Friday, March 9, 2018

The Morning Call--The 'art of the deal' in living color


The Morning Call

3/9/18
The Market
         
    Technical

The indices (DJIA 24895, S&P 2738) closed on an up note yesterday in response to Trump’s dovish tariff announcement.  Still volume was down (at an already low level).  Breadth remained mixed.  The Averages are above both moving averages and within uptrends across all major timeframes. The technical assumption is that long term stocks are going higher.  However, the indices are now stuck in a narrowing range defined by lower highs and higher lows.  In addition, they need to overcome their former highs before we have an all clear signal. 

The VIX fell another 6 ¾ %, ending below the lower boundary of its short term uptrend; if it remains there through the close next Monday, the trend will reset to a trading range.   This pin action may be anticipating a drop in volatility, which would be a plus for stocks.
               
The long Treasury rose ½ %, but that did little alter its downward momentum.  The only remaining support level is the lower boundary of its long term uptrend which remains very near.  If breached, it would clearly intensify investors’ concern about rising interest rates/inflation

The dollar also rose, ending below both moving averages and in an intermediate term downtrend.  It remains an ugly chart and at odds with TLT.
           
GLD was retreated by ¼ %, but still finished above its 100 and 200 day moving averages and in a short term uptrend.  So momentum remains to the upside, though it must still overcome a very short term downtrend.

Bottom line: the technicals of the equity market point higher for the long term, though short term is direction is in question.  TLT, UUP and GLD responded, as they should, to the Trump’s more moderate tone on tariffs (see below).
           
            Yesterday in charts (short):

    Fundamental

       Headlines

            Yesterday’s economic data releases were negative: February retail chain store sales were soft and weekly jobless claims rose.

            Trump’s action on tariffs yesterday was a proclamation not an executive order.  A proclamation has no legal standing. The legal, executive orders will supposedly come next week.  In addition, Mexico and Canada get special treatment until a NAFTA agreement is signed (assuming it is); plus there are other provision allowing allies to apply for exemptions.  In effect, he told the world what he intended to do but delayed any implementation in order to give most parties the opportunity to offer their best deal.  My bottom line is that the Donald is apparently following his ‘art of the deal’ game plan, thereby (hopefully) lowering the odds of a trade war.  The question is, will it work?

            Some steel sector indicators short):

            In other news, the ECB met, left rates unchanged but modified its narrative to a slightly more hawkish tone.  I linked to a discussion in yesterday’s Morning Call.  Here is more analysis (medium):

            ***overnight, Trump agrees to meet with Kim Jong Um (medium):

            Bottom line: the potential good news is that Trump actions on trade may be more rational than his rhetoric.  The potential bad news is that (1) the Fed seems intent in believing its own bulls**t, suggesting that not only is QE ending but may be faster than many expect and (2) the ECB is starting to lean in the direction of unwinding its own version of QE.  When QE starts ending, so does the mispricing and misallocation of assets.

    News on Stocks in Our Portfolios
 
Economics

   This Week’s Data

      US

            February nonfarm payrolls blew estimates away, rising 313,000 versus expectations of 205,000.  However, average hourly earnings declined.

     International

            February Chinese CPI was higher than expected while PPI was lower.

            The February German trade surplus was larger than anticipated while industrial production was well below estimates.

            February UK retail sales were below forecast while industrial production and factory orders were above.

            The BOJ met and left rates and QE unchanged.  In addition, Kuroda completely walked back his earlier statement regarding the unwinding of QE.

    Other

            January consumer credit grew at the slowest rate in four months.


What I am reading today

            The soaring cost of old age (medium):

            Short term performance versus long term performance (medium):

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