Tuesday, March 3, 2020

The Morning Call--Follow through

The Morning Call


The Market

Well with that moon shot, the Averages  (26703, 3090) aren’t quite so oversold now.  However, none of the major support levels that were successfully challenged last week were violated  The S&P did close above its 200 DMA, voiding last Thursday’s break.

            So far, all we really have is a rally off of an extraordinarily oversold condition occurring on hopes of QEV at a time of no visibility on the peak infection/death rate of the coronavirus.  That suggests caution to me.

The long bond traded down fractionally on vastly lower volume.  However, it maintains its strong upward momentum.  Lower rates remain a part of our future.  GLD bounced, setting a fifth higher low.  So, it appears headed higher but restrained by the upper boundaries of it very short term and short term uptrends. The dollar continues to get hammered, losing all its upside momentum.  I remain confused by the dramatically mixed performance of TLT, GLD and UUP.

            Monday in the charts.



Yesterday’s data was mixed.  January construction spending was much better than anticipated while the February manufacturing PMI and the February ISM manufacturing index were slightly below estimates.

            Overseas, Q4  Japanese capital spending was above forecasts.  Most of the stats were February manufacturing PMI’s with Japan, Germany and the EU coming in above expectations while China (and the Chinese Caixin) and the UK PMI’s were below estimates.

            Once again, there numbers are meaningless because they do not yet reflect the impact of the coronavirus.  Until they do and until we know the virus has peaked, quantifying its economic consequences is impossible.  Hence, this will remain a major unknowable overhanging the Market.

            ***overnight, update on the coronavirus.
A not so positive analysis of the impact of the coronavirus on the US economy.

            The impact on corporate earnings could be deeper and longer than expected.

            On the other hand, everyone knew that central bank intervention was bound to happen once it became obvious that the economic impact of the virus would be meaningful.  Yesterday, the central banks of Japan and China took action while the Fed, the IMF and the World Bank promised action.

            Japanese government steps in to buy Y100 billion in ETF’s.

            The IMF and World Bank pledge support for aid to member countries.

            The Fed needs to cut rates.

            But the White House poo poos fiscal stimulus,
            ***overnight, the G7 disappoints.  Fails to announce new action.

            Bottom line: we still have no idea about the timing and extent to which the economic impact of the coronavirus will start showing up in the numbers.  We don’t even know when the negative infections/deaths headlines will peak.

            Investors got jiggy yesterday apparently because a new round of central bank intervention appears to be forthcoming.   However, that is not all good news as the overnight repo market appears to be freezing up again---indicating liquidity issues somewhere (no one seems to have figured out exactly where yet) in the financial system. 

            Be careful.  A one day rally off an extremely oversold condition is not a sign of Market health.

    News on Stocks in Our Portfolios

   This Week’s Data


            January construction spending jumped 1.8% versus forecasts of +0.6%

            The February manufacturing PMI came in at 50.7 versus consensus of 50.8.

            The February ISM manufacturing index was reported at 50.1 versus expectations of 50.5.
            Month to date retail chain store sales grew slower than in the prior week.


            January EU unemployment  came in at 7.4%, in line; January PPI was up 0.4% versus estimates of  up 0.5%; February CPI was up 0.2% versus +0.3%.

            February Japanese consumer confidence was 38.5 versus projections of 40.6.


What I am reading today

            Tallying how much the Pentagon really costs.

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