The S&P remains in a very short term downtrend, having made a second lower high. That is not likely a sign of a top at least as long as it holds its moving averages and the lower boundary of its short term uptrend. Both are still a ways away.
The long Treasury has touched a minor resistance level four times and was unable to break to the upside. On the other hand, it has managed to trade above its 100 day moving average. A move above that resistance level would suggest that the bond guys are more worried about recession than inflation; a move below the 100 day moving and especially the lower boundary of its short term trading range would probably confirm the current accepted Trump-flation scenario.
GLD is trying to move up, but can’t successfully challenge its 100 day moving average. The good news is that it has put its 200 day moving average behind it. Still it won’t be out of the woods until it takes out the 100 day moving average.
The dollar had a good week but still isn’t acting like it believes that the Fed is tightening, the economy is strong and Trump’s fiscal program is going to be successful.
The VIX ended the week well above the lower boundary of its very short term uptrend and its 100 day moving average. It remains below its 200 day moving average and in a short term downtrend. The question is still open as to the level of complacency.
Last week’s aggregate data was evenly divided as were the primary indicators; hence, in the last 78 weeks, twenty-five were positive, forty-three negative and ten neutral.
My bottom line is that while the economy has been stabilizing, it is not improving as many would have us believe. I believe that the risk is a weaker economy rather than a stronger one (higher inflation and higher interest rates).
Overseas, the dataflow continues upbeat, strengthening the case that this forecast will go from ‘muddle through’ to improvement.
***overnight, the March Japanese and Chinese manufacturing PMI’s were up but below estimates; the March EU countries manufacturing PMI’s were above expectations.
In politics, the Donald’s has maintained his deregulation efforts. As you know, I think that this is a plus for the economy; and if we avoid another weakening in activity, it will likely be the result of declining regulations and an improving global economy. On the other, Trump seems at war with the Freedom Caucus, blaming them for the lack of success of the repeal and replacement of Obamacare. I think that is a big mistake because (1) their objections to healthcare bill as it was written were valid [in my opinion] and (2) these guys were a major contributor to his efforts at election. Pissing them off and making overtures to the dem’s is not the answer to successfully implementing his fiscal program.
On trade, the announcements this week with respect to desired changes in NAFTA and the relations with other trading partners were much more subdued (reasonable) than Trump’s rhetoric, reinforcing the notion that all his shouting and screaming were just negotiating points. If that is true (and we certainly don’t know that yet), then his positions of trade are not the negative that I have been so worried about.
The Fed pounded us with speakers last week. Some sounding dovish, some hawkish. In other words, business as usual; usual being, not committing to any course since they don’t know which course to take. My fear is that it continues its lame tightening program just as the economy starts to weaken---which historically speaking would be par for the course.
Bottom line: I am unimpressed with the dataflow. I applaud Trump’s deregulation efforts and his first formal position on trade, but believe that he needs to tone down the rhetoric if he wants to get his fiscal program enacted. The Fed remains a liability to the economy and more importantly to the Markets.
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