Thursday, May 7, 2020

The Morning Call--US/China tensions

The Morning Call


The Market
The Averages  (23664, 2848) made a strong opening but faded into the close, finishing down on the day.  Still they remained in that 4/17-4/20 trading range.  My prior comment holds: ‘That the indices couldn’t hold above their 4/17 highs but also couldn’t develop follow through on last Thursday/Friday’s selloff suggests that they have found a standoff level between the bulls and bears.  I wait the outcome.’

The dollar had another good day on big volume. TLT and GLD sold off with the long bond making its first lower low in a long time.  Both charts continue strong.  Overall, the implication of yesterday’s pin action is a stronger economy despite a horrible ADP private payroll report and the poor performance of stocks.
            In sum, yesterday’s price action across all Markets was a bit confusing.

            Wednesday in the charts.



Yesterday’s numbers were mixed.  Weekly mortgage and purchase applications rose while the April ADP private payroll report showed greater job losses than anticipated.

Overseas, the results were more upbeat.  April EU and German services and composite PMI’s were all better than expected.  But March German factory orders and the April UK construction PMI were disappointing.

            The coronavirus

***overnight update.

            The headline of the day came out of a Trump news conference in which he stated that (1) China may or may not live up to the terms of the recent trade deal and (2) the coronavirus was the ‘greatest attack on the US since Pearl Harbor’.  To be sure, this is just rhetoric.  But it still it will likely raise the level of tensions between the two powers.  Irrespective of whether one agrees with a political/military strategy of playing hard ball with China, it raises the risks of detrimental economic consequences.

            ***overnight, it appears the US/Chinese trade negotiators could meet as soon as next week.

            Belgium, not exactly a right wing government, accuses China of bio espionage (must read).

            Updated stats on the coronavirus.

            Nothing is ever as permanent as temporary government program.

                        When the bill comes due.

                        In the meantime, job losses, death and soaring stock prices.
             The Fed        
            The Fed eats Buffett’s lunch.

Bank of England meets, leaves policies unchanged.

Bottom line:  current valuation levels suggest that investors believe in a (1) either ‘V’ shaped economic recovery---although reading the below links indicate that not all are believers, (2) or QEInfinity.  As you know, my vote is on the latter and will remain so until investors act otherwise. 

What if the economy doesn’t match the Market’s ‘V’ shaped recovery?

Extraordinarily uncertain, indeed (must read).

More on valuation.


The disconnect between valuations and reality.

Beware of the Fed ‘put’.

    News on Stocks in Our Portfolios
Genuine Parts (NYSE:GPC): Q1 Non-GAAP EPS of $0.92 misses by $0.17; GAAP EPS of $0.94 misses by $0.15.
Revenue of $4.56B (-3.8% Y/Y) beats by $20M.

Becton, Dickinson (NYSE:BDX): Q2 Non-GAAP EPS of $2.55 beats by $0.26; GAAP EPS of $0.53 misses by $1.93.
Revenue of $4.25B (+1.2% Y/Y) beats by $150M.


   This Week’s Data


            Weekly jobless claims rose 3,169,000 versus expectations of up 3,000,000.

            Preliminary Q1 nonfarm productivity fell 2.5% versus estimates of -5.5%; unit labor costs rose 4.8% versus +4.0%.


            March German industrial production declined 9.2% versus forecasts of -7.8.

            The April Chinese Caixin services PMI came in at 44.4 versus consensus of 47.7; the composite PMI was 47.6 versus 48.5; the April trade balance was +$45.3 billion versus +$9.7 billion.

            The April EU construction PMI was 15.1 versus projections of 24.0.


            The eurozone in trouble.

            Saudi’s slash oil price discounts.
What I am reading today

            A possible explanation of those Navy UFO videos.
            In support of online education.

            More is less.

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