ECB Weighs in on Global Economic Outlook, Spotlight stays on Data

June 6, 2019
By Vlad Karpel

After a two-day policy meeting in Lithuania, the European Central Bank is putting out some mixed signals in terms of what steps may be taken if economic conditions deteriorate in the Eurozone. ECB President Mario Draghi indicated that interest rates will be left as they are through the first half of 2020, which is an extension from previous ECB guidance that stated the hold would remain until end of year. When asked if rate increases were more likely than cuts, Draghi responded with a “no”, and went on to say that a restart of quantitative easing was considered if economic erosions became significant. Draghi stopped short of offering concrete guidance for the probability of a rate cut, and went on to say that the ECB won’t go for a cut just because the markets are pricing in trade tensions and other moving situations may hamper global growth. Investors will need to deal with ambiguity for the time being and monitor a potential proximate effect on Fed policy in the U.S., with expectations that a more dovish stance will be taken amid a global economic slowdown and trade tensions. Fed Chairman Jerome Powell recently indicated a “neutral” position and that he is “open-minded” to questions about providing stimulus to the U.S. economy in the form of rate cuts.

Oil prices dropped into bear market territory yesterday after an overwhelming build up in U.S. crude, gasoline and distillate supplies. Worries over trade tension and global economic vitals have also raised questions about demand for oil, adding to the downward pressure.

Mexico and the U.S. are in a second day of negotiations with no conclusive outcome in sight.  There is no indication yet if tariffs will be raised against Mexico, although there are reports that GOP lawmakers are not on board with the policy. In U.S./China relations- President Trump has threatened another $300 million worth of tariffs “at least” and that he may make a decision about the additional tariffs after the G-20 meeting on June 29.

Economic data in focus today includes unemployment numbers and figures from the Commerce Department for productivity growth. Applications for unemployment benefits climbed to 218,000 for the week ending June 1, which is a move from 215,000 for the previous week and above analyst expectations that the number would remain static. Commerce Department productivity growth figures for the first quarter were revised down to 3.4% from the previous estimate of 3.6% and below analyst expectations of 3.5%.

Stocks in focus today include Fiat Chrysler Automobiles NV, (FCA), Stitch Fix Inc. (SFIX), Ciena Corp. (CIEN), J.M. Smucker Co. (SJM), Michaels Companies Inc. (MIK) and Kirkland’s Inc. (KIRK). Fiat Chrysler has withdrawn a merger proposal with Renault SA (RNO) because of a stated lack of government backing from France. Stitch Fix Inc. reported that it earned a 7 cents per-share profit for fiscal third-quarter which came in above analyst expectations. Stitch Fix saw shares jump 24.9% in early Thursday trading. Ciena Corp. posted both earnings and revenue beats for the fiscal second-quarter, and the stock is up 26.28% at the time of publication. J.M. Smucker Co. posted an earnings beat for the fiscal fourth-quarter, but did not hit its revenue targets. The stock slid 4.2% in Thursday trading but appears to be recovering. Michaels Companies Inc. saw a 13.5% drop in shares afterfiscal first-quarter sales came in under expectations and the company lowered its guidance for 2019. Kirkland’s Inc. reported fiscal first-quarter sales falling more than expected and the stock is down 41.73% at the time of publication.

After hints that interest rates can be lower this year, the market rallied above 200 days MA at $278- gauged by the SPY ETF.  We expect the market to continue trading between $280-$294 for the SPY, with the ETF currently trading below its 50-days moving average of $286. We encourage our readers to avoid chasing the market near $290 but consider buying near $280. However, if the SPY breaks it current  support at $272, we expect the market to continue its sell off to $262 level in the next 30-60 days. Expect market volatility to persists as long as SPY below $286 level. Look to Friday’s non-farm payroll numbers, or jobs figures, for short-term direction in the market.

For reference, the SPY Seasonal Chart is shown below:

Using the “^GSPC” symbol to analyze the S&P 500, our 10-day prediction window shows an overall neutral outlook, represented by the Range Trend meter. Today’s vector figure of -0.27% registers as neutral in Today’s Trend meter reading. Prediction data is uploaded after the market close at 6pm, CST. Today’s data is based on market signals from the previous trading session.


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Highlight of a Recent Winning Trade

On May 20th, our MonthlyTrader service produced a bearish recommendation for the Arcelormittal SA Luxembourg (MT). MonthlyTrader is available as a standalone subscription service or included in Tradespoon’s Tools, Premium and Elite Trading Circle membership plan. MonthlyTrader is designed for 5-20 day positions on average for stocks and single options.

Trade Breakdown

MT entered its forecasted Strategy B Entry 1 price range of $16.38 (± 0.12)in the first hour of trading on Tuesday, 05/21 and hit its Target price of $15.56on Thursday, 5/23. The Stop Loss price was set at $17.20.

Friday Morning Featured Symbol

*Please note: Our featured stock is part of your free subscription service. It is not included in any paid Tradespoon subscription service. Vlad Karpel only trades his own personal money in paid subscription services.  If you are a paid subscriber, please review your Premium Member Picks, ActiveTrader or MonthlyTrader recommendations. If you are interested in receiving Vlad’s personal picks, please click here.

Our featured symbol for Friday is Marsh & McLennan Companies Inc. (MMC).MMC is showing positive movement in our Stock Forecast Toolbox’s current-day prediction and near-term bullish momentum. This stock is assigned a Model Grade of (A)indicating it ranks in the top 10th percentile for accuracyfor current-day predicted support and resistance, relative to our entire data universe.

The stock is trading at $98.63 at the time of publication, up 0.37% from the open with a +0.19% vector figure.

Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.

Note: The Vector column calculates the change of the Forecasted Average Price for the next trading session relative to the average of actual prices for the last trading session. The column shows expected average price movement “Up or Down”, in percent. Trend traders should trade along the predicted direction of the Vector. The higher the value of the Vector the higher its momentum.


Oil

After entering bear market territory on Wednesday, oil futures are trying to regain footing against a backdrop of mounting U.S. supply levels and expectations of softer global demand due to trade tensions. Investors will be looking forward to the next scheduled OPEC meeting which is set for early July at the request of Russia. OPEC will likely be taking action to stem the fall of oil prices through further production cut agreements.

West Texas Intermediate for July delivery (CLN19) is priced at $51.44 per barrel, down 0.40% from the open, at the time of publication.

Looking at USO, a crude oil tracker, our 10-day prediction model shows a strong near-term bearish outlook indicated by the Range Trend meter. The fund is trading at $10.70 at the time of publication, down 1.00% from the open. Vector figures show -1.91% today with a predicted low/high of $10.34 and $10.82 . Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.

Gold

Gold futures continue to gain in trading today and following its typical inverse dynamic with the U.S. dollar index, which has slumped. If the safe-haven asset closes higher today, it will have logged its seventh straight session of gains. Investors will be looking to Friday’s nonfarm payrolls report and subsequent Fed reactions.

The price for August gold (GCM19) is up 0.57% at $1,335.90 at the time of publication.

Using SPDR GOLD TRUST (GLD) as a tracker in our Stock Forecast Tool, the 10-day prediction window shows bearish vector signals- reflected by the Range Trend meter. The gold proxy is trading at $126.29, up 1.00% at the time of publication. Vector signals show -0.78% for today- which registers as a slightly bearish signal. The ETF has broken its predicted resistance today, which is an influence indicator of recent news developments. This asset will be sensitive to changing news events. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.

Treasuries

Yields are still following the same path today as investors continue to revert to a risk-off attitude ahead of the nonfarm payrolls numbers set for Friday, as well as a myriad of evolving political and economic situations. The deep inversion of the yield-curve is still intact, with the 3-month bill and the 10-year note yield gap maintaining a negative 25-basis point gap.  The yield on the 10-year Treasury note is down 1.57% at 2.10% at the time of publication. The yield on the 30-year Treasury note is down 1.97% at 2.60% at the time of publication. Investors are going to be closely watching the negotiations and statements coming out of the U.S./Mexico tariff dispute for the next signal for the tense trade climate- which has an immediate economic impact at home.

Using the iShares 20+ Year Treasury Bond ETF (TLT) as a proxy for long-dated bond prices in our Stock Forecast Tool, we see strong positive near-term signals. Today’s vector of +0.27% registers as neutral/positive in the Today’s Trend meter, and incrementally grows each day in the forecast which is a strong bull signal. Investors should keep tabs on headlines and changes in bond buying and selling activity as new economic data is released. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.


Volatility

The Volatility Index is continuing an overall drawdown today, trending more toward its 52-week low of $10.17, relative to its 52-week high of $36.20.

The CBOE Volatility Index (^VIX) is down 0.75% at $15.97 at the time of publication, and our 10-day prediction window shows a negative near-term outlook. The predicted low/high for today is $15.74 and $17.67 with a vector of -1.01%. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.


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Bonus:

Active Trader Lifetime Access
Weekly Live Strategy Roundtable

(Daily Stock & Option Trade Recommendations)

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Offer Ends
Midnight Tonight.

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