July is historically a rebound month for stocks around the world. Following a soft spring, indices usually get a reprieve in July, around the start of summer earnings season before facing the most volatile time of the year for stocks between August and October. 

This year, however, the post-election honeymoon rally extended through the spring. Because of this, valuations have become extended and stocks are going to need to deliver really strong earnings to meet inflated expectations. In particular the small group of NASDAQ stocks known as FAANG (Facebook, Amazon, Apple, Netflix and Google) could be under particular scrutiny this time around, along with momentum names like Tesla Motors and Nvidia.

Traders and agencies like the IMF appear to be recognising that President Trump’s struggles to get his reform agenda through Congress means that the US may economy may not grow as fast as previously anticipated. The president has promised big GDP numbers coming with the first crack at Q2 due near the end of the month. The risk of a summer sell-off continues to increase with NAFTA talks, a big budget battle and a potential government shutdown all possible for the August to October timeframe. 

Due to the potential for volatility and disruption in the late summer, it’s unlikely the Fed will be able to make a move at its September meeting. July could be a big month for trading in Canadian markets as well. Recent comments from Bank of Canada governor Stephen Poloz and his deputies indicate the Bank is preparing to withdraw the emergency stimulus it brought in in 2015 and is preparing to start raising interest rates, perhaps as soon as its July meeting. The loonie has been rallying in anticipation and it could also attract attention should trade issues flare up again or in response to swings in the oil price, which has been rebounding lately. 

The hawkish talk among central banks that started to move currency markets in June may continue in July. The Fed and ECB are not expected to take action this month but traders may look for hints on their plans for later in the year. Traders may also look to the Bank of Japan meeting for indications on how long it plans to be lingering in ultra-dovish mode while its peers prepare to cut back on stimulus. The Bank of England does not meet in July but traders may speculate on any hints related to its August meeting with even Governor Carney recently suggesting it may be time to start raising rates. 

My forecasts for June did pretty well ending with one success, one partial success and one miss. GBP/USD had a big setback early in the month after the Conservatives lost their majority but cable rebounded toward the end of the month on hawkish leanings out of the Bank of England, finishing above where it started and achieved my $1.3000 forecast. Similarly, the Dax rallied early in the month but turned back downward. It did finish below 12,600 as expected but did not get all the way down to 12,000. Cocoa failed to break out as I had thought it would but continues to base build. 

Three interesting markets for July 2017

1) Index NASDAQ 100
Current price 5,696; 1-month forecast 5,234 

In recent months, the NASDAQ has outperformed other major indices to the upside, leaving it potentially vulnerable to a deeper correction. The index peaked in early June and has been trending downward with loss momentum accelerating into July. With heavyweights like Apple, Amazon, Google and Netflix showing signs of peaking, the NASDAQ could decline to test its 200-day average near 5,234 which would coincide with a 50% retracement of its post-election uptrend. 

2) Commodity WTI Crude Oil  
Current Price $44.74; 1-month forecast $49.75 

WTI recently successfully retested the bottom of a broad $42.00 to $54.00 trading range, and is on the rebound heading into July. The price has approached $45.00 while momentum has turned back upward. In the coming weeks, oil may continue its recovery with Fibonacci retracement tests along the way near $46.72 (38%), $48.25 (50%) and $49.75 (62%) which is also near the $50.00 round number. 

3) Currency USD/JPY  
Current Price 112.58; 1-month forecast 115.00 

With more of the major central banks leaning toward joining the Fed in cutting back on stimulus, the Bank of Japan has been looking increasingly lonely as one of the last ultra-dovish major central banks. This has put pressure on JPY which could continue in July. USDJPY recently broke out over 112.50 and could advance over time toward a retest of its March peak near 115.00 with potential resistance tests near 113.35 and 114.60 along the way. 

Commodity market outlook

Despite support from a falling US dollar, May was a brutal month for commodities Out of 20 markets, thirteen declined and only seven increased. The worst performers in June were Sugar which fall 15%, Cocoa which fell 11% and gasoline which fell 9%. Top performers in the month were Wheat which gained 6% and oats which rose 5%. 

June was a mixed month for my selections. Robusta Coffee traded as high as 2,115, just short of my 2,140 forecast but remains in an uptrend and continues to trade well above 1,995 where it was a month ago. Rough Rice didn’t fall off like I had thought but it didn’t go up very much either and continues to form a rounded top so we could still see a decline sometime this summer. 

July historically has been the second worst month of the year for commodities after August, so we are heading into a potentially weaker and more volatile time of the year for resource markets. July has historically been particularly volatile for grains like Corn and Soybeans both of which average a 4% plus loss on the month while Wheat averages a 2% plus gain. Other top July performers historically include Silver and Copper.  

Best commodity: Copper
Current price $2.64 one-month forecast $2.77  
Bloomberg Symbol HG

Copper has been steadily climbing for two months and may continue to advance in July. The price is testing $2.64/lb resistance. A break through there would signal the start of a new upleg where it could rally to test previous highs near $2.72 or $2.82. July has historically been a positive month for copper. The price could benefit from improving sentiment toward China as seen in its rising currency. Copper could be particularly active around Chinese economic announcements this month. 

Worst commodity: Palladium
current price $857; one-month forecast $800  
Bloomberg Symbol PA

Palladium has been one of the stronger performing commodities lately but is looking exhausted and technically vulnerable. The metal price recently peaked in a double top just below $900 and has been drifting back.  Potential support levels appear near $835 and $800 the 23% and 38% retracements of its previous uptrend and $816 its 50-day average. The main use of Palladium is in catalytic converters so the metal price could be vulnerable around auto sales reports at the beginning of July and the automaker earnings later in July, particularly after General Motors recently cut its US sales forecast. 

Key dates for July 2017

July 3,4 Canada and US holidays
July 5 Australia RBA
July 7 US non-farm payrolls, Canada employment
July 7-8 G-20 leaders’ summit in Germany
TBA after Jul 10  Senate to vote on Obamacare reform
July 12 Bank of Canada – interest rate increase possible
July 14 Big Banks: JPMorgan, Wells Fargo, Citigroup earnings
July 16/17 China Q2 GDP
July 17 Netflix earnings
July 19/20 Bank of Japan meeting
July 20 ECB meeting
July 24 Google earnings
July 25 Apple, Caterpillar earnings
July 26 Fed meeting
July 26 Boeing, Tesla Motors earnings
July 26 Big Gold: Barrick, Goldcorp, Agnico earnings
July 27 Suncor Energy earnings
July 28 US and Canada GDP
July 28 Big Oil: Exxon and Chevron earnings


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