Brian's Monday recap: Sweating it out on a slow summer day

Collective Intelligence!
Weak overseas demand hit China’s GDP in its latest reading. The year-on-year growth was 7.5%, softer than the 7.7% forecast. It will be an acid test for the new economic policy of Beijing. However, this was not as bad as the fall in exports indicated when reported last week. Nevertheless, it was the ninth out of ten quarters that growth has slowed.

Also, the first senior administration official is due to visit Egypt this week. The Egyptians on both sides of the political standoff are leery about the motives of Washington. Policy officials have not called the overthrown last week as a coup. In doing so would remove the foreign aid we give to the government there. Nevertheless, demonstrations continue and now have the U.S. in the sights of the protesters calling for the ambassador to leave.

Supply issues in Libya and North Seas maintenance continue to support the European benchmark in the global oil trade. Nevertheless the sharp drawdown of U.S. supplies will keep the arb in a fluid state. Several refinery glitches still support the gasoline market and the Seaway pipeline at the time of this writing has not been pushed back to full flow rates. That will be a key element in the direction of both the arb and flat price - posted by Stanton_Analytics.

Today started with a light 154k ESU and 700 SPU traded on Globex, trading range was 1675.60 – 1670.00. Friday’s regular trading hours (RTH’s), pit session trading range was 1674.20 – 1667.20 before settling at 1670.30, up 0.2 handles. Pre-market chatter - rumor of Germany sovereign downgrade following last week's S&P downgrade of France. In the U.S. 132 companies are trading at 52-week highs, almost three times the average at four S&P 500 peaks between 1990 and 2007. Goldman cut its Q2 GDP estimate again this time from 1.3% to 1.0%. This morning U.S. retail sales were softer than expected, but the Empire manufacturing report kicked off the midmonth rebalance with a bang, checking in at 9.46 vs exp 5.0 as earnings season begins to ramp up.
Today’s RTH’s gapped 5 handles higher to open at 1676.00 - 1675.20, traded an early high of 1676.50 at 8:31 before printing a low of 1672.70 by 8:45. The summertime slow, light-volume grind sideways to slightly higher followed, and by 10:30 the SPU was retesting the opening range as the FTSE, DAX and CAC all closed up on the day. The dollar was off modestly and the bonds were firm as the summer doldrums roll through. The SPU traded a series of higher highs and higher lows as the index continued its light volume grind through the midday. A new high of 1647.70 printed at 11:04 and the opening range held on the retest. Following intraday high of 1679.40 traded at 1:45 before fading back to trade 1647.50 going into the release of the closing imbalance. The imbalance showed a slight $94M to the sell side. The cash close traded 1677.30 area before settling at 1677.50, up 7.2 handles on the day.

This week there are some very big names reporting: Citigroup, Coca-Cola, Goldman, J&J, Yahoo, BofA, American Express, Mattel, IBM, INTL, Morgan Stanley, United Healthcare, Google, Microsoft, AMD, and Chipotle. Also, between today and Thursday there will be 18 separate economic numbers, three T-bill auctions, one Fed governor speaking, Bernanke testifying before both houses of Congress, earnings kicking into full gear and on Friday the July options expiration. The summer may mean lower volumes (only 1.1 million minis traded Friday) but it doesn't mean the S&P won't be moving.
Brian Shepard is a 20-year exchange member of the CME Group.

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