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Monday, July 2, 2018

Market Alert - Pre-Market

Futures vs FV: SP -16.50; DJ -170.00; NASDAQ -54.25

Stocks open Q3 sharply lower as the new quarter brings the same stories: trade issues and the FOMC.

Futures gapped lower and SPY has traded in a range between 270 and 269.50 for the past 5 hours, clearly finding no bids.

Trade: More of the same. President wants to deal with NAFTA after the mid-term elections. That is the minor story for the moment.

Friday US tariffs on China goods are set to go into effect and China vows immediate retaliation.

EU threatens $300B in tariffs on US goods if the US imposes tariffs on EU autos. You know that story: BMW, Mercedes built plants in Mexico to use NAFTA to sell cars to the US without any tariffs or duties. They demand 'free' trade but impose huge tariffs on US goods and complain when the US asks to stop using NAFTA this way. And the US is the bad actor here? The market, of course, does not care. It wants things settled one way or the other.

Wilbur Ross: Stock market moves will not change Trump's mind on his trade goals. The market interpreted that as a sell signal this morning.

The report Trump wanted out of the WTO was partly correct. Reports continue coming out and purportedly the WHouse drafted a bill that would obviate a lot of the WTO rules.

FOMC: Minutes out this week even with the 1.5 days off midweek. That is another worry, i.e. the Fed getting too tough with all of the economic uncertainties raised by the trade issues.

Lots of data this week. Durable Goods Tuesday, June Jobs Report Friday. More uncertainty on top of the big uncertainty.

Oil: Trump tweeted SArabia agreed to raise production 2M bbl/day. SArabia says they are 'talking' about it. I note that the tweet used the improper grammar referring to oil prices as 'to high.' Just saying as that is one of my pet peeves (as this note probably contains typos itself . . . )

Bonds: 2.842% vs 2.86%

EUR/USD: 1.1616 vs 1.1638%

USD/JPY: 110.80 vs 110.687

Oil: 73.57, -0.58

Gold: 1250.90, -3.60

The big issue coming into this week was whether the good patterns in leaders would make upside moves and thus give lift to the indices to hold the key support levels they tested all last week.

With the quarter opening with resounding selling, it would appear the indices will have to pull a rally out of the hat at some point this session after gapping lower. The trade issues continue causing instability and then you have the FOMC, and on top of both of those earnings season is at the door. Thus far this is too much to handle.

Stocks will gap lower for the most part though VMW will gap upside about 15 clicks as Dell is buying out the rest of the stock in likely a precursor for Dell to go public again. After a lower open we will see if stocks can make a comeback again to hold support. Does not look good, but if bad news cannot cause a breach of support that is often an ultimate positive. Still, lots to overcome to start the quarter. We will see.

Jon Johnson, Chief Market Strategist

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