Market Recon Thursday

Good Morning,

                        What do you think will be the bigger story today…. Great Britain heads to the polls ??… or the release of the first tranche of the Fed’s stress tests for the big banks ??  Yeah, you’re right, we’ll talk about what’s happening in the UK all day even though we won’t know anything about it… all day.  The stress tests can be important, but probably the more important results will be released in the second tranche of results next Wednesday.  That’s when the 33 banks in this year’s study will find out who will be able to increase their shareholder dividends….. and who may not.
                        For those of you who don’t eat financial news for breakfast, lunch & dinner,  these stress tests throws a couple of (well, stressful) items (like a simulated 10% Unemployment Rate, and simulated negative interest rates) at the banks, and attempts to assess what that would do to their revenue flow (solvency).  Dividends, and corporate re-purchases are not included at first, but are added for next week’s results.  As a trader, the headlines are probably what you will go off here, not the nitty gritty.  That said, you might as well at least have a simplified idea of what the Fed is looking at.
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Last Minute Brexit Ideas (making some dough is why we’re here)
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                       For the rest of this week, what this Brexit referendum does to exchange rates, and bond yields will have greater influence on equity prices within the financial sector than does the “stress test “examination.  Being that we’ll be forced to follow British developments very closely, one might as well try to figure out a way to make a little dough in this odd environment.  I’ve been watching DEO for a couple of weeks.  This one has been moving almost in lock step with the British Pound, but being a “Booze” stock, it has a retail following that exaggerates it’s moves in proportion to what the Pound is actually doing versus the Dollar.  The ADR (easier to access for most of you) is trading close to 112 this morning on a strong GBP/USD, but has traded close to 106 this week when the Pound was lower.
                      If you think this whole thing washes over, (or that a weaker Pound might actually help a British exporter going forward) that might be your play, in the equity on an emotional currency pull-back tomorrow if you have the risk tolerance.  If tolerance for risk is a problem….maybe try it through a bull call spread.
                      Need a backdoor hedge ??  Or maybe you just think that in the end, the Brits will indeed vote themselves off of the island, and you don’t have an FX trading account …  The UK Pound ETF “FXB”, which is listed at the NYSE may be your cup of tea.  FXB went out last night at 143.64, and is sure to open higher today.  Some of you have probably read Steve Sears in Barron’s, as he wrote on this idea just this week.  As of last night, FXB 140 puts expiring in July were pricing around $3.25.  Those puts are sure to open lower.  If you think George Soros is right about a double digit percentage devaluation for the Pound (no sure thing)…  This expense may end up seeming like lunch money….and those puts will give you three weeks to be right.
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Macro
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08:30 ET
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Initial Jobless Claims (Weekly):  Incredibly, the entire range for this item this week spans only 4k…from 268K to 272K.  Last week’s print came in at 277K, but the four week moving average stand just above 269K.  Guess the experst are pretty sure on this one.  The market will likely take a pass on this number unless you get something way out of whack….just doesn’t pack the punch that it used to.  On top of that, today, there are bigger stories out there.
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09:45 ET
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Markit Flash Manufacturing PMI (June):  The markets sometimes pay more attention to Markit’s flash than they do the final number toward the end of the month due to the fact that the ISM print will take priority that day.  For today, consensus calls for a June flash of 51, which is coming off of a May final of 50.7.  Of note today, I think is that not one economist in the range has a number below 50.
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10:00 ET
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New Home Sales (May):  Yesterday, LEN, and KBH reported year over year revenue growth of 15% and 30% for the quarter, respectively.  Today, we expect to see a seasonally adjusted , annualized rate of 563K.  At first glance, this looks like a 9% drop-off from April’s 619K.  At second glance, this looks to me like it would be the second best print in the space since 2008.  The low end of the range here is an even 500K.  FYI, something like that would be taken badly by the market.
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Leading Indicators (May):  Do you care ??  Nobody else does.  The marketplace will not notice this release, and as far as I go back…. never has..
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10:30 ET
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Natural Gas Inventories (Weekly):  This number really only matters to those trading the space.  for Nat Gas, we expect a tenth consecutive weekly build, without seeing a single significantly large one.  Today’s projection is for a rough increase of 58 billion cubic feet.
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18:30 ET
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Fed Speaker:  Dallas Fed Pres. Robert Kaplan speaks from New York City.  Kaplan is not a voting member of the FOMC, but was one of the talking hawks going into the June meeting.  Of late, he has skipped around making statements on monetary policy, focusing more on the state of banking within his district.
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Earnings Highlight … before the open… BBRY (-.08)