Day Trading Weekly Recap; Markets are HOT!

It’s time to recap what happened in the markets this week! 

We had another
profitable week of day trading with members at SchoolOfTrade.com, and wish
everyone a safe and restful Memorial Day Weekend.

Here’s what happened this week:

– Global markets quickly backed
away from the panicky dive into safe assets seen last week and equity markets
coasted back to May highs.

In the US, the S&P500 pushed
out to a (near) record high and the benchmark 10-year yield eased out to 2.536%
after touching 2.472% at its deepest compression last week.

Geopolitical developments were front-and-center all week:

Europeans voted in EU Parliament
elections, in Thailand the army took over control of the country in an outright
coup, North and South Korea exchanged artillery fire, China and Russia signed a
30-year natural gas supply deal, and Ukraine saw more violence ahead of weekend
elections though Mr. Putin softened his tone on the crisis.

April housing data showed an
improving market in the US. Preliminary European May manufacturing PMI data out
of France and Germany missed expectations.

But overall there did not seem to
be any major catalyst driving lethargic market moves and many analysts
suggested participants were merely biding time, waiting for clarity on possible
ECB easing, waiting for Ukraine to calm down and waiting most of all for an
excuse to power the US melt-up to ever greater highs.

For the week, the DJIA gained 0.7%, the S&P500 rose
1.2%, and the Nasdaq added 2.3%.

– There was little response in markets to the release of the FOMC minutes which
contained no major revelations about the Fed’s exit planning. However, a few
trends could be gleaned from the document. The Fed is clearly still not
concerned about inflation and believes it will stay below the 2% threshold for
quite some time. 

Policymakers seemed to agree now is the time to start
preparing exit strategies, which will likely involve reverse repos and raising
interest rates on excess reserves (IOER). But even as the exit approaches,
forward guidance is still in place and could “enhance the clarity and
credibility of monetary policy.”

– The April US housing data indicates improvements in sentiment after a hard
winter selling season. Both new and existing home sales accelerated modestly
from March levels. The headline April existing home sales figure was the best
reading in four months. Commenting on the data, the NAR chief economist noted
that some growth was inevitable after sub-par housing activity in the first
quarter, and said he believed improved inventory is expanding choices and sales
should generally trend upward from this point. The stocks of major US
homebuilder rose 4-5% on the week. Home improvement names Home Depot and Lowes
saw restrained growth in first quarter earnings, however both indicated that so
far May sales have been very strong.

– There were some truly terrible results seen out of retailers this week, and
the tough environment cut across retail categories. Best Buy saw the best
results, as the company’s big turnaround plans continue to bear fruit and help
arrest the big declines in quarterly sales. Target met all expectations in its
first quarter but cut its FY14 forecast. Apparel retailers were pretty weak,
with most missing or barely meeting deflated consensus expectations. Guidance
was quite bad. Aeropostale lost 25% of its value after disclosing especially
bad results. Sears Holding’s business continues to implode, and the company
said it would sell some or all of its position in Sears Canada.

– Caterpillar released troubling April dealer statistics, with retail sales of
machines down 13% y/y, slightly worse than the firm’s March performance. The
cooling of China’s housing and resource sectors contributed heavily to
Caterpillar’s 25% y/y sales decline in Asia, compared to March and February
declines of 20% and 17%, respectively.

– After weeks of talks, AT&T has offered to buy DirecTV for $95/share in a
cash and stock deal valued around $67.1 billion. DirecTV shareholders will
receive $28.50 per share in cash and $66.50 per share in AT&T stock. The
price implies a total equity value of $48.5B and a total transaction value of
$67.1B. The agreement includes no break-up fee or penalty that AT&T would
have to pay if regulators shut down deal, while DirecTV agreed to pay a $1.4B
fee to AT&T if it leaves the deal for a higher bid. After the agreement was
announced there were reports DISH Networks was holding talks with Verizon,
however Verizon’s CEO later dismissed them and said the company did not need to
do any big acquisitions.

– AstraZeneca rejected Pfizer’s final offer of £55/share, and suggested the
board could have considered a bid above £58.85. The deal is not quite dead yet
as many of AZN’s largest shareholders have encouraged the board to take another
look or otherwise engage with Pfizer. Monday, May 26th is Pfizer’s deadline to
get AstraZeneca to accept an offer before having to wait six months under UK
law to make another offer. Pfizer has said it has no intention of launching a
hostile bid.

– Starting with the UK and the Netherlands, Europe began voting for a new EU
parliament on Thursday. Final results are expected Sunday night, however exit
polls suggest that euro-skeptic parties are gaining less ground than expected
in the election. In the run-up to the elections, there were real fears that
fringe parties would capitalize on low turnout, anger over immigration and weak
economies to take more seats in the EU legislature. Until the end of last week,
European bonds had rallied on the back of rising confidence in the Eurozone
recovery and expectations for more ECB easing. But the trend went into reverse
on weak GDP readings and fears about the election results, as benchmark
peripheral bond spreads widened out to levels not seen in months.

– In the UK, markets were eager to see whether the minutes of the BOE’s May
meeting would show any loss of consensus among MPC viewpoints. Cable rose from
1.6790 as high as 1.6920 on the release of the notes on Wednesday morning. Some
MPC members indicated that gradual, earlier rate hikes might be needed. Cable
also benefitted from spectacular April retail sales data (+1.8% v +0.5%e) which
saw its largest m/m gain in a decade. The second reading of UK Q1 GDP came in
unchanged from the advance reading, but took cable off its best levels thanks
to q/q declines in import and export readings. GBP/USD closed out the week well
off its best levels, below 1.6820.

– The BoJ policy statement on Wednesday offered no hints that the bank was
getting any closer to more easing. For the 10th consecutive meeting, the BoJ
said the domestic economy continued to recover moderately and maintained its
overall economic assessment. Revisions included a higher capex assessment,
following the strong capex component in Q1 GDP and strong machine orders
earlier this week, as well as a lowered public investment assessment. Analysts
focused on three separate instances in the statement of the BoJ expressing
concern that “decline in demand following front-loaded increase prior to
consumption tax has been observed.” USD/JPY bottomed out around 100.90
ahead of the decision and then pushed back to 102 by Friday. In an interview on
Friday, BOJ governor Kuroda signaled some impatience with the Abe government,
urging that the growth strategy be implemented swiftly and promptly.

– The Thai Army declared martial law and seized full control of the country in
a coup this week, the second time in a decade the army has overthrown an
elected government. The move came just a day after talks between the ‘red
shirt’ backers of the current government and their opponents failed, following
months of sometimes violent street protests. The Thai constitution has been
suspended by the Senate, independent organizations and the courts to remain in
place.

– The slow motion deceleration of the Chinese property market continues. The
April home price report showed y/y price growth slowed down in all 70 cities
surveyed, and the aggregate growth rate dropped to its slowest pace in 11
months. As a result, experts expect the list of major cities easing property
market controls to expand to at least 39 from 8 cities presently. Hangzhou, in
the eastern province of Zhejiang announced a limit on property price cuts.
Addressing the issue, PBoC Governor Zhou asserted that the housing market is in
good condition when looked at with an eye to the long term, with bubbles
confined to a few cities. On a more positive note, the preliminary May HSBC
manufacturing PMI numbers (49.7 v 48.3e), while still in sub-50 contraction
territory, did see a second consecutive month of sequential improvement. New
export orders and output prices shifted to growth but employment remained soft.

– After nearly a decade of negotiations, China and Russia signed a $400
billion, 30-year gas supply deal, giving Russian President Putin a lovely photo
op with his Chinese counterpart and preventing a major embarrassment before
flying home to Moscow on Thursday. The pricing terms of the deal were not clear
and many analysts believe the Russians were forced to take a much lower price
than they originally wanted. Others noted that the fields and pipelines needed
to supply the gas have not yet been built.