The Morning Call
10/4/18
The
Market
Technical
The Averages
(DJIA 26828, S&P 2925) were up modestly on the day after roaring out of the
chute in early trading. Volume rose and
breadth was slightly improved. They remain
technically very strong. My assumption is that they will challenge the
upper boundaries of their long term uptrends (29807, 3065).
The VIX was down,
trading in (inverse sync) with stock for a change. Let’s see if it can break the recent trend
of trading in a confusing, atypical non-inverse relationship with stocks. At the moment, it is still at the lower end
of its short term trading range and that is something of a positive for equity
prices.
The long bond was
hammered on massive volume, closing below the lower boundary of its
intermediate term trading range. If it
remains there through the close next Monday, it will reset to a downtrend.
This
from Bill Gross.
The dollar was up,
continuing its march toward its August high.
I continue to believe that UUP will move higher as long as the dollar
funding problem persists.
GLD was down
slightly, showing no inclination to trading up out of a developing very short term
trading range.
Bottom line: the indices
remain technically strong. I continue to believe that they will challenge the
upper boundaries of their long term uptrends.
The pin action in the long bond, the
dollar and gold were back in sync, though like the VIX with stocks they have
not been in recent trading. I still
think that investors are re-gearing their economic/valuation models; I am just
not sure where they end up.
Wednesday
in the charts.
Fundamental
Headlines
Yesterday’s
economic data was upbeat: the September ADP private payroll report, the
September Markit services PMI and the September ISM nonmanufacturing index all
beat forecasts handily. The only other
number was weekly mortgage applications which were flat and purchase applications
which rose fractionally.
A
couple of FOMC members spoke yesterday, including Chairman Powel; and he
delivered a fairly hawkish speech---which I assume accounts for the bond sell
off. The question now is, how serious is
he? Is he really going to execute the QE
unwind irrespective of Market pin action?
Or will he chicken out when the things get ugly?
More
pundits weighed in on the US/Mexico/Canada trade agreement. Here is one that is more sanguine than
yesterday’s analysis; but note it was written by a Trump advisor.
And
this a bit more circumspect.
Bottom line: based
on the additional analysis from yesterday, I haven’t changed my initial take---the
US/Mexico/Canada trade agreement is marginally positive for the secular growth rate
of the economy but its real importance is removing the uncertainty of a NAFTA
trade war.
That doesn’t mean opinions won’t become more
upbeat as implementation takes place or that the agreement won’t lead to better
deals with Japan, EU and China. But for
now, it looks like the first trade agreement won’t have much effect on the long
term secular growth rate of the country.
***overnight,
this report was released concerning Chinese infiltration of the computer chip
manufacturing process. It is a must
read.
Meanwhile the
more important story, at least, for the Markets is the continuing decline in
bond prices (rising interest rates). The
higher rates go, the more competition they present to equities; and tighter
money supply gets the higher the likelihood of dislocations due to dollar
funding problems or shadow banking illiquidity.
I like to remind
you periodically that I am not negative on the economy; I just believe that
investors are valuing that economy at an excessively high level.
Cash reserves
are good at this point in the Market (valuation) cycle.
September
dividends by the numbers.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
September Markit services PMI came in at 53.5 versus expectations of 52.9.
The
September ISM nonmanufacturing index was reported at 61.6 versus estimates of
58.0.
Weekly
jobless claims were down 8,000 versus forecasts of down 1,000.
International
Other
More details on
September light vehicle sales.
Third quarter
GDP expectations.
Corporate
America isn’t quite sure, as companies cut forward guidance.
OECD economist
warns of trouble.
What
I am reading today
The only benchmark that
matters.
Over optimism and over confidence.
Low returns, high value.
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