US equities slide…finally. The market regulates as the “good” news ends.

The bears come out, trade talks between the US and China shift from optimism to realism. It seems like it was mostly jawboning, “things are going well, everything is moving along smoothly and we should be near a trade deal soon”. This seems like prolonging the statement “we don’t really have anything yet”. Along with weak economic data that finally weighed in on the downside of the US equities. The S&P 500 managed to dip under the 200-day moving average for the first time in a month. While the Dow hit an 11 day losing streak.

To add to this the well known dove, Mario Draghi of the ECB took to a more aggressive hawkish note. “The ECB slashed forecasts, pushed back rate hike expectations and introduced and new TLTRO loan program.”

To close the week, non-farm payrolls hit pre-market on Friday, they came out as a massive miss which helped the downside open up in equities throughout the majority of the day. Kudlow and other members suggested that this huge miss was due to the government shutdown and other transitory factors. Then came promises of higher jobs numbers to get readjusted and confirmation that the US labor market is very strong.

While equities slipped throughout the week, interest rates dropped as well. The US 10-year fell below the 2.65% level and the German 10-year bund fell into the 5 bps area for the first time 3 years. Gold fell early in the week off USD strength, the Greenback managed to climb above the 97 level finally breaking the resistance. This was the main catalyst to commodity weakness.

In other currency news, the GBP moved quite a lot during Brexit talks. The pound took a hit as Theresa May did not make much progress, rejecting the newest EU proposal as we anticipate another UK Parliament vote. Oil and other commodities tied to growth slipped late in the week as well.

Here is a look of last week’s stock market on a daily basis (red vertical lines split days).

Stock Market and Sector Overview

Here is a break down of the weekly performance in various stock market sectors (top chart):

  • Energy stocks down 3.84%
  • Technology down 2.12%
  • Financials down 2.62%
  • Retail down 4.07%
  • Utilities up 0.79%

Overview of key markets last week (bottom chart):

  • Crude oil up 0.48%
  • S&P500 down 2.06%
  • Silver was up 1.22%
  • Gold up 0.54%
  • US dollar up 0.93%

Outflows continue, downside opens up. Trade talks falter.

TRADEPRO has been keeping an eye on equity inflows/outflows for the past few weeks as equities were on the rise while outflows were hitting record levels. Something was off, then this week we finally got the anticipated sell-off as the outflows continued, we’re hitting 2008 levels, passed the 2009 level. We witnessed 12 straight weeks of equity outflows from investors since December but we got a nice pop to start 2019.

The upside was attributed to the sell-stops and buybacks, but this presented us with quite the predicament. Who was on the right end of this? The sell-stops and buybacks which promoted the upside or was it the outflows that promoted the downside. It looks like the bears took the wheel this week, the real test is the 2700 support, below we could see the buy-stops as outflows continue. This week again we witnessed $10 billion of outflows.

Recall in 2008, outflows preceded the crash, a total of $100 billion was taken out of equities during the 10 weeks leading up to the fall.

Merrill Lynch Graph

Global equity outflows continue as well, its not just the US equities that are taking a hit. This data mixed with weaker global economic data and slowing trade talks all contribute to the weaker equities we’ve seen this week. Some go as far as to say that this is just the beginning of the 2019 recession… That could be a worse case, horror scenario but it’s being said!

Trump and Xi are still at a stand still to get what the best possible deal for their nations and this Friday, March 8th, Xi announced that the Mar-A-Lago trip was removed from his calendar. This was reportedly due to “ongoing negotiations”. Interesting. This brought a lot of downside to the US equity market as they were gearing up for a strong weekend rally. However that news only temporarily stalled the rally. Trump continues to jawbone the talks and markets up. Seems like “data depend” really means market dependent. We anticipate Powell to hit the wire in the coming week with some more dovish sentiment, bolstering the economy and the market. Not to mention Trumps statement “Markets will see a very big spike if trade deal gets done”. A rather hard statement that confirms Trumps market focused agenda. It seems that strong markets equal a strong economy.

Weekly Economic Calendar

The upcoming week is less US news-intensive than normal as we approach the FOMC rate decision with little chance of a hike. There is a lot of high impact news out of the UK and Japan in the coming week so those are two currencies we have to keep an eye on. 

Sunday, Jerome Powell speaks in the evening to open up the futures market for the week. This could be a good chance for some late night Sunday trading on the equities market. 

Monday, Retail sales out of the US pre market. Powell speaks yet again in the evening delivering opportunity to the US futures at 7:00 PM. 

Tuesday, GDP numbers out of the UK, keep an eye out on the pound pre market as Brexit talks loom. US CPI data comes out pre market as well and the UK Parliament Brexit vote in the center of attention on the day. This will bring a lot of volatility to the GBP so keep an ear for the news. 

Wednesday, UK annual budget release, again adding volatility to the GBP. US core durable good and PPI data pre market

Thursday, monetary policy statement out of Japan, tentative which will move the JPY. 

Friday, BOJ news continues as Kuroda speaks and the press conference comes out, more movement in the JPY. 

If you want to join us in our live trading room, check out the Day Trader package here >

If you prefer to trade more passively, checkout our newsletter, trade ideas and live analysis in the Swing Trader package here >

The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.