A.M. Update

Overnight major world markets largely traded with a weaker tone, with the Nikkei finishing the day out for another red close of -0.42% (Europe still open) while at last look European markets were hovering in the red around half a percentage point (FTSE 100-0.56, CAC 40 -0.49% and DAX -0.52%, the out-performer in Europe is none other than... you might have guessed it, the defensive Utilities sector.

The Nikkei saw overnight data showing imports declining as consumers are clearly spending less after the recent sales tax hike the BOJ thinks went over so smoothly, just like their QE-Zilla and Abe-enomics in general.

Just as an aside, the Cyclically Adjusted P/E Ratio (CAPE) has only been higher 3 times in history than right now, 1929, 2000 and 2007 and we know how they all ended.

US Index Futures have a slightly weaker tone, don't forget the Dominant Price Volume theme that I track which was the most bearish of the 4 possibilities last night, Price Down/Volume Up, however this can create a short term oversold situation with the market bouncing the next day (today).

 The cause of overnight weakness rather than the usual overnight ramp? The Carry pair of USD/JPY, the same one that sent the Dow over 17k on Thursday amid a half day and very light volume as it pushed through the BOJ's line in the sand of USD/JPY $102 (thus running stops and taking Index futures higher with it, remember from Thursday's Daily Wrap that as soon as the market closed, the pair fell like a rock). The USD/JPY of course fell yesterday to its 200-day moving average, but overnight, it fell below that same average.

 USD/JPY, like many other assets covered last night, NFP KNEE JERK WIPED CLEAN, is clearly below the Non-Farm Payrolls print from Thursday that sent the carry pair and equity futures one way while bonds and credit took the NFP print a totally different way. As usual, the knee jerk reaction is retraced within a few days as you can see above.

Speaking of which, the 2 year yields have seen a rise of 18 basis points since the lows on May 20th with a full 6 basis point move since the June 18th F_O_M_C while the 10 year UST rates are more stable at +8 bp since May 20th lows. Taking a quick look and extrapolating the changes, one could be forgiven for thinking the bond market is pricing in a sooner than anticipated rise in the F_E_D Funds rate as the 2 year rates are out-performing the 10-year with a 6 bp move just since the F_O_M_C.

Above is the USD/JPY since yesterday's 4 p.m. EDT market close.

 And here's the 1 min chart of the same pair below the 200-day moving average overnight and this morning.

USD/JPY in red/green candlesticks and ES/SPX futures purple line on a 5 min chart.

ES 1 min and other Index futures don't have any interesting pre-market divergences at the moment, but on a longer scale where trends are more serious and often much clearer...

 TF/Russell 2000 Futures can be seen with a leading negative divegrence in to yesterday's open and in line with the move lower which is 3C/price trend confirmation.

On a longer basis, also where the highest probabilities (for resolution) are to be found, the Es / SPX E-mini Futures on a 60 min chart shows some minor positive divergences which I believe have been used, as we saw in mid May and right before the June 25th flag-like/channel with a pop (Dow 17k) right above the channel, to create upside momentum (including short squeezes and a flop of a Dow 17k breakout)  to sell in to higher prices as has been the trend for most of 2014 with a number of unrelated indicators confirming such as breadth.

Also trading weaker overnight (as many of you know as I have been tracking a large multi-month negative divegrence in UNG), Nat. Gas futures which also broke their 200-day moving average, expect to see them move lower and DGAZ higher.

 1-day chart of NG / Nat. Gas futures and the 200-day and where I've been tracking a UNG negative divegrence.

Here's the 5 min NG chart and 200-day being broken.


As a reminder, AA kicks off earnings season today after the bell as we enter the 56th consecutive day the SPX has not traded with a single gain or loss of 1% or more, a record not seen since the early 1990's!

We have Richmond F_E_D President, Lacker speaking at 1 p.m. on the topic of "Economic Outlook" and at 1:45, Minneapolis F_E_D president, Kocherlakota speaks on "Monetary Policy". I think the BIS summed it up in saying it has diminished effects and undesirable side effects, I wonder if Kocherlakota will feel the same?

The market "may" be a little dull today  in anticipation of tomorrow's F_O_M_C minutes from the last meeting which seemed like a dud, but sent 10-year yields falling since June 18th as well as  a number of other assets as smart money seemed to grab that the F_E_D might have no choice other than to raise F_E_D Funds rates sooner than later and perhaps Yellen is behind the curve as she was in 2007 as well as Bernanke. The market itself took the headline news and ran with it, not seeing anything especially interesting, many assets have retraced the knee jerk since then, others have just deteriorated since then.

The minutes are due out at 2 p.m., in fact...

The Calendar for the rest of the week.

See you shortly.