THURSDAY 7/7/16; Italian Bank Worries Continue; Challenger Job-Cut Report; ADP Employment Report; PEP; Oil Collapses -5%; CUDA; WDFC; Texas Race Riots Result in Police Shootings

The Asia session is relatively quiet. BOJ Governor Kuroda is speaking later after the markets close. Samsung Electronics jumps +2% after reporting strong profits and robust smartphone sales. The Galaxy S7 phone is popular. USD 96.03. Dollar/yen 100.73. Pound 1.2979.

The Aussie dollar is 0.7470 and rising towards 0.75. S&P lowers Australia’s debt rating to a negative outlook due to the ongoing political turmoil. The vote counting continues from the weekend elections with 82% of the results in and incumbent PM Turnbull is leading and claiming a victory for his government. Others want to wait for the official results.

Asian indexes finish the session mixed with Japan and China trading lower. The NIKK is down -0.7% to 15276. The SPASX200 finishes up +0.6% to 5228. The KOSPI gains +1.1% to 1974. The SSEC is marginally lower at 3017. The Hang Seng Index is up +1% to 20707. The Nifty is trading flat as India trading continues.

European indexes begin the day positive and steadily ramp higher. The UK prime minister race continues with the two final candidates likely determined today. Theresa May and Andrea Leadsom remain the favored candidates. Perhaps Britain is searching for a female leader fitting the mold of Margaret Thatcher. The general thinking was that the new prime minister taking over PM Cameron’s job would be known by 9/9/16 but there are increasing calls to speed-up the process. The new UK PM may be known by late July or early August.

UK business confidence is at a 4-1/2 year low. JPM CEO Dimon warns the UK that job cuts may occur after the Brexit vote.

The panic withdrawals from funds exposed to the UK property market continue. Four more funds are biting the dust in addition to the first three. Companies getting hit by the UK real estate market after the Brexit vote are Standard Life, Aviva, M&G and now Henderson, Canada Life, Columbia Threadneedle and Aberdeen. Since the Brexit vote almost two weeks ago, Hendersen has dropped -22% and Aberdeen is down -8% with the other companies within this range. Over one-half of the UK property fund market is frozen as investors demand redemptions.

German Industrial Production is down -1.3% versus the +0.1% gain expected. The slowdown is surprising and unexpected the biggest drop in production in 21 months. Germany is Europe’s economic engine and a sputtering engine does not travel far.

The Italian banking problem festers as PM Renzi seeks help from the government, ECB and other European institutions. Talks between Italy and the European Commission (EC) hit a snag. Yesterday’s news that the Italian government could bail out the banks and at the same time remain within the guidelines and framework of other European institutions helped create the rally in the banks and US stocks and is creating lift in European stocks today. The EC, however, may not be as flexible as hoped and may require Italy to follow its rules which is creating conflict.

Europe is a twisted bureaucratic mess which may delay the bailout for the Italian banks. The Italian banking problem needs fixed as soon as possible to prevent contagion. About $40 billion is needed immediately to shore up the $400 billion in bad paper and non-performing loans but the numbers are all over the map. Portuguese and Spanish banks will require aid further adding to the potential banking contagion.

Paris-based Danone is buying soy milk maker WhiteWave Foods for $12.5 billion. WWAV is up +17% in early and light US pre-market trading.

At 4:30 AM EST (9:30 AM London), UK May Manufacturing Output drops -0.5% versus the -1.2% expected. DAX +1.4%. CAC +2%. FTSE +1.8%. S&P +4. Dow +39. Nasdaq +14.

Euro 1.1082. Dollar/yen 101.06. Pound 1.2982. WTIC oil is up +0.9% to 47.83. Brent oil is up +0.8% to 49.17. Natural gas is up +0.8% to 2.81. Gold 1367. Silver 20.15. Copper 2.1535.

At 5 AM, S&P +2. Dow +23. Nasdaq +7. VIX 14.51. DAX +1.2%. CAC +1.8%. FTSE +1.6%. Oil rises. WTIC 48.07. Brent 49.46.

At 6 AM EST (11 AM London), S&P -1. Dow +3. Nasdaq +2. Markets are steady during a slow news flow morning. The Italian banks and UK property funds are a key worry. The drop in Deutsche Bank stock has global traders spooked. DB lost -3.2% yesterday, and was down nearly -7% intraday, and is down -0.7% today to 12.88. DB was at 50 a couple years ago. Deutsche Bank is very sick and may exacerbate the problem with the peripheral European banks.

BOJ Governor Kuroda speaks and says the Japanese economy continues to recovery gradually. Kuroda says the financial system is stable. Kuroda is monitoring the risks and adding stimulus as needed. He plans to continue the easing until the +2% inflation goal is achieved. Kuroda avoided any controversial subjects and did not address the strengthening yen which may print a 99-handle (the BOJ policies aim at weakening the yen to boost exports and the Japanese economy but the opposite is happening).

S&P -2. Dow -9. Nasdaq -1. DAX +0.9%. CAC +1.2%. FTSE +1%. European stocks are off the highs and US futures turn negative.

The ECB meeting minutes indicate concern over the lack of available bonds to buy as part of their monetary stimulus program. Market participants and analysts have warned of this situation since President Draghi announced the bond-buying plan a few months ago. Pro-ECB cheer leaders say there are enough bonds to buy through March 2017 but this can only be seen if you are wearing rose-colored glasses.

At 7:30 AM, the Challenger Job-Cut Report is 38,536 layoffs in June an increase from May but the annual pace of job cuts is slowing. Businesses are likely holding on to bare bones staffs to keep the doors open.

At 7:45 AM, S&P -3. Dow -17. Nasdaq -4. WTIC oil 47.93. Brent oil 49.28. Oil prices rise overnight after the API Oil Inventories. The EIA Oil Inventories are due out at 11 AM EST delayed one day due to the holiday.

PEP gains +1.8% after beating on earnings. PepsiCo snack and soda sales are increasing in North America. WWAV +19%. TSLA -0.4%. WDC +4.3%. COST gains +1.4% after reporting flat sales that were better than expected. BMRN explodes +9% higher on takeover rumors from Roche. GLW gains +2% after GS adds it to the conviction buy list. Of course Goldman accumulated shares first before pumping it to the masses. LB dances +0.8% higher on robust sales numbers for skimpy lingerie.

Euro 1.1075. Dollar/yen 100.98. Pound 1.3023 above 1.30. Euro/pound 0.8504. Canadian dollar 1.2938. Dollar/yuan 6.6820. Aussie dollar 0.7513.

US Treasury yields are; 2-year 0.60, 5-year 0.97%, 10-year 1.39%, 30-year 2.14%. German bund -0.169%. Japan 10-year yield -0.274%.

At 8:15 AM, the ADP Employment Report is 172K jobs versus 150K expected. May is revised lower from 173K to 168K jobs. The report is healthy and the consensus for the Monthly Jobs Report tomorrow morning will likely remain at 180K jobs. S&P -3. Dow -23. Nasdaq -4. US dollar index 96.06. The US 10-year yield moves one tick higher to 1.40%.

At 8:30 AM, Jobless Claims are down a big 16K to 254K Claims. The consensus was 269K and the prior week is 270K Claims. The employment data is positive so this should create whisper numbers above the 180K jobs expected for tomorrow. The low Claims are likely not due to a robust economy but probably because companies are already down to bare bones staff levels and key employees and simply cannot cut any additional employees. These companies need to see the economy improve quickly or they may close their doors. Conversely and thinking more positively, the encouraging jobs data may start to prove that the economy is recovering. Tomorrow’s job report will either confirm the positive direction for jobs and the economy ahead, or, shoot any hopes of a recovery in the foot.

US stocks begin trading rallying strongly higher. The SPX runs from 2100 to 2109 in the first 25 minutes. That is the high for the day. The chips lead higher. SOX +1.6%. Basic materials, energy and financials rally. XLB and XLE are up +1.1%. XLF +0.9%. Utilities are sold off. XLU -0.8%.

FB is down -0.6% on news that the IRS is demanding documents from Facebook concerning its Ireland asset transfer. PEP pops +1.6%.

The S&P 500 is up 8 points, +0.4%, to 2108. The Dow gains 47 points. The Nasdaq is up 25 points and RUT up 8 points at 1156. Tech and small caps lead the way higher. The VIX is under 15 down to 14.61 so the bulls are on easy street.

Euro 1.1084. Dollar/yen 101.15. Pound 1.3015. WTIC 48.00 Brent 49.36. Natty 2.825. Gold 1363. Silver 19.965. Copper 2.15.

Wells Capital strategist James Paulsen is making the rounds at the television cable outlets this week touting a bullish theme. Paulsen says there are signs of a turnaround ahead and stocks will print new all-time highs. Paulsen proclaims that the SPX will print 2200 this year and recommends exiting the utilities and entering financials, basic materials, industrials and technology stocks.

Natural Gas Inventories are up 39 BCF in line with last week’s 37 BCF. Natty gas supplies appear steady. Natural gas inventories are above their average expected levels.

At 11 AM EST, EIA Oil Inventories are less of a draw down than expected at 2.2 million barrels when a drawdown of 4.1 million barrels was expected. The API data last evening was a far bigger draw down. The lower supply is not confirmed by the EIA data. Oil prices begin tumbling lower in earnest. The lower oil prices are going to hit energy stocks which will hit the broad indexes.

European indexes end the session higher. The DAX gains +0.5% to 9419. The CAC is up +0.8% to 4118. The FTSE is up +1.1% to 6534. The MIB is up 12 points, +0.1%, to 15436. Spain and Portugal lead higher so traders must be sniffing out multiple bailouts for Italian, Spanish and Portuguese banks. The IBEX is up +1% to 8008, a palindrome. The PSI gains 53 points, +1.2%, to 4388. The OMX is up a big +1.6% so the Nordic nations had a party going on.

The major indexes are hugging the flat line at lunch time and then collapse to the downside from 12:40 PM forward. Oil is falling down the rabbit hole and volatility is rising which sends stocks lower.

At 2 PM EST, oil is down a huge -4.5%. WTIC drops to 45.30 and Brent is at 46.61. The SPX is down 5 points, -0.3%, to 2094 losing ther 2100 level this morning’s joy is forgotten. Today is a mirror image of yesterday when stocks dropped then popped the remainder of the day. Today they gap higher and crap out the rest of the day.

The Dow is down 62 points. The Nasdaq is up 5 points remaining positive and the Russell 2000 small caps are marginally negative. Markets are mixed. VIX 15.56. The energy sector tanks as oil tanks. XLE -1.2%. XOM -1.3%. CVX -1.9%. Euro 1.1057. Dollar/yen 100.70. Pound 1.2903. Euro/pound 0.8569. Canadian loonie 1.3006. Natural gas 2.77. Gold 1359. Silver 19.79. Copper 2.122.

Treasury yields are; 2-year 0.59%, 5-year 0.97%, 10-year 1.40%, 30-year 2.14%.

T is down -1.5% on a C downgrade. VZ loses -1.3%. The interest rate sensitive stocks are punished today including telecoms and utilities. BMRN is  up +9% on the Roche takeover chatter. Biotech stocks are higher which helps buoy the Nasdaq indexes. IBB +0.6%.

CMG is down -2.6% after a person becomes sick after eating at a Chipotle restaurant. CMG has crashed from 542 to 390 over the last four months; -35%. Consumers are worried, right or wrong, about the safety of the Chipotle food. Perceptions are everything.

Natural food and soy milk maker WhiteWave enjoys a happy run higher after the takeout news this morning. WWAV +19%. The organic food craze continues. WFM +0.4%. HAIN +7.1%. PEP +1.5%. DF +0.8%. MDLZ -0.1%.

FBI Director Comey is grilled for five hours on Capitol Hill over his failure to indict Hillary Clinton over the email scandal even though the case he lays out points to an indictment. Clinton is exposed for lying several times. Clinton said, under oath, that she never sent or received classified information but Comey says she did send and receive classified information. There are other lies. Comey dances around his decision to not indict Clinton; he is unconvincing and lacks credibility.

Comey carries the Clinton’s, President Obama’s and Attorney General Lynch’s water. Shamefully, the hearings uncover the fact that Comey did not attend Hillary Clinton’s meeting with agents last Saturday and there is no written record or videotape of her appearance and she did not speak with the FBI under oath. The fix was in.

Congress will likely pursue an investigation into Clinton for lying under oath. Americans are disappointed that the next choice for president is between a scandal-ridden liar in a pants suit versus an orange-headed carnival barker that tells tall tales. Perhaps Libertarian Party candidate Johnson or Green Party candidate Stein will gain more traction. Both the demopublicans and republocrats severely hurt the country over the last 40 years and create the stink that wafts above Washington, DC.

Two disturbing shootings occur where white police officers kill black suspects, one incident is in Louisiana two nights ago and the other in Minnesota last evening. Social unrest and violence may increase as Americans push back against police that are killing suspects, especially black folks, all too frequently.

The timing of the incidents is very unfortunate since the republican convention begins in less than two weeks in Cleveland, Ohio. The convention may serve as ground zero for protestors demonstrating against racism and the police as well as the political parties. Three dozen police officers from Pittsburgh will travel to Cleveland to help provide security at the convention. Other cities in Pennsylvania and Ohio are providing law enforcement personnel as well to prepare for the worse. Republican candidate Trump is stirring up people’s emotions with his immigration rhetoric. Riot police are gearing up for a potential battle in Cleveland in the sweltering heat. Tempers flare on a hot summer day.

At 3 PM, the bears are winning with the SPX down 10 ponts to 2090. The Dow is off 85 ponts. VIX 15.83. Market bulls remain relatively unconcerned about any selling in stocks since the VIX remains under its 200-day MA.

WTIC oil is down -4.9% to 45.11. Brent oil is down -4.9% to 46.42. Gold 1360. Consumer discretionary stocks surge higher into the closing bell. XLY +0.4%. NFLX +0.5%. KORS +1.1%. KATE jumps +3.2% higher. Women’s bags must be in vogue again. The ladies like to make fashion statements with their bags.

US stocks end the session mixed the broad market and blue chip dividend, telecom and utility stocks lower while the tech and small caps lead higher. The SPX is down 2 points, -0.1%, to 2098. The INDU loses 23 points, -0.1%, to 17896. The COMPQ is up 18 points, +0.4%, to 4877. The RUT is up 2 points, +0.2%, to 1150. VIX is 14.76 finishing under 15 so the market bears got nothing.

After the bell, CUDA leaps +15% higher after the storage company reports earnings. WDFC slides -3.4% lower after earnings. JUNO crashes -32% on news that two cancer patients die during its drug trials. KITE -14%. CELG -1.4%. BLUE -4%. ABBV -1.4%. The excitement over cancer therapies fizzles.

Retailer GPS is on track with robust sales gains and the stock pops +4%. Energy company XEC bounces +3% on a Canaccord upgrade. Energy company SM explodes +13% higher in late trading.

The Zika virus is out of control in Puerto Rico with over 20 women becoming infected per day. This is a terrible tragedy. Authorities are contemplating overhead spraying to kill the mosquitoes which transmit the disease. Zika causes serious life-debilitating birth defects.

The State Department reopens an investigation into Hillary Clinton and her aides concerning the handling of classified information on her secret server. FBI Director Comey identifies Clinton’s statements under oath as lies which reopens the new probe.

There are growing protests in the major cities across the United States after the killing of two black suspects by white police officers over the last couple days. Times Square in New York City is shutdown as demonstrators flood into the streets. The crowd chants “Racist Cops” the sound echoes between the skyscrapers. The social unrest this evening is becoming concerning.

At 8:50 PM EST (7:50 PM CST Dallas, Texas, time), shots are fired in Dallas, Texas, USA. Police officers are down. The night turns tragic.

Dallas quickly unravels into murder and mayhem. A sniper/s are at elevated positions in buildings shooting police officers. Two police are laying on the sidewalk and not moving; likely dead. Dallas is in chaos. Race riots increase in America.

President Obama ignores the daily murders and black on black violence in the major cities such as Chicago, Los Angeles and New York City and instead chooses to tout his radical anti-gun legislation when a mass murder occurs. The world and United States has grown far more violent and dangerous during the president’s eight years in office; this is not an attractive legacy for the history books.