WEDNESDAY 7/30/14; Russia Sanctions; Argentina Deadline; D; S; LO; ADP Jobs Report; GDP; FOMC Announcement; KRFT; WFM; YELP

Japan’s June Industrial Output drops -3.3% missing -1.2% expectations and worse than last month’s -0.7%. Overnight, the dollar/yen climbs higher above 102.20. The US Dollar basket is higher to 81.293. The euro drops under 1.34 to 1.3396. The dollar and euro are moving in a perfect inverse relationship as is expected so the weaker euro sends the dollar higher which ripples through the other currency pairs. The pound remains under 1.70 at 1.6933. The stronger dollar is an interesting development as the Fed announcement on QE tapering and plans forward for a potential rate hike next year are on tap for 2 PM EST. Gold 1298.

The NIKK gains +0.2%. The SSEC finishes a smidge lower today breaking the multi-day winning streak. The HSI gains +0.4% printing seven-month highs. Traders continue to chase the latest shiny object, Korea, with the KOSPI bouncing +1% printing at highs not seen since 2011 and 2012. The KOSPI bounced off the 200-day MA support at 1985 thirteen days ago now printing 2083; a 95 point gain, +5%. The KOSPI is running nearly one-half percent higher each day on average.

HMC drives +3% higher on strong earnings. Japan Airlines nosedives -3.5% after reporting weaker profits. China property stocks are smacked -5% across the board. Australia’s Genworth Mortgage catapults +10% higher after announcing strong profits. The KOSPI is driven higher by Hyundai Motor gaining +3%. Shipbuilding giant Hyundai Heavy sinks -9.5% after reporting record operating losses for Q2. Nintendo continues to lose its share of the gaming industry as users flock to smartphone gaming apps instead.

The Russia sanctions are perceived as all bark and no bite creating a recurring theme. 300 civilians plummet to earth in the MH17 plane crash in Ukraine but no one cares. Many of the victim’s bodies continue rotting in the summer sun disgracing all of humanity. Are we animals or are we humans? Europe remains resistant to sanctions since the economy is in such dire condition. The France-Russia warship contract is unaffected by sanctions and France plans to deliver the first of two warships to Russia this November. The sanctions are the toughest since the end of the US-Russia cold war decades ago but the West needs to go back to the drawing board; the dog has no bite.

Russia’s Micex Index is up +2.1% and climbing higher. The Russian Ruble is steady at 35.6643 showing a slight strengthening rather than weakening. A weaker ruble would be expected if the sanctions actually had bite. Germany’s DAX trades flat and is not plummeting lower. US futures are higher. The West keeps puffing its chest and waving its finger in the air in a threatening manner at Russia but it is all bluster. Global traders view the sanctions as another slap on the wrist as evidenced by the price action. Interestingly, President Putin will likely retaliate so the West may end up being hurt more by the milquetoast diplomacy than Russia.

Argentina remains on the verge of going into default. The country paid prior bond holders 30 cents on the dollar to settle the bad paper but the holdouts, that are successful through the court rulings, want to be paid in full. If Argentina agrees to pay the holdouts in full, clauses in the other contracts will require the prior bond holders to be paid in full as well and Argentina simply does not have the money. There are only a few hours remaining before a decision is required and both sides are reported to be screaming at each other behind closed doors. Argentina must decide its fate today.

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

At 2 PM, the FOMC announces a $10 billion per month QE taper as expected which will reduce the monthly asset purchases to $25 billion per month. Another $10 billion reduction will occur for September and then the final $15 will end QE Infinity in October. $25 billion per month of QE easy money continues to flow into markets pumping stocks and other asset classes higher. Traders want to hear about the Fed’s exit plan but are disappointed.

The Fed touts the same rhetoric saying the economy is getting better but provides no insight into when rates will rise. The Fed says there will be considerable time before a rate hike occurs after QE ends in three months in October; magic words for bullish traders. If the economy is doing so well why does the Fed continue to pump QE into the economy each month making the rich richer? New language in the statement says “a range of market labor indicators suggest an underutilization of labor resources.” This is a fancy way of the Fed saying that slack remains in the labor market and the Fed will remain accommodative. Stocks jump higher.

There is one dissenting vote, Charles Plosser, which is a surprise since Richard Fisher would be expected to be the dissenter. Thus, the Fed likely has two dissenting votes working against the dovish Chair Yellen. The Fed says inflation may be moving closer to target which is hawkish. The over five-year stock market rally due to the Fed and other central banker money printing occurs since investors trust and believe in the central banks. That confidence is tested after the Fed message today that provides more of the same indicating an institution that is simply figuring it out as they go. If confidence is lost in central bankers, global markets will recoil and remove the Keynesian fluff created underneath all asset classes.

After all the circus-style erratic price action today, the major indexes end mixed and the SPX ends dead flat at 1970. The INDU drops 32 points, -0.2%, to 16880, hanging on to the 50-day MA support at 16874 by a fingernail. The COMPQ gains 20 points, +0.5%, to 4463. Traders love tech stocks and continue to pump prices higher with the Fed’s easy money. The RUT gains 5 points, +0.4%, to 1147 continuing to wrestle with the 200-day MA support at 1144.06. The RUT 150-day MA drops to 1153.98 printing a negative slope for two consecutive days indicating that small caps have now fallen into a cyclical bear pattern ending the multi-year rally.

After the closing bell, Kraft Foods earnings beat on EPS but top line sales are weak and guidance is lowered. KRFT drops -2.2% in AH trading. WFM beats on the bottom line but misses on the top line. WFM drops -7% which is very odd considering it announced a juicy one billion buyback. Perhaps the luster is fading from the buyback rose?

HOLX bounces +4% on popular sales with its 3D mammography technology. VPRT prints an earnings beat and trades higher. AKAM beats on earnings but is bludgeoned -8%. YELP beats on earnings and adds to the +9% gain during the session. An EPS loss was expected instead of a few pennies of profit. After several minutes, however, traders change their minds and start selling YELP in force. Weight Watchers is the one to watch late day surprising with strong earnings and guidance. WTW gains +6%.

Yum! Brands says sales at their flagship stores such as Kentucky Fried Chicken and Pizza Hut, especially in China, will be greatly affected by the latest food scandal. A video shows the mishandling of meat in dirty conditions which crushes the company. YUM stock collapses -10% in a knee-jerk reaction. Courts rule that MCD can be sued over the mistakes and violations made by franchise-owners. The ruling will negatively impact the entire franchise industry.

At 4:30 PM, the S&P says Argentina is in selective default. The negotiations fail and Argentina goes into default for the second time in 13 years. Argentina stocks trading in global markets begin selling off. 

The House of Representatives votes to sue President Obama over his independent executive actions that ignore the legislations process. Americans are fed up with all politicians including the president since they only look out for their own interests and ignore what is best for the country.