The Morning Call
10/9/23
The
Market
Technical
Two days after
resetting its short term uptrend to a trading range, the S&P bounced off
its 200 DMA and rocketed back above the former lower boundary of that uptrend. We won’t know if stocks made a bottom or if
this was just an oversold rally until we see the follow through. And I can make a technical case for either scenario. Fundamentally, the direction is most likely in
the hands of the bond crowd which has been in control of the headlines and pin
action the last week. Right now,
patience.
Speaking of which,
unlike equities, the long Treasury witnessed no trend reversal. It successfully challenged the lower boundary
of its long term trading range, resetting it to a downtrend---which certainly
hints that the S&P’s bounce on Friday was a rally in an oversold
market. And as I have previously noted: If TLT’s
support level fails, then the chart goes from ugly to frightening and I will
sell and take a licking on that small TLT position I initiated several weeks
ago.
This is not a good sign for either bonds or stocks.
J P Morgan sees
lower long term interest rates.
https://www.zerohedge.com/the-market-ear/lower-longer-2
Gold was basically
flat on the week, which is not what I would have expected with rates
soaring. Of course, GLD has been acting contrary
to its usual correlations (to both bonds and the dollar) of late. So, I hesitate to try to divine anything
significant from its price action.
The dollar continued to soften a bit last week,
though it was hardly surprising given its two month rocket ride and the fact
that it had pushed above the upper boundary of its short-term trend. I remind
you that usually a strong dollar is not a plus for stocks or gold (so, maybe its
weakness helps stabilize GLD).
Friday in the
charts.
https://www.zerohedge.com/markets/big-squeeze-saves-stocks-bond-bloodbath
Fundamental
Headlines
The Economy
Last Week Review
Not
a lot of US data last week, what we got was slightly weighed to the plus side
as were the primary indicators (one positive, one neutral). Overseas, the stats were overwhelmingly upbeat. On the surface, one could interpret those
numbers positively (i.e., no recession/’soft landing’). And that may ultimately
prove to be the case.
However,
the bond market, which was the real story behind last week’s pin action,
concluded that the Fed ‘higher for longer’ was the now reigning scenario. Meaning, strong economy/high rates/bond
losses [especially at banks]/more federal debt/more inflation. In short, it appears that inflation is not in
the rear view mirror.
As
you know, I have a great deal of respect for the message from the bond market.
So, I am, at least temporarily, suspending my recession forecast (my conviction
has always been weak).
Jeffrey
Snider disagrees.
However,
I am leaving my ‘Fed chickens out’ call in place. Of course, it is for much different reasons
than I originally supposed, i.e., it will result from a tumbling stock market
not a crashing economy.
Longer term, we are faced with an economy growing at well below its
historic secular rate and a base rate of inflation above 2%.
Here
is the reason.
https://www.city-journal.org/article/our-unsustainable-debt
There
is way too much debt.
Correcting that won’t be easy. It will take years of fiscal and monetary
restraint to do so. And that would mean less fiscal stimulus and interest rates
staying higher for longer than many now expect---which unfortunately is not apt
to happen.
The
Economy
US
International
August German industrial production fell 0.2%
versus estimates of -0.1%.
Other
A closer look at Friday’s
job numbers (must read)
The big four economic indicators.
The Fed
What if the Fed has overtightened?
https://www.zerohedge.com/markets/morgan-stanley-what-happens-if-fed-has-overtightened
Inflation
Inflationary growth is fake news.
https://www.aier.org/article/inflationary-growth-is-fake-news/
Geopolitics
Ten takeaways from the Hamas attack on Israel.
https://www.zerohedge.com/geopolitical/korybko-top-10-takeaways-hamas-sneak-attack-israel
China
Real estate problems will hobble China’s
economy for years.
https://www.cnn.com/2023/10/06/economy/china-economy-real-estate-crisis-intl-hnk/index.html
The Bond Market
The impact of higher rates on corporate
profits.
https://www.ft.com/content/5bf6f928-4bdf-4499-8cce-47266287b9bf
The bond market’s message.
The 5% bond market means pain is heading
everyone’s way.
The bond vigilantes are back.
https://www.ft.com/content/d7ff1d2c-3f52-4dc9-87c4-d6c9d8587975
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