Wall Street remained in a holding pattern Tuesday as the action was concentrated in Europe, where a hotter-than-expected inflation report hit eurozone bonds and sent the euro up 2% against the dollar.
Traders are eagerly awaiting a number of major catalysts on Friday, including the May payroll report, a production decision from OPEC and the deadline for Greece to make a $1.8 billion debt payment to the International Monetary Fund.
In the end, the Dow Jones Industrial Average and Russell 2000 lost 0.2%, while the S&P 500 and Nasdaq Composite lost 0.1%.
Technically, as shown in the chart below of the percentage of NYSE Composite stocks above their 50-day moving average, breadth continues to roll over here in a sign of underlying vulnerability as the Dow Jones remains unable to break away from the 18,000 level first crossed back in December. The 18,000 level is also now associated with the Dow’s 50-day moving average, making it a key level of technical support.
Energy stocks outperformed, rising 0.5% as a group, thanks to gains in crude oil from the weaker dollar. West Texas Intermediate gained 1.9% to close at $61.33 a barrel. Materials were also strong, again thanks to the weakness in the greenback, with United State Steel Corporation (NYSE:X) up 7.9%.
Crude oil slide after the close after the API inventory report showed another build — the second in a row — pushing prices back towards $61 in after-hours trading.
Retail was in focus as Macy’s, Inc. (NYSE:M) gained 2.5% on a Reuters report that hedge funds have asked the company to consider monetizing its real estate assets. Airlines lost some altitude after Delta Air Lines (NYSE:DAL) lowered its Q2 unit revenue forecast, citing weakness in its domestic business.
Across the pond, Euro area inflation increased 0.3% in May, beating the consensus estimate and posting the first positive inflation reading since November. Core inflation increased to a 0.9% year-over-year rate from a record low of 0.6% in April. German 10-year yields suffered their largest yield pickup since August 2012 as a result.
Dueling headlines on the state of Greek bailout negotiations remain a daily fixture, with reports that Greece’s major creditors are preparing a “final offer” in a take it or leave it strategy. A rejection could put Greece in default and set the stage for a bank run and popular referendum on euro membership. Athens, for its part, is said to have offered its own proposal of tough economic reforms.
Look for more details on Wednesday, which is when the Financial Times is reporting the creditors will unveil their proposal to Athens.
OPEC will meet in Vienna on Friday in its first meeting since holding production constant in November, moving the physical market deeper into oversupply and sending prices careening lower. Few changes are expected as prices have rebounded off of their March low thanks to a slight inventory reduction associated with the start of the U.S. summer driving season.
Saudi Arabia, OPEC’s swing producer, has made no secret of its desire to crush the U.S. shale industry via a price war in order to recapture market share. That task remains incomplete as both prices and U.S. shale activity rebound. Evidence suggests Riyadh is ramping up production in what looks like another effort to force prices lower.
In response, I continue to recommend a negative positioning to subscribers in both crude oil and energy stocks, with the June $87 Exxon Mobil Corporation (NYSE:XOM) puts recommended to Edge Pro subscribers up more than 30%.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
