Market Alert - Pre-Market

Futures vs FV: SP -26.07; DJ-328.47; NASDAQ -92.41

I did say there would be ups and downs as the trade 'negotiations' continued, but goodness. Trump has asked his people to find another $200B in tariffs on Chinese goods.

China vows to respond in kind, but it just does not have that many goods it buys from the US (only $130B from US). That means would it attack US businesses individually? Boycotts? Could be, and that uncertainty is what causes stocks to fall.

Combined with the issues with European economies slowing and their fear of slowing farther and there are not many positives out there.

Other than this event, there is not much news out there, just upgrades and downgrades from analysts.


Okay, some other news out there.

Existing home sales, May: +5.0% vs +1.8% expected. Biggest gain in 11 years.

Single family +3.9%. Multi-family +7.5%

Permits: -4.6%. Second month lower, suggesting slowing ahead.

Rates apparently were not that high in May, but starts are not sales. We will see how the sales perform in July, August, September.


OTHER MARKETS
Bonds: 2.878% vs 2.915%. Bonds rally as a bit of a safe haven play

EUR/USD: 1.1553 vs 1.1621. Dollar stronger another move toward safety

USD/JPY: 109.98 vs 110.53

Oil: 64.87, -0.98

Gold: 1279.90, -5.20


Futures gapped lower as we noted last night in the report. I had heard from sources after the close that something was up so we waited to see if something hit and sure enough it was the potential for quintupling the amount of tariffs on Chinese goods.

Not much recovery from the gap lower. Very modest. The question will be what emerges out of the initial rubble at the open. Is the open the low? Will small caps again prevail or will they be also dragged lower?

As Captain Mancuso of the Dallas said in 'The Hunt for Red October,' the hard part about playing chicken is knowing when to flinch. This trade head butting between the US and China is just that. The US has a clear objective: get rid of the absurd IP stealing partnerships, get rid of China's 'emerging economy' status, get rid of tariffs on US goods, open China's markets to US producers. Basically we want what China gets from us. The problem is China has had its way forever and doesn't want to give it all up and certainly does not want to look as if it has been forced to do so.

You can see the resolution is not anywhere close just yet barring some kumbaya moment between the two. That means stocks will be operating in this environment and they will show who can survive.

We will see how the indices and leaders react off the lower open, if they bounce, if they can hold a bounce, etc., and then if necessary, start closing some upside versus riding through on everything.

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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