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Market Lab Report - Premarket Pulse 7/3/17

Major averages finished roughly flat to slightly higher near the bottom of their intraday trading ranges on lower pre-holiday volume as Monday will be a half session ahead of the July 4 holiday.  

Central banks are starting to suggest there is room to start hiking interest rates. A number of central banks have been at record low rates such as the Bank of England which stands at 0.25%. A move higher would be symbolic of the belief that these banks have room to hike due to the notion that economies may be slowly recovering, though this remains questionable both at home and abroad. Even Fed Chair Janet Yellen expressed concern about lagging productivity growth, and the slowing GDP issue has yet to be resolved even though it was revised slightly higher.

Against that backdrop, investors will be keenly awaiting minutes on Wednesday from the Federal Open Market Committee’s June meeting when policy makers lifted interest rates and struck a more hawkish tone. Then the weekly jobless claims are scheduled for Thursday followed by June nonfarm payrolls on Friday. The May report brought disappointment at 138,000 reported, so all eyes will be on any perceived weakness in the numbers.

The sovereign debt crisis has plunged the world into deeper and deeper debt. The issue at hand is whether reducing the total amount of QE which has been at record levels can induce a soft landing. History suggests otherwise. The first hurdle is whether the global economy can recover even though several years of QE-induced money printing has yet to yield convincing economic strength. The second hurdle is whether reducing the massively bloated central bank balance sheets can be done gradually but fast enough to be meaningful, especially in the face of a very fragile global economy.

Downside in the major averages has been minimal this year compared to any other year since QE began. At the same time, upside has been muted since March as the market baby-steps its way higher, propelled by QE fumes. Recently, we are seeing higher volume on days the market closes lower while volume is lighter when the market rebounds, a bearish sign. The total number of distribution days over a rolling 20-day period stands at 6 on the NASDAQ Composite. The rally that began after the presidential election is showing signs of sputtering out.

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