Thursday, May 28, 2020

The Morning Call--Money, money everywhere

The Morning Call


The Market

The Averages  (25548, 3036) did another moonshot yesterday, continuing to clarify the technical picture.  Both of the indices are now in very short term uptrends.  The Dow finished above its 100 DMA (joining the S&P; now resistance, if it remains there through the close on Friday, it will revert to support).  The S&P ended above its 100 DMA for a second day (now resistance; if it remains there through the close today, it will revert to support) and its 200 DMA (now resistance; if it remains there through the close Monday, it will revert to support.  Finally, the VIX made a new closing low, putting it back in sync with equities.  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, though they are overcoming two restraining factors---the resistance presented by both indices’ 100 and 200 DMA’s and the pin action in the VIX.

GLD was up, TLT down and UUP unchanged.  All their charts remain strong, suggesting that their investors remain risk averse.
            Wednesday in the charts.



            The economy

            It was a slow day for data.  Weekly mortgage and purchase applications rose and month to date retail chain store sales fell less than in the prior week.

            The Fed released its latest Beige Book, which told us what we already knew---the economy was sh*tty for the six weeks leading up to May 18th.

            Overseas, April Chinese YoY industrial profits fell less than estimates.
            The coronavirus

            Update on US coronavirus data.

            CDC slashes coronavirus fatality rate.

            Fewer things will change than we might expect (must read).

            On the other hand, ‘creative destruction’ could save the economy.

            The Fed

            Monetary expansion Argentina style.

            Fiscal/monetary stimulus does not work.

            Pompeo says Hong Kong no longer autonomous from China.
            China sanctions headed for Trump’s desk.

            Geopolitical support for China falls.

            ***overnight update.

            Fiscal Policy

            Japan approves $1 trillion stimulus.

Bottom line: the explosive growth in M2 discussed above plus the expansive fiscal policies announced by the EU Tuesday (see Tuesday’s Morning Call), Japan yesterday (see above) and McConnell comments (yesterday) that a third stimulus bill will likely be enacted means that the financial markets will continue to be flooded by excess liquidity.  That likely means that equities will continue to advance until acted upon by some outside force (China?).  Lie back and enjoy it.

            Let’s not forget the Fed.

            The value of the Fed ‘put’.

            Q1 S&P 500 profits post record decline.

            Hindsight bias.

  News on Stocks in Our Portfolios
Bank of Nova Scotia (NYSE:BNS): Q2 Non-GAAP EPS of C$1.04 beats by C$0.09; GAAP EPS of C$1.00 beats by C$0.14.
Revenue of C$7.96B (+2.1% Y/Y) beats by C$90M.

Bank of Nova Scotia (NYSE:BNS) declares CAD 0.90/share quarterly dividend, in line with previous.   

BlackRock (NYSE:BLK) declares $3.63/share quarterly dividend, in line with previous.


   This Week’s Data


            Weekly jobless claims were up 2,123,000 versus expectations of up 2,100,000.

            The second estimate of Q1 GDP growth was -5.0% versus forecasts of -4.8%; the price index was up 1.6% versus 1.4%.

                April durable goods orders fell 17.2% versus consensus of down 19.0%, ex transportation, they were off 7.4% versus -14.0%.


            May EU business confidence came in at -2.43 versus estimates of -3.0; consumer confidence was -18.0 versus -18.8; economic sentiment was 67.5 versus 70.3; industrial sentiment was -27.5 versus -27.0; services sentiment was -43.6 versus -28.6.

            May German inflation was -0.1%, in line.


What I am reading today


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