The Morning Call
10/16/17
The
Market
Technical
Again,
there nothing to be said, except lay back and enjoy it.
The
long Treasury bounced off its 200 day moving average and is now challenging its
100 day moving average and a very short term downtrend---not indicative of a
strong economy and higher interest rates.
The
dollar couldn’t successfully challenge its 200 day moving average and remains
in a short term downtrend. The only
question is, will it develop a new very short term downtrend.
GLD
had a good week, bouncing off its 100 day moving average, finishing above its
200 day moving average and in a short term uptrend. Like TLT and UUP, it is suggesting a weaker
economy than seems to be the operative scenario with the stock guys.
Clearly,
the VIX has not been doing well lately.
The only positive thing to be said is that it made a higher low. Now we watch to see if it makes a second
higher low or assaults its all-time low.
Fundamental
Headlines
The
economic datapoints was pretty evenly divided last week, as were the primary
indicators, so I am scoring it a neutral: in the last 105 weeks, thirty were
positive, fifty-six negative and nineteen neutral. Importantly, that suggests the rip roaring
numbers from the prior week were a one off event. I will give it a couple more weeks before
making that call.
On
the fiscal side, Trump has started dismantling Obamacare via executive orders
which is going to keep partisan emotions at a feverish level; and I assume
means there will be little to no help on tax reform. Speaking of which, it appears the Donald has
just now figured out that eliminating the state and local tax deduction
provision in the proposed tax reform bill will raise taxes on the middle class---raising
the odds that there will be no legislation, Speaker Ryan’s optimism
notwithstanding. To repeat my
conclusion, no tax reform is better than tax reform that expands the budget
deficit/national debt.
In
monetary policy, the Fed released the minutes of its last FOMC meeting, the
tone of which was a bit more dovish that projected in the statement immediately
following the meeting. The aggregate
CPI/PPI stats reported last week were tame, giving the Fed the excuse to delay
raising interest rates in December. I am
not predicting that it will; but if history is any guide, it might. Across the pond, the ECB hinted that it might
reduce its bond buying program by one half and extend it in to late 2018. As you know, I think the actions of the
central banks the most important factor in determining the future Market
direction.
http://www.zerohedge.com/news/2017-10-15/yellen-doubles-down-valuations-are-high-levels-historically
Bottom
line: it doesn’t appear like the economy is starting to grow faster. The odds of tax reform have declined, but
that is not necessarily bad news.
Central bank monetary policy remains as confused as ever.
***overnight,
September Chinese CPI was in line but PPI was well above expectations.
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