The Morning Call
12/13/19
The
Market
Technical
The Averages
(28137, 3168) advanced on a host of positive headlines. As a result, 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. On the other hand, the S&P
reset a new very short term uptrend. Volume
was up; breadth improved. The VIX fell
another 7 %, continuing its move back
toward a range indicative of complacency.
The future will
not look like the past.
The long bond got
hammered (down 1 5/8%) on heavy volume as short term momentum remains down (1) as it is still well below its 100 DMA
which reverted to resistance last Friday,
(2) it continues trade in a trend of lower highs and (3) is now
approaching the lower boundary of its very short term uptrend.
The dollar was up
1/8%, (1) ending below its 100 DMA for a second day [now support, if it remains
there through the close today, it will revert to resistance] and (2) remains
near the lower boundary of its short term trading range.
Gold fell 3/8
%. Intraday, it traded all the way up to
its 100 DMA and the upper boundary of its very short term uptrend before
retreating, closing both last Tuesday’s gap up open and Friday’s gap down
open. It remains in the trend of lower
highs.
The headlines
(China trade deal, more NotQE, a budget deal) pushed everything in the
direction of an improving economy scenario.
Thursday in the charts.
Fundamental
Headlines
Yesterday’s
stats were not that good. While November PPI was unchanged, core PPI declined;
weekly jobless claims were really bad.
Another forecast
for 2020.
Overseas,
October Japanese machinery orders fell more than forecasts while October EU
industrial production and November German CPI were in line.
Of course, the
numbers were small potatoes when it comes to headlines.
(1)
the US/China have apparently reached ‘agreement in
principle’ for Phase One trade deal. We
don’t know the terms of the deal yet; but any agreement that reduces tariffs
will be a near term positive. The key to
achieving a long term plus would be the addressing unfair Chinese industrial
policy and IP theft.
***of course, the overnight countervailing
press release---or lack thereof.
***just in, China will hold press conference
at 8:30CST.
(2)
the Fed announced that it would head off repo
funding problem with a massive injection of liquidity. The good news is all the new money that will
be sloshing around the financial system which has always been good for the
Market. The bad news is that [a] no one
has yet been able to determine the exact reasons for the funding problem, [b] while
the Fed is clearly responding to this issue, it is doing so without knowing why
it is having to respond, [c] meaning that there is the risk that true reason
for the problem becomes manifest and it may be bigger than the Fed can manage.
Here is a recap of Lagarde’s press conference.
(3)
Congress reached an ‘agreement in principle’ on $1.37
trillion budget deal [the bad news], avoiding possible government shutdown [the
good news, sort of]. I don’t need to go
through another rant about fiscal irresponsibility. But this is it in spades and it negatively
affects the ability of the economy to grow,
(4)
the conservatives scored a big victory in the
British parliamentary elections, seemingly assuring a Brexit, hard or
otherwise. The initial reaction has been
quite positive in the UK markets; but I don’t think anyone has a handle on
exactly what the economic consequences are for a Brexit for the short term;
though I have always been of the opinion that a country reclaiming its
sovereignty is a positive.
Bottom line: as I have suggested above there is good news (mostly short
term) and bad news (potentially in the long term) in all the above
development.
(1)
a trade deal will certainly be an economic plus
short term but if Trump has folded for political reasons and no effort has been
made to correct unfair Chinese policies, the long term implications are
negative,
(2)
the initial flood of reserves will almost surely
have a positive affect on equity prices as it has for the last ten years. But if there is a severe problem like the
potential bankruptcy of a major bank with huge counterparty risks [think
Deutschebank] that has been the source of the dollar funding problem and it
bursts into the open, it could be a big potential negative for multiple
securities markets,
(3)
while investors may think avoiding a government
shutdown is good news, servicing an exploding national debt will continue to be
a restraint on economic growth,
The preponderance of these developments
appears upbeat near term, especially given the
positive seasonal bias. So, sit
back and enjoy it. But if you don’t have
cash reserves, in my opinion, you should use the current opportunity to build
them.
News on Stocks in Our Portfolios
Revenue of $9.61B (+0.5% Y/Y) misses by $40M.
Economics
This Week’s Data
US
November
retail sales were up 0.2% versus consensus of up 0.5%; ex autos, they were up
0.1% versus 0.4%.
International
October
Japanese industrial production fell 4.5% versus estimates of -4.2% while
capacity utilization declined 4.5% versus +0.3%; the Q4 large manufacturers
index came in at 0 versus +2, the small manufactures index was -9 versus -8, all
industry capex rose 6.8% versus 6.6%.
November
German wholesale prices dropped 0.1% versus expectations of +0.2%.
Other
The
growing gap between mean and median household income.
The
mounting China debt default problem.
Two
million homes with negative equity in Q3 2019.
The
Fed’s wishful thinking.
What
I am reading today
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