Friday, February 22, 2019

The Morning Call---Too much hype for there to be no trade deal


The Morning Call

2/22/19

The Market
         
    Technical

The Averages (DJIA 25850, S&P 2774) finally rested---not surprising, given their extreme overbought condition.  The Dow ended above both MA’s (now support); the S&P above its 100 DMA (now support) and its 200 DMA for a fourth day, reverting to support.  The bad news is that both finished below the lower boundary of their very short term uptrends (if they remain there through the close today, those trends will be negated) and below their previous lower highs (~25977, 2800).

Volume declined; breadth was mixed---though it remains in overbought territory.

The VIX rose 3 ¾ %, but still finished below both MA’s (now resistance) and in a short term trading range.

The long bond was tagged with a 7/8 % loss, closing above both MA’s, within short and intermediate-term trading ranges but below the lower boundary of its very short term uptrend (if it remains there through the close today, that trend will be negated). 

The dollar was up two cents, ending above both MA’s and within a short-term uptrend. 

GLD was off 1%, but still finished above both MA’s and within very short-term and short-term uptrends.  

 Bottom line: the Averages finally had a down day---which should come as no surprise after their remarkable run up.  The key now is the extent of any follow through.  The next visible (minor) support levels are ~24914/2682.  A bounce at those levels or above wouldn’t be concerning nor, in my opinion, lower the odds of challenging those lower highs.  Anything greater would start to suggest a possible test of their December lows.
              
          The long bond and gold followed equities lead and gave up some of their recent gains---which seemed nothing more than profit taking after a solid move up.  The dollar continues to be impervious to news or the pin action in other markets.

Thursday in the charts.

    Fundamental

       Headlines

            It was a big day economic data land: weekly jobless claims fell more than anticipated; December durable goods orders were above forecasts, but ex transportation, they were below; the February flash composite and services PMI were better than expected but the manufacturing PMI was less; the February Philly Fed manufacturing index, January existing home sales and the January leading economic indicators were all disappointments.

            Overseas, the February Japanese, EU and German flash manufacturing PMI’s moved into contraction territory; on the other hand, the February EU and German flash composite and services PMI’s came in better than projected.

            Two other headlines, both of which I covered in Thursday’s Morning Call: (1) the ECB joins the rest of the global central banks moving toward easing monetary policy and (2) the US/China trade talks continue, accompanied by more happy talk.

                ***overnight, the head Chinese trade official will meet with Trump this afternoon.  Hopes are that trade talks have progressed far enough that the March 1 deadline for the imposition of new tariffs on Chinese goods will be moved back.

                Bottom line: as usual, I look at that dataflow and wonder how some pundits can be upbeat about our economy.  Not that the US is going into recession.  But it certainly appears that the rate of growth is slowing. 

I also look at earnings reports and see the growing margin pressures, much of it do to rising costs, and wonder why some pundits think that the corporate profit slowdown is a one or two quarter phenomena. 

The above is what stagflation looks like, largely the courtesy of lousy monetary policy.  Stagflation is not in my forecast; but the odds seem to be rising.
              
               The good news is that the US/Chinese trade talks are apparently progressing toward some sort of conclusion.  I say ‘apparently’ because we have few details.  However, I can’t believe that Trump would let this hype go on, setting himself up for a major disappointment, if he didn’t think deal was in the making.  The question is, will it address Chinese industrial policy and IP theft in a meaningful way or will there be a lot of ‘further studies’ needed but in the meantime China buys more soybeans and any new tariffs will be delayed?  To be sure, the latter would be a plus for US growth near term; however, Trump has put the economy through some unnecessary pain if that is all he gets. 
              
            The pace of dividend cuts accelerated in February.

    News on Stocks in Our Portfolios
 
           
Tiffany (NYSE:TIF) declares $0.55/share quarterly dividend, in line with previous.

Coca-Cola (NYSE:KO) declares $0.40/share quarterly dividend, 2.6% increase from prior dividend of $0.39.

Economics

   This Week’s Data

      US

            The February flash composite PMI was 55.8 versus expectations of 54.4; the manufacturing PMI was 53.7 versus 54.3; the services PMI was 56.2 versus 54.8.

January existing home sales fell 1.2% versus estimates of a 1.0% increase.

            January leading economic indicators declined 0.1% versus forecasts of +0.1%.

     International

            Q4 German GDP was flat (no growth), in line.         

    Other

            The latest on Brexit.

What I am reading today

            Different kinds of stupid.

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