Friday, January 12, 2018

The Morning Call---PPI makes everything right

The Morning Call


The Market

The indices (DJIA 25574, S&P 2767) took off like a scalded dog following the PPI print showing negative growth---presumably on the assumption that little inflation means an easier Fed and lower interest rates.  Clearly, the stock boys are attempting to put global monetary tightening behind them.  While that may be true, what we learned this week is that they are very sensitive to any sign that the easy money party is over.

Volume rose and breadth was strong.  Long term, the Averages remain robust viz a viz their moving averages and uptrends across all timeframes. Short term, they are above the resistance level marked by their August highs, meaning that there is no resistance between current price levels and the upper boundaries of the Averages long term uptrends. The technical assumption has to be that stocks are going higher. 

 The VIX was again up on a solid up Market day, I think demonstrating that while everyone appears jiggy about those PPI numbers, somebody in stock land is doing serious hedging.

Likewise, while the long Treasury recovered (lower interest rates) on decent volume, its rally was not all that convincing since it remains in a very short term downtrend.  Still it is above its moving averages and the lower boundaries of its short and long term trends.  I continue to believe that the bond crowd is smarter than the equity players, so I am watching TLT for directional assistance on inflation and interest rate expectations. But as I noted yesterday: QE may be coming to an end; and investors’ apparent heightened awareness of that fact may keep pressure on the price of the long bond.

            Has a bear market in bonds really started (medium):

            When did rates bottom (medium):

            David Stockman believes that the bond vigilantes are back (medium):

            Yesterday saw a very positive 30 year bond auction (short):

Bill Gross and his call that the bull market in bonds is over (medium):

That said the other indicators that I follow reflected lower inflation expectations ---GLD up, the dollar down. 

I remain uncomfortable with the overall technical picture.



            The news yesterday was the aforementioned PPI number.  While it makes great reading as a single entity, it is really just a retreat in an otherwise solid uptrend dating back to late 2015.  True, it could be a sign of things to come; and I have to honor than notion.  But until the upward trend is broken, it is nothing but a wiggle in that well defined uptrend.

            Chart of the day:   

    News on Stocks in Our Portfolios
BlackRock (NYSE:BLK): Q4 EPS of $6.24 beats by $0.22.
Revenue of $3.47B (+20.1% Y/Y) beats by $150M.


   This Week’s Data


            The December US budget deficit was $23.2 billion versus expectations of $36.0 billion.

            December CPI was up 0.1%, in line; however, ex food and energy, it was up 0.3% versus forecasts of up 0.2%.

            December retail sales rose 0.4% versus estimates of up 0.5%; ex autos, it was up 0.4%, in line.

            December Chinese exports slowed from their November pace but imports plunged, thereby raising that country’s trade surplus.  Still this is hardly a sign of a robust economy.


            The global economy is not prepared for the next recession (medium):

            An economic boom in 2018? (medium):


            The alternative outcomes for NAFTA (medium):

            The Atlanta Fed’s business inflation expectations survey (short):

            NY Fed Chief Dudley’s farewell speech (medium):

            Quote of the day (short):

What I am reading today

            Blockchain is a belief system (medium):

            Brian Wien’s 10 surprises for 2018.

            The consequences of wealth inequality (medium):

            Walmart captured the headlines with a move to increase wages; but hidden the footnotes, it is closing a lot of stores (medium):

            A deal on DACA (medium):

            Trump comments suggest a further easing of tensions with North Korea (medium):

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