The Morning Call
10/31/19
The
Market
Technical
The Averages
(27186, 3046) had a good day; the most notable point being that the Dow reset to
a very short term uptrend. However, it
remains below its all-time high. Volume
and breadth improved. The VIX fell 6 ½
%, nearing its 7/25 low (= S&P 7/25 high).
Update on margin
debt.
The indices ended
solidly above both MA’s and in uptrends across all timeframes. My assumption remains that momentum is to
the upside and yesterday’s pin action supports that view. But there remain some negatives: (1) the Dow is now out of sync with the
S&P, (2) October 11th gap up opens need to be closed and (3) the
S&P created a second gap that needs to be filled.
TLT popped 1 ½ %,
ending back above its 100 DMA negating Monday’s break. It also finished above its 200 DMA and in uptrends across all time frames. At
least for the moment, the threat to the loss of momentum has been
stopped. Clearly, follow through is
important. The dollar was down ¼%,
finishing right on the lower boundary of its short term uptrend. Gold rose ½ %, ending back above the upper
boundary of that pennant formation. Given the back and forth at the tip of the
pennant formation suggests that usual performance following the violation of
the tip of the formation is not working in this case.
Bottom line:
yesterday’s pin action across indicators points to an easy Fed---like that has
ever been in question.
Wednesday in the
charts.
Fundamental
Headlines
Yesterday’s data
was almost entirely upbeat: weekly mortgage and purchase applications were
up and the October ADP private payroll report, the advance Q3 GDP growth, the price indicator and the PCE price index were
above expectations while the core PCE was slightly disappointing.
Overseas, September
Japanese retail sales were well above consensus (though at least part of that
was due to consumer buying in advance of a sales tax hike) while September
German unemployment was in line. On the
other hand, October EU consumer confidence, economic sentiment, industrial
sentiment and services sentiment were below estimates while business confidence
was slightly better.
The main
headline(s) of the day was the Fed rate cut, the accompanying FOMC statement
and Powell press conference. Once again
our monetary gurus managed to give their best imitation of a Bugs Bunny cartoon,
hopping in one direction and then the other.
First of all, the Fed cut the Fed Funds rate 25 basis points; hardly a
surprise. But the statement had a
hawkish tone to it (the full redlined statement is below along with some
analysis) because, you know, the economy is so good (do these guys read some
newspaper that I don’t know about?).
Then, in
Powell’s press conference, he provided a more dovish narrative, implying that
there would be no rate increases in the foreseeable future.
Not so ‘super Mario’
Draghi.
***overnight,
Chinese trade officials doubt that Phase One will get done.
Bottom line: once
again the Fed delivered just what the Market wanted. Although the key to Market buoyancy is not a
quarter point cut. At current low levels,
it is irrelevant. Further a raise in
rates would be just as irrelevant. The
important policy is Not QE. That has
been the overriding force for Market direction for the last decade; and it
appears to remain the case. Helped by
better than expected earnings season, the calendar lift provided by the Holiday
Season, Brexit now off stage and an improving technical picture, it looks a year-end
rally is in the cards. Sit back and
enjoy it.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Weekly
jobless claims rose 5,000 versus projections of up 2,000.
September
personal income rose 0.3%, in line; personal spending was up 0.2%, also in
line; the core PCE was 0.0% versus an anticipated reading of +0.1%.
International
October
German inflation rate rose 0.1% versus consensus of 0.0%; retail sales were up
0.1% versus up 0.2%.
September
Japanese industrial production came in at +1.4% versus estimates of +0.4%;
October consumer confidence was 36.2 versus 35.5; housing starts were -4.9%
versus -6.7%
October
UK consumer confidence was -14 versus forecasts of -13.
The
September Chinese manufacturing PMI was 49.3 versus expectations of 49.8; the
nonmanufacturing PMI was 52.8 versus 53.9; its trade balance was -$2.06 billion
versus 1$1.2 billion.
The
Q3 EU flash GDP growth was 0.2% versus projections of 0.1%; inflation was 0.7%
versus 0.7%; core inflation was 1.1% versus 1.0%; unemployment was 7.5% versus
7.4%.
Other
Johnson
wins approval from Parliament for December elections.
What
I am reading today
How our monetary system
evolved.
Everybody makes investment mistakes.
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