The Morning Call---Suddenly, trade worries

The Morning Call

12/3/19

The Market

         

    Technical

The Averages (27783, 3113) had their worse day in two months, falling below the lower boundaries of their very short term uptrends (if they remain there through the close today, those trends will be negated).  Breadth deteriorated and volume rose---but not that much.  I have noted numerous times that the indices were deep in overbought territory; so, a pullback is not unexpected.  And don’t forget those October 11^th gap up opens that need to be filled.  On the other hand, we are in a seasonally positive time of the year, so it is certainly possible that  the overbought condition could last through year end.   

https://www.marketwatch.com/story/will-a-santa-claus-rally-power-the-sp-500-and-dow-to-their-best-years-in-a-generation-2019-11-30?mod=home-page

The bond market made a big gap down open, finishing the day off 1 ½ % on big volume and below its 100 DMA---if it remains there through the close on Wednesday, it will revert to resistance. 

The dollar was down ½%, ending below the lower boundary of its short term uptrend; if it remains there through the close on Wednesday, it will reset to a short term trading range. 

Gold was down seven cents.  While it remained in very short term and short term uptrends and above its 200 DMA, it is continues to trade below its 100 DMA and yesterday made another lower high.

Given the lousy trade headlines and poor economic numbers, I thought that either TLT and GLD would have been up and UUP down on a weak economic scenario or that they would all have been up on a safety trade.  So, I consider their pin action muddled and anticipate some clarity on their investors’ thinking today or later in the week.

For the bulls.

https://disciplinedinvesting.blogspot.com/2019/12/investing-at-all-time-highs-in-equity.html

Monday in the charts.

https://www.zerohedge.com/markets/stocks-bonds-dollar-dumped-data-trade-deal-disappointment

    Fundamental

       Headlines

Yesterday’s economic data did not make for great reading.  While the November final manufacturing PMI was better than estimates, the November ISM manufacturing index and October construction spending were below expectations.

Overseas, it was a different story.  Q3 Japanese capital spending, its November final manufacturing PMI as well as the final manufacturing PMI’s for China (Caixin), Germany, the EU and the UK were above forecasts.

            On the trade front, Commerce Department secretary Ross threatened a tariff  increase if there is no deal by December 15^th.

            https://www.zerohedge.com/markets/stocks-tumble-after-ross-says-trump-will-hike-tariffs-if-no-china-deal-dec-15

            China fires back.

            https://www.zerohedge.com/markets/china-accelerate-release-unreliable-entity-list-response-xinjiang-bill-stocks-swoon      

            It is also upset with Trump for signing the bill supporting Hong Kong.

            https://www.zerohedge.com/markets/china-bans-us-military-visits-hong-kong-sanctions-us-ngos-over-support-protests

            ***overnight, Trump says that a trade deal might not occur until after 2020 elections.

            https://www.zerohedge.com/markets/futures-tumble-after-trump-says-better-wait-until-after-election-china-trade-deal

            Late in the day, Trump opened up another front in the trade war, slapping tariffs on France in reaction to that country’s new tax on digital revenues (think FANG stocks).

            https://www.zerohedge.com/economics/us-threatens-100-tariffs-24-billion-french-goods-including-champagne-over-digital-tax

            Global trade takes a beating.

            https://thehill.com/opinion/international/472337-global-trade-takes-a-beating-and-with-it-the-global-economy

           

            Trump’s ‘bad cop’.

            https://www.bloomberg.com/news/articles/2019-12-02/trump-s-trade-bad-cop-thinks-he-has-found-a-winning-formula

            Bottom line: poor economic and trade news imply a potential negative effect on corporate earnings---and yesterday’s pin action pointed to investor concern.  The question is, will the Fed’s NotQE assuage worries and keep any dip a minor one?

            https://www.zerohedge.com/markets/trader-what-weve-seen-past-two-years-odds-everything

            Imagining the worst.

            https://humbledollar.com/2019/12/imagining-worst/

            Valuation update.

            https://www.advisorperspectives.com/dshort/updates/2019/12/02/regression-to-trend-another-look-at-long-term-market-performance

            https://www.advisorperspectives.com/dshort/updates/2019/12/02/the-q-ratio-and-market-valuation-november-update

            More on the ill effects of excess liquidity.

            https://www.zerohedge.com/markets/americas-giant-debt-equity-swap-exposed

     Subscriber Alert

            Tiffany (TIF) has accepted a takeover bid for the company.  Its stock reacted accordingly.  Since I do not follow the fundamentals of the acquiring company, the Dividend Growth Portfolio will Sell its position at the open.

    News on Stocks in Our Portfolios

 

            Donaldson (NYSE:DCI): Q1 Non-GAAP EPS of $0.51 misses by $0.02; GAAP EPS of $0.51 misses by $0.04.

Revenue of $672.7M (-4.1% Y/Y) misses by $26.64M.

Economics

   This Week’s Data

      US

The November final manufacturing PMI was 52.6 versus estimates of 52.2.

            https://www.advisorperspectives.com/dshort/updates/2019/12/02/markit-manufacturing-november-pmi-at-seven-month-high

            The November ISM manufacturing index was 48.1 versus expectations of 49.2.

            https://www.advisorperspectives.com/dshort/updates/2019/12/02/ism-manufacturing-index-down-0-2-in-november

            October construction spending fell 0.8% versus consensus of +0.4%.

            https://www.calculatedriskblog.com/2019/12/construction-spending-decreased-in.html

     International

October EU PPI came in at +0.1% versus forecasts of 0.0%.

The November UK construction PMI was 45.3 versus projections of 44.5.

    Other

            The solution for too much debt.  More debt.

            https://www.bloomberg.com/news/articles/2019-12-01/the-way-out-for-a-world-economy-hooked-on-debt-yet-more-debt?srnd=premium

            Framing lumber prices up YoY.

            https://www.calculatedriskblog.com/2019/12/update-framing-lumber-prices-up-year.html

            Another take on the liquidity problems in the repo market.

            https://ftalphaville.ft.com/2019/11/29/1575038864000/What-is-level-of-reserves-is-truly--excessive--/

            Student loan debt continues to climb.

            https://www.zerohedge.com/personal-finance/student-loan-bubble-gambling-your-future

            Christine Laguard makes her maiden speech---links QE to climate control.  Yeah, that’s a winner.

            https://www.zerohedge.com/economics/stuttering-stumbling-address-christine-lagarde-vows-link-qe-climate-change

            The great American divide.

            https://www.zerohedge.com/personal-finance/mauldin-americas-full-employment-hides-dirty-secret

What I am reading today

            The five universal laws of human stupidity.

            https://qz.com/967554/the-five-universal-laws-of-human-stupidity/

            Quote of the day.

            https://cafehayek.com/2019/12/quotation-of-the-day-2996.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CafeHayek+%28Cafe+Hayek%29

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