Tuesday, June 12, 2018

The Morning Call--So far everything seems to have been well discounted

The Morning Call


The Market

The Averages (DJIA 25322, S&P 2782) inched higher yesterday.  Volume declined; breadth was mixed but is moving into overbought territory.   Both finished above their 100 and 200 day moving averages (now support).  The Dow is in a short term trading range, the S&P in a short term uptrend.  Longer term, the assumption is that stocks are moving higher.
                The VIX rose 1 ¼ %, but still ended below its 100 and 200 day moving averages (now resistance) and below the upper boundary of its short term downtrend.  This continues to point to higher stock prices; though it is at a level at which institutions start buying it as portfolio insurance.

The long Treasury was off slightly.  Intraday, it challenged its 100 day moving average (now support) but failed in that effort.  It also remained above the lower boundary of its long term uptrend, though it is drifting closer.  A break of the long term uptrend would end a twenty year plus bull market and indicate that higher interest rates are in our future.

The dollar was up fractionally.  Though it has voided its very short term uptrend, it still has plenty of upside momentum, being well above both moving averages and it is in a short term uptrend.

GLD was up slightly but remained below its 100 and 200 day moving averages.  However, it closed above the upper boundary of its short term downtrend for a second day by virtue of trading flat for the last three weeks as the downtrend continued.  If it remains there through the close today, it will reset to a trading range.
Bottom line:  the indices appear headed for their all-time highs (26656/2874) which I am assuming that they will at least challenge.  Both TLT and UUP are pointing at an improving economy and higher interest rates.  GLD isn’t really telling us much.



            No US economic releases yesterday, though the stream of disappointing data from overseas continued: April UK industrial production was below expectations and its trade deficit was above.

            Speaking of disappointments, the G7 meeting ended with the US not signing the final communique and Trump poor mouthing Canada’s PM.  Foolish me, I was optimistic.  I don’t think that means that a trade war is inevitable but the odds seem to have increased.  My bottom line hasn’t changed, such an occurrence would not be good for economic growth of either the US or the G7.  In addition, I think that the ‘art of the deal’ negotiating style is wearing a bit thin.
            EU will have retaliatory tariffs ready by July 1 (medium):
            Overnight, the Singapore (I know I said Shanghai last week) summit wrapped up and the headlines are positive.  However, as I have noted many times, the North Koreans have a record of making agreements in exchange for economic help, then breaking them as soon as it is convenient.  So it is way too soon to be getting jiggy with this deal.

The next big items this week are the meetings of the Fed, the ECB and the Bank of Japan.  After striking out on the G7 outcome, I retreat to the forecasting sidelines except to repeat the current Street expectations: (1) the Fed will raise the Fed Funds rate but the important thing will be the subsequent narrative concerning policy direction, (2) the ECB says it will discuss ending QE; ‘discuss’ being the operative word.  With the EU economy faltering, I don’t see any action, (3) the BOJ also says that it will be considering some tightening moves, but that should be taken with one tenth of a grain of salt.
Bottom line: the score so far in this news laden week is one positive (potentially; but the odds are heavily weighed to this being a nothing burger) and one negative (trade wars are not good for our economic health).  Now we face three central bank meetings in which the outcomes seem set but the subsequent narratives are important.  Bear in mind that all these guys are worried about the negative consequences of unwinding the vast QE experiment, so expect them to be dovish.  Whatever occurs, stocks are still overvalued and the central banks still have to unwind the massive mispricing and misallocation of assets.

            Myths of stocks for the long run (medium):

    News on Stocks in Our Portfolios


   This Week’s Data


            The May small business optimism index was 107.8 versus estimates of 105.2.

                May CPI rose 0.2%, in line; ex food and energy, it was up 0.2%, also in line.            

            Month to date retail chain store sales grew slightly faster than in the prior week.


            June German investor sentiment came in at -16.4 versus May’s reading of -8.2.


            Debt clock ticking (medium):

            Is the US due for a recession? (medium):

            Here are some background stats on our trade deficit (medium):

            Turmoil in the oil market (medium):

            Saudi oil production rises in June (medium):

What I am reading today

            Court strikes down ‘fiduciary rule’ (medium):

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