Tuesday, October 15, 2019

The Morning Call--Chinese start walking back the deal

The Morning Call


The Market

The Averages (26787, 2966) sold off modestly yesterday.  However, it was not enough to push either index back below the upper boundary of a developing very short term downtrend thereby negating it in its infancy (a plus for stocks).  Due to the holiday, there was not much volume.  Breadth weakened.   The VIX was down 6 ½%, a surprisingly large decline on such a ho hum trading day (another positive for equities).  For the time being, I am sticking with my assumption that the trend is up. 

            Gold and the dollar were up.  Gold remained above the lower boundary of its pennant formation as well as both MA’s and is in very short term and short term uptrends.  The dollar’s technical position continues strong. 

The bond market was closed yesterday.

            Monday in the charts.

            Morgan Stanley thinks Friday was a top.

            More liquidity problems (must read).



No US economic releases yesterday.  Overseas, August EU industrial production, the September China trade surplus and September German PPI were better than anticipated while September Chinese vehicle sales were disappointing.

            As I am sure you know, investors spent the weekend and yesterday trying to analyze the terms and effects of the US/China trade truce.  Added to the mix was a new request by the Chinese to meet again for more discussion on the deal which only adds more confusion.

            ***overnight, the Chinese begin the walk back from the deal.

            Thoughts on the trade truce from:

            The Money Illusion
            The American Institute of Economic Research.


            Alliance Bernstein.

            Bottom line:  stay focused on the long term.  Right now, stock prices are a short hair off their all-time highs.  So, in my opinion, least some portion of a trade deal is priced in.  Regrettably, consensus seems to be growing that, assuming an agreement is actually signed, the economic impact on the US/globe will be marginal.  Clearly, if subsequent ‘phases’ produce a meaningful change in China’s industrial policy and IP theft, that would be a major positive.  But I think that it makes little sense to start marking up valuations based on what we know so far.

            More on valuations (must read).

            Dividends can lie.

    News on Stocks in Our Portfolios
Johnson & Johnson (NYSE:JNJ): Q3 Non-GAAP EPS of $2.12 beats by $0.11; GAAP EPS of $1.81 beats by $0.23.
Revenue of $20.73B (+1.9% Y/Y) beats by $590M.

BlackRock (NYSE:BLK): Q3 Non-GAAP EPS of $7.15 beats by $0.16; GAAP EPS of $7.15 beats by $0.24.
Revenue of $3.69B (+3.1% Y/Y) in-line.


   This Week’s Data

          Month to date retail chain store sales continued to decline versus the prior week.


            September Chinese CPI came in at +0.9% versus forecasts of +0.7%; loan growth was up 12.5% versus +12.3%.

            August Japanese industrial production fell 1.2%, in line while capacity utilization declined 2.9% versus -0.2%,

            July UK employment fell 56,000 versus estimates of +23,000; August average earnings rose 3.8% versus +4.0%.

            October EU economic sentiment was reported at -23.5 versus consensus of -33.0; German economic sentiment was -22.5 versus -27.0.


What I am reading today

            The 2020 Social Security COLA has been announced.

            A fish that breathes air on land.

            Your higher education dollars at work.

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