Wednesday, February 21, 2018

The Morning Call--The Fed's 'data dependency' is imaginary

The Morning Call

2/21/18

We leave for the beach tomorrow morning. Be back on March 3rd.

The Market
         
    Technical

The indices (DJIA 24964, S&P 2716) fell yesterday and appeared to have set a lower high (though follow through on the downside is needed to confirm that).  Volume rose slightly but remains at a relatively low level; breadth was mixed.  Despite a bad day, the Averages still finished above both moving averages and within uptrends across all major timeframes.    The technical assumption is that long term stocks are going higher; though the Averages need to overcome their former highs before we have an all clear signal. 

The VIX jumped 6%, continuing its bounce off a support level and remaining at an elevated level, suggesting that there is no end to the recent volatility.

The long Treasury declined, ending below both moving averages, in very short term and short term downtrends and very near the lower boundary of its long term uptrend, a breach of which would clearly intensify investors’ concern about rising interest rates/inflation

The dollar was up, continuing its bounce off of a support level.  Nonetheless, it ended below both moving averages and in an intermediate term downtrend. This remains an ugly chart.
           
GLD was off hard (1 ¼ %), though it is still above its 100 and 200 day moving averages and in a short term uptrend.  Still it couldn’t make it above its prior high; and that is not a good sign.
               
Bottom line: stock prices were off yesterday on little news (poor WMT earnings, a big Treasury auction).  So the pin action may be nothing more than a respite from last week’s big move up. The technicals of the equity market point higher.

Still the long Treasury continues to point to higher interest rates/inflation; and for the first time in a couple of weeks both the dollar (up) and gold (down) traded in sympathy. 
           
            Yesterday in charts (short):

    Fundamental

       Headlines

            As I noted above, it was a slow news day.  No economic data.  Little out of DC, save for a tweet storm from Trump.

            So no change in my bottom line: the economy seems to be slipping back toward the below average growth/stagnation; fiscal policy is too expansive; monetary policy has been too expansive and too late for a quiet transition to normal; Trump is alarming me with his aggressive trade policy; and stocks are overvalued even if the tax bill produces better results than I expect.

    News on Stocks in Our Portfolios
 
Genuine Parts (NYSE:GPC): Q4 EPS of $1.19 beats by $0.14.
Revenue of $4.21B (+11.4% Y/Y) beats by $160M.
           
Economics

   This Week’s Data

      US

            Weekly mortgage applications fell 6.6% while purchase applications were down 6.0%.

     International

            The February flash manufacturing, services and composite PMI were all below expectations.

    Other

            Chemical activity barometer increased in February (short):

            An argument against rising inflation (short):

            Deficits (short):

            The Fed’s ‘data dependency’ is imaginary (medium and a great read):

            Net charge-offs at small commercial banks are rising (medium):

            China moves to cut its debt load (medium):

            China’s trade policy reaching into South America (medium):

What I am reading today

            Seeing your own blind spots (medium):

            An interesting dialogue on Russiagate (medium):
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