Thursday, October 3, 2019

The Morning Call--A new trade war?

The Morning Call


The Market

The Averages (26078, 2987) had another bad day.  Volume picked up: breadth was poor.  The VIX popped another 10 ¾ % ending above its 200 DMA for a second day (now resistance; if it remains there through the close on Friday, it will revert to support) and  above its 100 DMA (now support).  The Dow closed its 9/4 gap up open, following the S&P’s lead on Tuesday.  So now the pull of that gap up open has been removed.  Further, yesterday was a gap down open for both indices which again needs to be filled (that is a plus). 

In addition, both Averages closed below their 100 DMA’s (both support; if they remain there through the close on Friday, they will revert to resistance).  My assumption for the long term remains that the momentum is to the upside.  If the Averages successfully challenge both MA’s or if they close yesterday’s down gap open but fail to make a new high, I will have to start questioning that assumption.

            The long bond was up another ¼ % continuing to recover from the 9/4 selloff.  GLD continued to bounce back above the lower boundary of the pennant formation shown in the chart on Monday (up 1 ¼%).  The dollar was off two cents but remains in a solid uptrend. 

            More on the bank repo problem.

            Wednesday in the charts.



Another downbeat day for US stats:  weekly mortgage and purchase applications were up; the September ADP private payroll report came in less than anticipated and the  September NY Fed ISM index was awful.

            Atlanta Fed’s GDPNow forecast for third quarter growth drops to 1.8%.
            Only two datapoints from overseas: September Japanese consumer confidence and the September UK construction PMI were well below forecasts.

            JP Morgan’s global manufacturing PMI shrinks again in September.

            Two trade related headlines:

            The World Trade Organization sided with US on illegal Airbus subsidies.

            And now US will impose $7.5 billion in tariffs on EU products on October 18th.

            The case for a trade deal.

Bottom line: investor concern about the global economy remains front and center as the numbers continue to deteriorate.  As I noted yesterday, it is too soon to start calling for a recession.  However, the economic backdrop was not helped by the prospect of still more tariffs being imposed in renewed clash between the US and the EU over trade.

The political scene continues to heat up over the potential impeachment of Trump.  I am refraining from any comments except to say that the more intense this battle becomes, the more likely it is to negatively impact both the economy and the Market.

On the other hand, the worse economic and Market conditions become, the higher the odds of aggressive central bank intervention.  If history is any guide that will be the narcotic that reliefs anxieties and induces further mindless buying of assets.

            The destructive nature of negative interest rates (must read):

            More on valuations.

                        For the bears.

                        And BofA isn’t all the positive either.

    News on Stocks in Our Portfolios
Paychex (NASDAQ:PAYX): Q1 Non-GAAP EPS of $0.71 beats by $0.02; GAAP EPS of $0.73 beats by $0.04.
Revenue of $992M (+15.0% Y/Y) beats by $1.72M.


   This Week’s Data


            The September NY Fed ISM index came in at 42.8 versus estimates of 47.5.
            September light vehicle sales were 17.2 million versus consensus of 17.0 million
            (Speaking of autos, here is the latest auto loan stats.)


            August EU retail sales were up 0.3%, in line; August PPI fell 0.5% versus -0.3%; the September services PMI came in at 51.6  versus 52.0; the composite PMI was 50.1 versus 50.4

The September German services PMI was 51.4 versus estimates of 52.5; the composite PMI was 50.1 versus 50.4.

            The September Japanese services PMI was 52.8, in line; the composite PMI was 51.5, also in line.


            The IMF after Argentina.

            Latest Brexit plan gets cool reception.

What I am reading today

            Are wealth taxes a good idea?

            Another example of our education system gone haywire.

            China introduces ‘doomsday’ bomb while US military concentrates on diversity.

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