The Morning Call
12/12/19
The
Market
Technical
The Averages
(27911, 3141) returned to their winning ways yesterday. But nothing changed with respect to the
multiple gap opens or my concern that this is not healthy and could be an
indication that the Market is entering or has already entered a blow off top. Volume declined; breadth improved. The VIX fell 4 ½ %, finishing below both
DMA’s (now resistance) voiding Monday’s break and heading back toward a range
indicative of complacency.
Fed day
performance.
The long bond
jumped ¾%, but short term momentum remains down
(1) as it is still well below its 100 DMA which reverted to resistance
last Friday and (2) it continues trade
in a trend of lower highs.
The dollar dropped
3/8%, (1) filling Friday’s gap up open, (2) ending below its 100 DMA [now
support, if it remains there through the close on Friday, it will revert to
resistance] and (3) nearing the lower boundary of its short term trading range.
Gold was up ¾ %, closing
both last Tuesday’s gap up open and Friday’s gap down open. It remains below its 100 DMA (now resistance)
and in the trend of lower highs.
All the gap opens in
TLT, UUP and GLD have now been filled and are pointing at lower interest rates.
Wednesday
in the charts.
Fundamental
Headlines
Yesterday’s data
was somewhat mixed. Weekly
mortgage applications were up but purchase applications were down and November
CPI was slightly above expectations but core CPI was in line. There was one disappointing stat---the
November budget deficit was larger than anticipated.
Overseas,
one stat: November Japanese PPI came in above estimates.
The lead headline
of the day was the wrap of the FOMC meeting. In its formal statement, it basically
indicated that Fed policy is on hold. It
(1) by a unanimous vote, left rates unchanged, (2) said that there would be no
rate hikes in 2020, (3) said that the unemployment rate could go even lower without
provoking a Fed response and (4) left its discussion about the economy almost
completely unchanged from the prior statement.
In Powell’s
subsequent press conference, he acknowledged that the Fed may take NotQE to
Defcom 2, i.e. buying longer dated maturities, if the repo funding problem
returns.
More on the repo funding problem.
Still more.
***overnight, in her first meeting as head of
the ECB, Lagarde leaves interest rates unchanged and continues the bank’s bond
buying program.
I reported in
yesterday’s Morning Call that Trump’s trade advisor had indicated that no
decision had been made regarding the scheduled imposition of Chinese tariffs on
December 15th. Here is the
source of that report.
***it is a new day, so there has to be a new trade
headline. Reuters reports that Trump
will proceed with the December 15th imposition of tariffs on Chinese
goods. China vows to retaliate.
The benefits of
NAFTA 2.0 versus a China deal.
Bottom
line: what did we learn yesterday?
(1)
the national debt continues to expand at an
unconscionable rate at a time of full employment. I believe that at the current vaulted level
of national debt, it will act as a restraint on economic growth.
(2)
nobody has a clue about whether or not there will a
trade deal with China. However, even if
there is, I believe that it will not address the original reason for starting
the conflict in the first place. On the
other hand, Trump is making progress with other trading partners and that will
be a plus for the economy going forward.
Though clearly any disruptions in trade volume while revisions are being
made will impact the economy in the short term.
(3)
the Fed is entrenched in its QE policy and is, indeed,
willing to double down if the repo funding problem resurfaces. So apparently it is willing to go down with
the ship when the mispricing and misallocation of assets exact their toll on
the Market. I am not smart enough to
know when that might occur; and until it does, the Market’s bias will remain to
the upside.
Rising
dividend expectations for 2020.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
November budget deficit was $209 billion versus estimates of $196.5 billion.
November
PPI was unchanged versus expectations of +0.2%; core PPI was -0.2% versus
+0.2%.
Weekly
jobless claims rose 49,000 versus projections of up 10,000.
International
October
Japanese machinery orders fell 6.1% versus forecasts of -1.8%.
October
EU industrial production came in at -0.5%, in line.
November
German CPI fell 0.8%, in line.
Other
What
I am reading today
The Mayflower and
Plymouth Rock.
Quote of the day.
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