is there and reports to him daily to keep him abreast of the situation. Proponents of the president say this proves he is handling things effectively while detractors say his behavior shows a president out of touch. The president speaks offering the same rhetoric blaming Congress for inaction on immigration. He appears tired with all the geopolitical events, growing scandals and now the immigration crisis likely taking a toll.

The IRS scandal continues with an email surfacing from Lois Lerner where she instructs employees to be “cautious about what we say” since Congress is investigating. The IRS news continues in dribs and drabs each layer of the onion is pulled away exposing a new layer. Federal judges rule that the IRS must appear and testify under oath as to what exactly happened to the emails (evidence) that were destroyed.