The Morning Call---China tensions rising

The Morning Call

5/29/20

The Market

         

    Technical

The Averages  (25400, 3029) started the day on their front foot but faded near the close.  However, (1) both of the indices remain in very short term uptrends, (2) the Dow finished above its 100 DMA for a second day [now resistance, if it remains there through the close today, it will revert to support] and (3) the S&P ended above its 100 DMA for a third day, reverting to support and its 200 DMA for a second day [now resistance; if it remains there through the close Monday, it will revert to support]  The one negative is those huge 5/18 gap opens that remain unfilled and will continue to act as a magnet that needs to be closed.

My assumption continues to be that equity prices’ bias is to the upside, as they are overcome two restraining factors---the resistance presented by both indices’ 100 and 200 DMA’s and the pin action in the VIX.

GLD was up, but (1) TLT was down, ending right on the upper boundary of its intermediate term uptrend and (2) UUP was down big on volume, finishing below its 100 DMA [now support; if it remains there through the close next Monday, it will revert to resistance] and its 200 DMA [now support; if it remains there through the close next Tuesday, it will revert to resistance].   Clearly, challenges are starting to occur in these indicators which if successful would confirm the risk on pin action in stocks.

           

            Thursday in the charts.

            https://www.zerohedge.com/markets/dollar-slumps-small-caps-dump-oil-pumped

    Fundamental

       Headlines

            The economy

Yesterday’s datapoints were slightly weighed to the negative.  April durable goods orders and the May Kansas City Fed manufacturing index were better than anticipated while weekly jobless claims, April pending home sales and the second estimate of Q1 GDP growth were disappointing

            Overseas, May EU business and consumer confidence came in above estimates while economic, industrial and services sentiment were below.  May German inflation was in line.

            The coronavirus

           

            ***overnight update.

            https://www.zerohedge.com/geopolitical/south-korea-closes-schools-just-days-after-reopening-new-cases-spike-live-updates

            Will politicians admit their mistake?

            https://www.aier.org/article/will-the-politicians-admit-their-lockdown-mistake/

            The Fed

            Cue the recovery.

            https://global-macro-monitor.com/2020/05/27/cue-the-economic-recovery/

China

Trump says that he will hold a news conference on China today.

https://www.zerohedge.com/markets/stocks-slammed-after-trump-confirms-china-news-conference

US/China feuded spells trouble for the US economy and stock market.

https://www.bloomberg.com/news/articles/2020-05-28/trump-vs-china-risks-are-mounting-for-markets-and-the-economy?srnd=premium&sref=loFkkPMQ

US/China warships face off in South China Sea.

https://www.zerohedge.com/geopolitical/china-touts-it-expelled-trespassing-us-warship-latest-dangerous-schina-sea-incident

China/India border tensions escalate.

https://www.theguardian.com/world/2020/may/27/china-and-india-move-troops-as-border-tensions-escalate

Bottom line:  as you can tell by the above headlines, the growing strains in the US/China relationship dominated investor attention yesterday.  As you know, I believe that a breakdown in trade (or worse) is a major risk to any improvement in US economic growth.  That could potentially translate into Market risk; though with all the liquidity being pumped into the financial market, I have doubts.

https://www.zerohedge.com/markets/last-time-albert-edwards-saw-nonsense-was-2008-how-it-ended

    News on Stocks in Our Portfolios

 

Economics

   This Week’s Data

      US

            April pending home sales declined 21.5% versus forecasts of -15.0%

            https://www.calculatedriskblog.com/2020/05/nar-pending-home-sales-decrease-218-in.html

                April personal income rose 10.5% (think transfer payments( versus estimates of -6.5%; personal spending fell 13.6% versus -12.6%; the trade balance was -$69.7 billion versus -$61.2 billion; wholesale inventories were up 0.1% versus -1.4%; the PCE price index was -0.5% versus -0.7%; core PCE price indicator was -0.4% versus -0.3%.

            The May Kansas City Fed manufacturing index was reported at -25 versus consensus of -46.0.

            https://www.advisorperspectives.com/dshort/updates/2020/05/28/kansas-city-fed-survey-continued-decline-but-improving-in-may

     International

April Japanese unemployment was 2.6% versus expectations of 2.7%; retail sales were -9.6% versus -8.2%; industrial production was -9.1% versus -5.1%; YoY housing starts  were down 12.9% versus -12.1%; YoY construction orders were -14.2% versus -16.3%; May consumer confidence was 24.0 versus 25.1.

April German retail sales were 5.3% versus projections of -12.0%.

May EU CPI was -0.1% versus forecasts of 0.0%.

    Other

            Should we fear post pandemic inflation?

            https://www.nytimes.com/2020/05/28/upshot/should-we-fear-inflation.html

            It matters how the money is spent.

            https://www.adamsmith.org/blog/cant-we-all-be-keynesian-about-this

            The distribution of April economic growth.

            http://econbrowser.com/archives/2020/05/geographical-distribution-of-april-growth-philadelphia-fed-indexes

What I am reading today

           

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