Friday, November 1, 2019

The Morning Call---the Fed is all that counts

The Morning Call


The Market

The Averages (27046, 3037) had a rough day.  The bad news is that (1) the Dow violated the lower boundary of its very short term uptrend one day after resetting it and (2) the S&P closed right on the boundary of its very short term uptrend.  The good news is that the S&P filled its 10/28 gap up open.  Volume was up; breadth deteriorated.  The VIX rose 7 ¼ %, pushing away from its 7/25 low (= S&P 7/25 high).

My assumption remains that momentum is to the upside; 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..

TLT popped another 1 3/8 %, taking another step away from the threat to the loss of momentum.  The dollar was down again by ¼%, finishing below the lower boundary of its short term uptrend (if it remains there through the close on Monday, it will reset to a trading range).  Gold rose 1 %, ending back above the upper boundary of that pennant formation.  I am still uncertain about the strength of the directional move following the breakout from the tip.  All this points to a concern about the economy---notwithstanding the Fed’s goldilocks assessment.
            Thursday in the charts.



            Yesterday, the numbers turned mixed after Wednesday’s one day hiatus: September personal income and spending came in line but weekly jobless claims and the October Chicago PMI were disappointing.
            The odds of a recession.

            Update on big four economic indicators.

            Overseas, October German inflation was above forecasts while retail sales were below; September Japanese industrial production and October consumer confidence and housing starts were better than expected; October UK consumer confidence was less than consensus; September Chinese manufacturing and nonmanufacturing PMI’s as well as the trade balance were disappointing;  Q3 EU flash GDP growth was better than anticipated while unemployment was worse and CPI was in line.
            Bottom line: aside from the impeachment theatrics, the economic data was the main headline yesterday---with the very poor Chicago PMI being the stat that drew attention.  As you know, I believe that the US economy will continue to grow at a sluggish rate; but I also have questioned the Fed’s upbeat narrative.  So, it doesn’t surprise me that a poor datapoint rattles investors.

            That said, there remain some very powerful forces that can propel stock prices higher: better than expected earnings, strong seasonal biases and, above all, a Fed whose main goal is keeping the Market advance intact. 

            In my opinion, the only way lousy economic numbers will cause anything other than a short term Market hiccup is if investors finally realize just how destructive monetary policy has been on the secular growth rate of the economy.

    News on Stocks in Our Portfolios


   This Week’s Data


            The October Chicago PMI came in at 43.2 versus expectations of 48.0.

                October nonfarm payrolls grew by 128,000 versus forecasts of an 89,000 increase.


            The October Chinese Caixin manufacturing PMI was reported at 51.7 versus estimates of 51.0.

            The October UK manufacturing PMI was 49.6 versus consensus of 48.1.


            Update on Philly Fed ADS business conditions index.

            Another Chinese bank on the verge of collapse.

            And a Chinese steel maker defaults.

What I am reading today

            When Martin Luther changed the world.

            The rise and fall of the Roman Empire (part 3).
            Teachers strike while test scores drop.

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