The Morning Call
7/18/16
The
Market
Technical
With
multiple resistance levels being overwhelmed, at the moment, there is no
technical reason to believe that stocks can’t go significantly higher----maybe:
TLT
has a lot of room to correct before breaking even the shortest term
uptrend. Of course, that means that
stocks could run a lot to the upside before the TLT and the S&P begin to
signal conflicting trends.
GLD
(like TLT, a generally counter trend indicator) is holding much better than
TLT, adding some confusion to the technical picture.
The
challenge begins in earnest.
Fundamental
Last
week’s economic were upbeat: above estimates: month to date retail chain store
sales, June retail sales, weekly jobless claims, June industrial production, May
wholesale inventories/sales, weekly mortgage applications, June import prices,
June CPI: below estimates: the July NY
Fed manufacturing index, June export prices, year to date budget deficit, June
PPI and PPI, ex food and energy; in line with estimates: weekly purchase applications,
the latest Beige Book
As you can see, last week’s economic
data was strongly weighed to the positive side.
Plus the primary indicator (June retail sales and June industrial
production) were also quite upbeat. This
make three weeks in a row of positive stats, two of which were very
strong. So we are at the point where the
economic improvement can’t be dismissed as a fluke or statistical noise. Also certainly the decline in economic
activity the US experienced over the last 10 months has leveled out. Still in the big picture, the score is now:
in the last 43 weeks, twelve have been positive to upbeat, twenty nine negative
and two neutral. Whether this is a pause
before a second round declining activity or a genuine rebound is still up in
the air. I am not altering our forecast
at the moment; but the yellow light is now red and it is flashing rapidly.
I
noted in a Morning Call last week that if there was any reason to be more
sanguine about the current environment it was this developing story on our
economy. That said, economic growth
would have to rebound substantially before it would have much impact on our
Valuation Model.
Overseas, second
quarter Chinese GDP was stronger than estimates (if you believe them), while June
consumer inflation was up less than expected and June exports and imports both
declined; Japan lowered its outlook for economic growth and inflation; May
Italian industrial output fell, the European Economic Commission lowered its
2017 economic growth forecast for both the EU and the UK. Bottom line---not much of reason to be
encouraged by the global economy.
Of
course, last week’s big news was the ‘everything is awesome, but not awesome enough
to warrant central bank tightening’, what with rumors of ‘helicopter’ money in
Japan, three FOMC members saying that there is no hurry to raise rates and a
goldilocks Beige Book.
***overnight, Italy hires
JP Morgan to create ‘bad’ (bailout) bank to buy bad loans (medium):
Bottom
line: the US economy appears to be stabilizing.
Not so the international economy.
And the central banks appear no closer to taking their foot off the QE
accelerator. Indeed, Japan is likely to
stomp down harder. For the moment,
everything is awesome; but if the recent US dataflow is an indication of things
to come, then easy money here is developing a short shelf life in this country---that
is, unless the Fed is too scared to start tightening; if so, then we may have
to start worrying about inflation.
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