The Morning Call
9/4/19
The
Market
Technical
The Averages
(26118, 2906) had a rough day, bouncing down off the upper boundaries of the
August 5th trading range (for the third time) and ending back below their
100 DMA’s, voiding last Thursday’s break.
Volume was up fractionally; but breadth deteriorated. The good news is that they are above their 200
DMA and in uptrends across all timeframes.
Near term, I think the most important technical factor to watch is how
the August 5th trading range gets resolved.
The VIX rose 3 ½ %, somewhat less than I expected
on a 285 point down day in the Dow. It
remains above both MA’s, giving a negative bias to stock prices.
The
long bond fell just seven cents; so, it maintained its strong upward momentum. It is
above both MA’s, in uptrends across all time frames. Its pin action suggests that bond investors are
worried about something.
Does this look
like risk aversion?
The yield curve
inversion and stocks.
The
dollar was up ¼ % (again) on heavy volume, finishing 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 1 3/8 %, recovering the loses that it sustained last week and ending above
both MA’s and in very short term and short term uptrends.
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 failed to
break above their 100 DMA’s and the upper boundary of their August 5th
trading range. 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.
Tuesday in the
charts.
SocGen’s news flow
indicator turned negative.
Fundamental
Headlines
The economic stat
releases yesterday were negative: July construction spending and the August ISM
manufacturing index were disappointing, though the August manufacturing PMI was
a plus.
The probability of
a recession by August 2020.
UBS slashes GDP
forecast.
Overseas, the
August German and UK manufacturing PMI’s were below expectations while the August
EU manufacturing PMI and the July EU PPI were in line.
No other fresh news.
***overnight, Johnson
calls for snap UK elections.
And Hong Kong
withdraws extradition bill.
Bottom line: the
economic dataflow isn’t improving and, as indicated in the above links, an
increasing number of firms are revising downward their expectations for economic
growth---coming more in line with my own forecast. To be clear, I still don’t think the US will
experience a recession or if it does, it will be a mild one. That said, if the corporate profit estimates
began declining along with the GDP expectations, that is apt to have a Market
impact. In the meantime, trade and the
Fed will likely continue to determine stock prices.; though I would observe
that at some point the Market will cease to believe any of Trump’s
tweets/claims.
A look at corporate
profits from my favorite optimist.
Expectations for
dividend growth.
https://politicalcalculations.blogspot.com/2019/09/changing-expectations-for-s-500.html#.XW60gChKg2w
Update on equity
valuations.
The economic
future of negative interest rates (must read):
News
on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
August final manufacturing PMI was 50.3 versus consensus of 49.9.
The
August ISM manufacturing index was 49.6 versus estimates of 51.1
https://www.advisorperspectives.com/dshort/updates/2019/09/03/ism-manufacturing-index-down-in-august
July
construction spending rose 0.1% versus forecasts of up 0.3%
Weekly mortgage applications
fell 3.1% but purchase applications were up 3.6%.
The July trade deficit
was $54.0 billion versus expectations of $53.5 billion.
International
The
August Chinese Caixin manufacturing PMI was 50.4 versus expectations of 49.8;
the services PMI was 52.1 versus 52.0; the composite PMI was 51.6 versus 51.1.
The
August EU services PMI came in at 63.5 versus projections of 53.4; the composite
PMI was 51.9 versus 51.8; July retail sales were down 0.6%, in line.
The
August German services PMI was reported at 54.8 versus consensus of 54.4; the
composite PMI was 51.7 versus 51.4.
Other
The
increasing inequality in CEO/worker compensation.
Framing
lumber prices down 205 YoY.
The
dangers of the Fed’s superman complex.
Why
central banks may be hurting rather than helping.
Emerging
markets central bankers are cutting rates.
What
I am reading today
Avoiding
post vacation blues.
State Pension Funds Keep
Increasing Debt
Iran threatens to up the ante.
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