“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliché, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.” – Victor Sperandeo

1. TPP Nations Pursue Deal Without U.S. — the 11 members of the Trans-Pacific Partnership have agreed to pursue their trade deal without the U.S. at a forum of the Asia-Pacific Economic Cooperation. U.S. Trade Representative Robert Lighthizer said at the conference. “Bilateral negotiations are better for the U.S. than multilateral negotiations.”
2. Trump’s Unveils First Budget Proposal — President Trump’s first full budget proposal lands on lawmakers’ desks this past week, with an estimated $3.6T in spending cuts over the next decade. Congress will still be allowed to spend $4.1T in 2018, including a big boost to defense, border security and infrastructure, while cutting Medicaid, food stamps and other social programs. The plan also calls for selling half of the nation’s Strategic Petroleum Reserve and permitting drilling in the Alaska refuge.
3. MSCI Sets Date for Chinese A-shares Decision — MSCI will announce on June 20 whether it will finally include China’s domestic A-shares in its $1.5T Emerging Markets Index (ETF: EEM) as Beijing tries to open up its markets and attract foreign capital. The index provider last June delayed the decision for a third straight year, citing regulation worries and accessibility for global investors.
4. Moody’s Downgrades China Rating to A1 from Aa3, Citing Concerns Over a Slowing Economy and Growing Debt — Moody’s Investors Service downgraded China’s credit rating to A1 from Aa3, changing its outlook to stable from negative, citing concerns efforts to support growth will spur debt growth across the economy. Moody stated that the catalyst for the downgrade was a combination of factors, including expectations that potential growth would fall to 5 percent by the end of the decade. It was Moody’s first downgrade for the country since 1989, according to Reuters.
5. OPEC Agrees to Extend Crude Output Caps — OPEC renewed an agreement to withhold some crude-oil supplies into March 2018. With over a dozen other countries expected to join the cartel’s efforts, the agreement is likely to cut off about 2% of the world’s oil supply through March 2018, extending a decision the OPEC-led coalition reached last year.

The week ahead — Economic data from Econoday.com:

“Investors tend to confuse short-term volatility with long-term risk. The longer the time period, the lower the risk of holding equities. People focus too much on the short term, week-to-week and month-to-month price changes, and don’t pay enough attention to the long-term potential.” — Richard Driehaus

1. Saudi Arabia and Russia Agreed to Crude Production Cut — Saudi Arabia and Russia, the world’s top two producers, said that a crude production cut would be extended from the middle of this year until March 2018. While the output cut will initially be on the same volume terms as before, they hope other producers will join in their efforts. OPEC is due to meet in Vienna on May 25.
2. Ford Planning Major Job Cuts — Looking to boost profits and its sliding stock price, Ford (NYSE:F) plans to slash its global workforce (currently 200K) by about 10%, WSJ reported. The job cuts are expected to be outlined as early as this week. Ford shares have suffered during CEO Mark Fields’s three-year tenure and the company’s market value has slipped far behind those of Tesla (TSLA) and General Motors (NYSE:GM).
3. Brazil Sinks Deeper Into Political Crisis — a fresh political crisis is hitting Brazil, reminiscent of last year’s impeachment saga, following reports that President Temer was secretly recorded discussing hush money pay-offs to a jailed associate. According to Brazil’s O Globo, the tapes were presented to prosecutors as part of a plea bargain by Joesley and Wesley Batista, brothers who run the country’s biggest meat-packing firm JBS.
4. Greece Adopts More Austerity Measures — Greece’s parliament has approved a raft of fresh austerity measures, including pension cuts and tax hikes sought by the nation’s foreign creditors. The step paves the way for eurozone finance ministers to clear the next disbursement of funds to Athens when they meet to discuss ways to lighten the country’s debt burden.
5. AAII Bullish Sentiment Crashes — according to the latest weekly AAII survey, bullish sentiment dropped from 32.73% down to 23.85%. That drop is the largest one-week decline since July 2015 and takes bullish sentiment down to its lowest level since last November’s election. Bullish sentiment has now been below 50% for a record 124 straight weeks.

Meanwhile, bearish sentiment increased by less than half as much as bullish sentiment declined. However, at a level of 34.25%, more than a third of individual investors consider themselves bearish.

The week ahead — Economic data from Econoday.com:

“Any idiot can face a crisis – it’s day to day living that wears you out.” – Anton Chekhov

1. Landslide Win for Emmanuel Macron in France — Emmanuel Macron is set to become the youngest president in French history after winning 66% of Sunday’s runoff vote vs. National Front leader Marine Le Pen. He declared “I will fight with all my strength against the divisions that are undermining us,”. While his victory strengthens France’s place in the EU, he’ll soon have to prove his fledgling political party, En Marche, is capable of winning a majority in June’s legislative elections.
2. Key ETFs Asset Class Performance Matrix for May — the star of 2017 for US equity indices has been the Nasdaq 100 (NASDAQ:QQQ), which is up 16.24% YTD. Both the S&P 500 (NYSEARCA:SPY) and Dow 30 (NYSEARCA:DIA) are up around 6%. Meanwhile, Energy (NYSEARCA:XLE) is down more than 10%.

3. VIX (Fear Index) Back to It’s Pre-Crash Lows — the VIX fell to the lowest level since December 1993, including Monday’s 9.77 close, a finish in the single digits has only been managed 11 times for the VIX. The VIX, which is built using the implied volatilities of a wide range of S&P 500 index options, is meant to be forward-looking and is calculated from both calls and puts. It’s often referred to as the “investor fear gauge.”
4. Tesla Updates on Solar Roof initiative on Musk’s Grand Idea — Elon Musk’s vision for a grand unification of his clean-energy ambitions—combining solar power, home batteries, and electric cars in transformative of new solar roof project. Tesla’s first two styles of its solar roof – “black glass smooth” and “textured” – will be priced at about $21.85 per square foot. That’s more expensive than a typical roof, but less pricey than a roof with traditional solar and back-up batteries. The product will come “with a warranty for the lifetime of your house, or infinity, whichever comes first,” as Tesla reported.
5. China Unveiled ‘One Belt, One Road’ — China’s President Xi unveiled detail plans for his “Belt and Road Initiative”. Over fifty agreements signed to advance the project, which aims to build a new Silk Road connecting Asia, Europe, the Middle East and Africa. The vast logistics and transport network would involve 65 nations that together account for one-third of global GDP.

The week ahead — Economic data from Econoday.com:

“Move on, understand what happened in the past but do not have an emotional attachment to it.” — unknown

1. Venezuela Hikes Minimum Wage Again Amid Crisis — responding to protests and an economic crisis, Venezuela’s Nicolas Maduro has raised the nation’s minimum wage by another 60%. It’s the third pay hike he’s ordered this year and the 15th since he became president in 2013. Still, none of the increases will come close to keeping up with the nation’s inflation, which is expected to rise by more than 1,600% in 2017.
2. Target Continues Urban Expansion in NY Lower East Side — the NY lower east side is about to get its first Target (NYSE:TGT). The retailer has signed a lease to open a 22,500 square-foot store at the 1.9M-square-foot development stretching across several Manhattan blocks called Essex Crossing. Target, which had 32 small format locations at the end of 2016, expects to have more than 130 in cities and dense areas by the end of 2019.
3. 5G Network In the Work by 2020 Plan by T-Mobile — helped by the airwaves it acquired for $8B in last month’s FCC spectrum auction, T-Mobile (NASDAQ:TMUS) expects to deploy a 5G network nationwide by 2020. The pledge comes as AT&T (NYSE:T) and Verizon (NYSE:VZ) pour billions of dollars into wireless airwave licenses that might support the technology.
4. Puerto Rico Files for Historic $70 Billion Debt Restructuring – Puerto Rico’s federal oversight board filed with a U.S. court to use bankruptcy-like proceedings to slash the island’s $70 billion debt after failing to strike an agreement with bondholders. The process called Title III, created by a U.S. law enacted last year to help Puerto Rico emerge from its debt crisis, allows the government to use the courts to cut debt amassed by more than a dozen agencies.
5. FOMC Stays on Hold, Rate Hikes Remain on Tap — the Fed kept interest rates on hold at its May meeting at 0.75%-1%, but maintained expectations for further 2017 rate hikes. In a unanimous statement – the committee said it “views the slowing in growth during the first quarter as likely to be transitory” and believes the “fundamentals… remain solid.”.
6. The House passed the American Health Care Act To Replace of Obamacare — President Trump said in the Rose Garden after the House passed the American Health Care Act by a slim margin of 217 to 213. The legislation now faces an uphill battle in the Senate, where several Republican members have signaled it could see major revisions. Reports also indicate that the chamber could write its own version of a bill.

The week ahead — Economic data from Econoday.com:

“Know what you own, and know why you own it.” – Peter Lynch

1. U.S. Moves to Impose 20% Tariff on Canadian Lumber — the Trump administration has taken a first step toward imposing a 20% tariff on Canadian softwood timber – the type of wood used for residential home construction. About $5B of Canadian exports to the U.S. will be subject to the tax. The decision is preliminary and still has to go through a couple of bureaucracies before any tariff is collected.
2. East Coast Refiners Eye Texas Oil Delivery Via Ship — U.S. East Coast refiners, including Phillips 66 (NYSE:PSX) and Monroe Energy (NYSE:DAL), are looking to move more crude by ship from Texas into the Philadelphia area. It’s the latest twist in a trade flow upheaval resulting from the opening of more pipelines in North Dakota; as the discounts of Bakken crude disappeared, so did the rail cars that transported the commodity.
3. Retail Store “Brick-and-Mortar” Closings at Record Pace — american retailers are closing stores at a record pace, with 2,880 retail closing announcements this year, more than double the number from the same period in 2016. Just last week, Bebe Stores (NASDAQ:BEBE) said it would close its remaining 170 shops and sell only online, while Rue21 announced plans to close about 400 of its 1,100 locations. If the pace continues, more retailers will close shop than during the 2008 recession.
4. South Korea Deploys Parts of THAAD System in a Deterrent of N. Korea — amid high tensions on the Peninsula, the U.S. military has started moving key parts of its controversial THAAD anti-missile defense system to a deployment site in South Korea. The move, which has angered North Korea, China and Russia, prompted protests by hundreds of local residents and was denounced by the frontrunner in South Korea’s presidential election.
5. China Concerned by U.S. Aluminum Probe — China is concerned by the second U.S. national security trade probe into imports of aluminum and hopes to resolve the dispute through talks, according to Commerce Ministry spokesman Sun Jiwen. “It’s very, very dangerous, obviously, from a national defense point of view” only to have one producer of a material needed for defense, U.S. Commerce Secretary Wilbur Ross declared, citing applications in armor and advanced aircraft.
6. 1Q GDP Weakest in Three Years, as Consumer Spending Falters — gross domestic product increased at a 0.7 percent annual rate also as the government cut back on defense spending. A measure of private domestic demand increased at a 2.2 percent rate last quarter. First-quarter GDP tends to under-perform because of difficulties with the calculation of data that the government has acknowledged regarding the seasonal quirk and temporary restraints.

The week ahead — Economic data from Econoday.com: