The Morning Call--China calms the trade waters ahead of 70 anniversary bash

The Morning Call

9/5/19

The Market

         

    Technical

The Averages (26355, 2927) recovered Tuesday’s losses, though they remained below the upper boundaries of the August 5^th trading range.  They did, however, close back above their 100 DMA (now resistance; if they remain there through the close on Friday, they will revert to support).  They also finished above their 200 DMA and in uptrends across all timeframes.  Volume was down; but breadth improved.   Near term, I think the most important technical factor to watch is how the August 5^th trading range gets resolved. 

                http://howardlindzon.com/the-confusion-bubble/

                The VIX fell 12%, giving a more positive tilt to stock prices than it has in recent days.  Nevertheless, it still ended above both MA’s. 

            The long bond was up 1/8%,  maintaining its strong upward momentum. It is above both MA’s, in uptrends across all time frames.  Its pin action continues to suggest that bond investors are worried about something.

            https://www.zerohedge.com/news/2019-09-04/bond-flood-record-20-companies-issue-26-billion-cheap-debt-single-day

                And

            http://macro-man.blogspot.com/2019/09/curve-flattening-and-monetary-policy_29.html

            The dollar got hit by 5/8 %, creating a gap down open (that needs to be filled).  It still finished above both MA’s and in short and long term uptrends.  Together with TLT and GLD, it indicates a high level of anxiety.

            GLD rose another 5/8%, extending Tuesday’s gains and ending above both MA’s and in very short term and short term uptrends.

            https://www.zerohedge.com/news/2019-09-04/gundlach-indicator-treasury-yields-and-copper-gold-ratio-plummet

            Bottom line: long term, the Averages are in uptrends across all timeframes; so, the assumption is that they will continue to advance.  Short term, they are again toying with their 100 DMA’s and the upper boundary of their August 5^th trading ranges.  How those trading ranges are resolved will determine their near term direction.

           The pin action of long bond, the dollar and gold continues to point at the need for a safety trade.

            Wednesday in the charts.

            https://www.zerohedge.com/news/2019-09-04/traders-buy-everything-uber-dovish-fedspeak-sparks-dollar-dump

    Fundamental

       Headlines

            Two minor stats were reported yesterday: the July trade deficit was larger than anticipated while month to date retail chain store sales grew faster than in the prior week.

            A recession isn’t inevitable.

            https://www.nytimes.com/2019/09/04/upshot/recession-not-inevitable-economic-optimism.html

Reframing the next downturn.  The author assumes it will be caused by recession.  As you know, I am not convinced there will one; but that has nothing to do with the correction of the mispricing and misallocation of assets.

            https://awealthofcommonsense.com/2019/09/recession/

            BofA starting to worry about 2020.

            https://www.zerohedge.com/news/2019-09-04/2020s-will-begin-lowest-interest-rates-5000-years

            It was another good day for international data: the August Chinese Caixin manufacturing, services and composite PMI’s were above expectations; the same was true of the August EU and German services and composite PMI’s.  The only negative (sort of) number was EU July retail sales which were down but in line.

            The Fed and trade remain center stage:

The Fed released its latest Beige Book, which didn’t read that much different from recent surveys: the economy is growing modestly, labor is tight and manufacturing is struggling in some industries impacted by trade.

            https://www.calculatedriskblog.com/2019/09/feds-beige-book-economic-growth-modest.html

            ***overnight, ECB starting to get push back on QE (this is important).

            https://www.zerohedge.com/news/2019-09-04/eu-bank-bosses-warn-grave-consequences-if-ecb-keeps-cutting-rates

            The justification for the trade US/China trade war.

            https://thehill.com/opinion/international/459767-why-the-china-trade-war-is-justified

           

            The trade war is starting to hurt.  This is the first negative article from my favorite optimist in a long time.

            http://scottgrannis.blogspot.com/2019/09/tariffs-are-really-beginning-to-hurt.html

            ***overnight, US/China agree to new trade talks.  Remember, the Chinese communist party celebrates its 70 anniversary in early October; and they want the political waters calm (see Hong Kong).

            https://www.zerohedge.com/news/2019-09-04/futures-soar-yields-jump-after-china-us-agree-resume-trade-talks-october

            Bottom line: the international data flow has suddenly improved substantially this week.  Given the long stream of poor numbers, a couple of days of better stats don’t constitute a change in trend.  But it is somewhat confusing to see this upbeat data at the same time that the US numbers are deteriorating (remember the yellow warning light is flashing).  I am not drawing any conclusion yet.

           

More on valuations.

            https://www.advisorperspectives.com/dshort/updates/2019/09/04/market-valuation-inflation-and-treasury-yields-clues-from-the-past

            And.

            https://www.advisorperspectives.com/dshort/updates/2019/09/04/market-cap-to-gdp-an-updated-look-at-the-buffett-valuation-indicator

    News on Stocks in Our Portfolios

 

Donaldson (NYSE:DCI): Q4 Non-GAAP EPS of $0.61 beats by $0.01; GAAP EPS of $0.45 misses by $0.15.

Revenue of $726.9M (+0.3% Y/Y) beats by $1.58M.

Economics

   This Week’s Data

      US

            Month to date retail chain store sales grew faster than in the prior week.

            Weekly jobless claims rose 2,000 versus estimates of being flat.

            The August SDP private payroll report showed job increases of 195,000 versus consensus of 149,000.

            Q2 nonfarm productivity rose 2.3% versus expectations of +2.2%; unit labor costs were up 2.6% versus +2.5%.

     International

July German factory orders fell 2.7% versus projections of -1.5%; its August construction PMI came in at 56.3 versus 49.9.

August UK new car sales declined  1.6% versus estimates of down 3.2%.

    Other

            Median household income in July.

            https://politicalcalculations.blogspot.com/2019/09/median-household-income-in-july-2019.html#.XXAFNChKg2w

            Negative interest rates threaten the financial system.

            https://www.bloomberg.com/opinion/articles/2019-09-03/negative-interest-rates-threaten-the-financial-system

           

            So does excessive debt (must read).

            https://global-macro-monitor.com/2019/09/03/modern-monetary-theory-mmt-has-a-big-argentina-problem/

                The impact of the Trump tax cut on VC investments.

            http://www.aei.org/publication/what-was-the-impact-of-the-trump-tax-cuts-on-vc-investment-and-innovation/

           

            Update on Brexit.

            https://www.nakedcapitalism.com/2019/09/brexit-thar-she-blows.html

What I am reading today

            Quote of the day.

            https://cafehayek.com/2019/09/quotation-of-the-day-2905.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CafeHayek+%28Cafe+Hayek%29

            Great editorial on civics by Justice Neil Gorsuch.

            https://townhall.com/columnists/justiceneilgorsuch/2019/09/04/civics-and-civility-n2552584

            Great talent finds its happiness in execution.

            http://traderfeed.blogspot.com/2019/09/what-makes-trader-successful.html

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