The Morning Call
8/5/19
The
Market
Technical
The S&P had a
rough week. Still it remains in uptrends
across all timeframes, above both MA’s
and closed the June 1st gap up open.
However, it finished below its former all-time high and is bearing down
on its 100 DMA and the lower boundary of its very short term uptrend. It needs to hold above those support levels
to avoid raising the possibility that the move above the all-time high was a
false break out.
The dollar remains
quite strong. On Friday, it reset the
long term trend to up. In addition, it
is in a short term uptrend and above both MA’s.
That is hardly the pin action one would expect in a lower rate
environment.
Gold had a roller
coaster week. While it made a five year
high, the volatility led to the voiding of its very short term uptrend. That could be a negative; but I will wait to
make the judgment. In the meantime, it
remains above both MA’s and in short and intermediate term uptrends---which is
not typical when the dollar is strong.
As is typical in a
big down market, the VIX spiked, rising above both MA’s. With it again trading in (reverse) sync with
stocks, there is not a lot of informational value in this chart.
Friday in the
charts.
Fundamental
Headlines
Week of 7/22: the
economic data was upbeat with three positive primary indicators. I rate the week a plus. Overseas, the numbers were dreadful.
Week of 7/29: the
economic data, including the primary indicators, were negative. I rate the week
a minus. Score: in the last 198 weeks,
sixty-four positive, ninety negative and forty-four neutral. Overseas, the stats were excellent,
especially out of the EU.
Is
Lagarde up to the task? (must read):
There
were also a two major headline events;
(1)
the FOMC met and lowered rates by 25 basis on
Wednesday---pretty much as expected.
Draghi leaves post instilling policy of more QE forever.
However, the narrative [as so often is the case] was confusing. Investors read it as negative and stocks sold
off solidly; they recovered their composure early Thursday, but then sold off
again when---
(2)
following some soft mewing about progress in
US/China trade talks early in the week, Trump said that he would impose an
additional 10% tariff on those Chinese goods not already subject to them. Whether he follows through or not is open to
question. At the risk of being cynical,
I wonder if this move was prompted by what he considers a weak rate cut by the
Fed---nothing says ‘rate cut’ like a plunge in the stock prices. But whatever
he does, my thesis remains that the Chinese are not going to make any
concessions until after the 2020 elections.
***overnight,
China ups the ante, devaluing the yuan.
Another front in the global trade war.
Bottom line: the Fed continues to
demonstrate its ineptness, though I think that the rate cut will have little
impact on the economy. Its true power
lies in moving the equity market; and I think that it will remain so until this
so-dependency ceases to exist. In my
opinion, it will at some point. I just
don’t know when.
The trade picture
appears to be getting serious-er and serious-er. The Chinese are intransigent and will likely
remain so, at least until November 2020.
Which means that if Trump imposes the new tariffs and China responses in
kind (which it now has), they will almost surely have a negative effect on the
global economy. If this gets out of hand
on the downside, I will clearly have to revise my forecast down. More important, if the economy weakens and
the Fed eases further with zero results, the aforementioned co-dependency is at
risk of unwinding.
News on Stocks in Our Portfolios
Revenue of $69.09B (+3.1% Y/Y) beats by $4.62B.
Economics
This Week’s Data
US
International
The
July Chinese Caixin services PMI came in at 51.5 versus estimates of 52.0; the
composite PMI was 50.9 versus 50.3.
The
July German services PMI was 54.5 versus forecasts of 55.4; the composite PMI
was 50.9 versus 51.4.
The
July EU services PMI was 53.2 versus consensus of 53.3; the composite PMI was
51.5, in line.
The
July UK services PMI was 51.4 versus expectations of 50.2; July auto sales were
-4.1% versus -3.6%.
Other
Jim
Grant on Modern Monetary Theory.
What
I am reading today
How
to survive a mass shooting.
Weathering a major bear
market.
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