1. Trading the strikes on Syria
The United States led a coordinated effort, along with Britain and France, to strike specific targets in Syria on Friday night. This was the culmination of what began as a horrific chemical attack carried out by forces aligned with the Syrian government on a town held by Syrian rebels last weekend. Through the week, the White House traded barbs and warnings with Russia and in the end, it appears there is a high probability that Russian forces were warned on the specific targets of the strikes. The height of the geopolitical conflict was leading up to the strike and upon impact Friday night when markets were closed. This gives traders and the world the entire weekend to digest these events which ultimately reduces an exacerbated effect on markets. Still, this will not limit volatility entirely and we are likely to see bullish spikes in gold and crude oil as traders chase the news. Our Morning Express Bias has been outright bullish both gold and crude oil. We believe that those who are long these commodities, as well as others that might benefit from the events over the weekend, should capitalize on bullish moves within the first couple hours of trading tonight. Additionally, pullbacks from overnight highs in these markets are likely to provide opportunities to reposition as the week unfolds. In times like this, it is important to stay nimble and one step ahead.
2. Equity market tailwinds
Last week, the S&P 500 battled geopolitical tensions and domestic headwinds and still managed to settle the week up almost 2%. Yes, a big part of this was a relief in the United States and China trade war landscape. However, a failure at major four-star resistance on Friday and the start of an outside bearish session ahead of the weekend only added to budding pessimism. But this pessimism can turn into a tailwind of positivity in the week ahead as investors rush to buy. The strike on Syria Friday night could cause some nervousness upon the open tonight but we believe lower price action should present a solid buy opportunity. JP Morgan posted strong earnings on Friday and was accompanied by the same from Citigroup and Wells Fargo.
Still, the banks finished lower on profit taking from traders who were already positioned long; ‘Buy the rumor, sell the fact.' Earnings season heats up this week and Bank of America will take center stage Monday morning along with a critical Retail Sales read. Retail Sales has been outright dismal with the headline read last beating expectations on November while January and February both contracted. If Bank of America and Retail Sales both beat, we are likely to see a very strong session unfold. FANG stocks are usually found leading the path higher but have recently been a burden to the market. This was not the case last week and Facebook finished up 4.6% after CEO and Founder Mark Zuckerberg’s Congressional Testimony. Traders will look to earnings from Netflix after the bell to provide a tailwind to the tech sector. Monday night brings a deep lineup of data from China; GDP, Industrial Production, Fixed Asset Investment and Retail Sales. Lastly, there are positive vibes coming from NAFTA talks over the weekend; “a deal can be here in weeks.” If Monday plays out favorable for equity markets we believe the S&P will find itself up about 3.5% by midweek testing near 2750.
Traders also want to pay attention to:
1. Fed speak throughout the week, Monday brings Fed Presidents Kaplan, Kashkari and Bostic. On Tuesday Members Williams, Quarles, Harker, Evans and Bostic all speak. Members Dudley, Brainard and Mester are also scheduled later in the week.
2. CPI data from South Africa, Britain, Eurozone and New Zealand on Wednesday. From Japan on Thursday night and Canada on Friday.
3. Reserve Bank of Australia Minutes on Monday night and Australian Employment data on Wednesday night.
4. Bank of Canada Monetary Policy Meeting on Wednesday