Wednesday, April 1, 2020

The Morning Call--Rays of sunshine?

The Morning Call


The Market

The Averages  (21917, 2584) took a rest yesterday, ending in short term downtrends whose boundaries are ~17198/2220 on the downside and ~22790/2703 on the upside. 

            Quarter end pension rebalancing is over.

            Is this a new bull market---technicians respond?

On a long term basis, I still think the evidence points to more downside: (1) stocks condition has largely been worked off, (2) the VIX is not reflecting a reduction in risk adverseness among investors, (3) both indices experienced gap up opens last Tuesday [which need to be filled] and (4) some of the most powerful rallies occur during bear markets.  There is almost no visible support until ~ 15399/1810. 

TLT, GLD and UUP had another quiet day on low volume with no change to their technical picture---a positive sign that some kind of normalcy is returning.

            Tuesday in the charts.



Yesterday’s economic numbers were positive; and surprisingly, they were March stats.  The March Chicago PMI and March consumer confidence were ahead of expectations  while the January Case Shiller home price index and month to date retail chain store sales were disappointing.

            Overseas, the data was very upbeat.  February Japanese retail sales, industrial production, construction orders, housing starts as well as the March Chinese manufacturing and nonmanufacturing PMI’s,  March German unemployment and Q4 UK business investment and trade deficit were better than anticipated.  February Japanese unemployment, the March EU CPI and Q4 UK GDP were in line.

            The coronavirus

            ***overnight update.

            New coronavirus test a game changer?
            Brazil and the coronavirus.

            There are multiple strains of the coronavirus.

            Ten things to think about.

            Here is one more thing.

            The Fed

            Why QEV won’t stop corporate defaults.

            The bottom line:  the news flow appears to be improving.  While we haven’t seen peak infections/deaths in the US, the coronavirus numbers overseas as well as Washington State, California and, perhaps, even New York are indicating some flattening in the curve.  Plus, American corporations are driving for the hoop in producing virus fighting supplies and developing tests and promising vaccines.

            The economic data is also getting better in areas of the world hit earlier than the US.

            I am not suggesting that the worst is over in gross terms; but there are enough numbers that analysts can get their pencils working and quantification efforts began in earnest.

            So, on my lists of worries, corporate insolvency continues to be at the top.  To be sure, the Fed has made it clear that it is prepared to throw unlimited amounts of money at anything that resembles a credit problem.  That will almost certainly mitigate some potential disasters.  But that said, the Fed has shown itself to be clueless about the how it created the misallocation of assets.  So, the question is how clueless will it be managing the unwinding of this problem?  That is the biggest risk facing the economy and Market now, in my opinion.  In other words, solving the coronavirus problem may not remove the risk of further downside in the Market---‘may not’ being the operative words.

            The latest from Morgan Stanley.

                The latest from Jeff Gundlach.

    News on Stocks in Our Portfolios


   This Week’s Data


            The March Chicago PMI came in at 47.8 versus estimates of 40.0.

            March consumer confidence was reported at 120 versus expectations of 110.

            Weekly mortgage applications rose 15.3% while purchase applications were down 10.8%.

            The March ADP private payroll report showed job losses of 27,000 versus an anticipated decline of 150,000.


            The March Japanese final manufacturing PMI was 44.2 versus forecasts of 44.8.

            Q1 Japanese large manufactures index was -8 versus consensus of -10; small manufacturers index was -15 versus -17; the nonmanufacturers index was 8 versus 6; large manufacturers cap ex was +1.8% versus -1.1%.

            The March Chinese Caixin final manufacturing PMI was 50.1 versus projections of 45.5.

            February German retail sales were up 1.2% versus estimates of +0.1%.

            The March German final manufacturing PMI came in at 45.4 versus expectations of 45.5; EU manufacturing PMI was 44.5 versus 44.7; UK manufacturing PMI was 47.8 versus 47.0.

            February EU unemployment was 7.3% versus forecasts of 7.4%.


            NY Fed launches new real time index to monitor the economy.

What I am reading today

            Bizarre archeological finds that still baffle scientists.

            The fun way to fight a pandemic.

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