The S&P closed at 2731.20 – So today’s circuit breakers are:
Level 1. 191.84 pts (7%) or 2539.36
Level 2. 355.06 pts (13% total) or 2376.14
Level 3. 546.24 pts (20% total) or 2184.96
It’s all smiles…..as stocks (around the world) extend the rebound back to January highs in a broad rally……it’s been 5 straight days that the mkts have rallied – taking back 7.5% of the losses suffered last week….the issues that caused the mkts to melt down over a 48 hr period are now the SAME issues that appear to be behind the buying now….rising inflation, rising interest rates and even the pace of increases along with a more hawkish FED are all issues that investors are now embracing and celebrating! The FOMO (Fear of Missing Out) trade is ALIVE AND WELL….
Yesterday – the PPI (Producer Price Index) offered additional signs of building inflation, this on top of Wednesday’s CPI number that was a bit stronger than expected…. but a strength that a chorus of analysts have all but dismissed – Don’t worry about it! No need – with earnings growing in the high double digits and the global economy showing real signs of strength – the old measures that have usually caused investors to be cautious apparently appear to mean nothing anymore….and that change in psychology was born last Friday –
Tech – has rallied the hardest – taking the Nasdaq mkt up 9% as investors rushed back in to grab some of the sexy names that were on sale…. Some of the action was driven by stronger earnings and some of it driven by opportunity created by after the selloff…The tech ETF (XLK) up sharply yesterday – gaining 2% as the overall mkt gained 1.2%….
With the exception of energy (XLE) every other sector enjoyed the company of buyers…including utilities – XLU +2% and REITS – VNQ +1% – two sectors that you would expect to struggle in the current environment of rising rates – but maybe it’s true – Who cares about higher rates….the economy is on fire – so higher rates suggest better days ahead – forget all the noise that has clogged your thoughts about the impact of higher rates and changing FED policy…It means absolutely nothing….Remember – there is good cholesterol and there is bad cholesterol….and there is good inflation and bad inflation, there are good reasons for higher rates and bad reasons for higher rates….So ACCENTUATE THE POSITIVES AND ELIMINATE THE NEGATIVES.
Jorge Garayo – Head of Inflation Strategy at Société General had this to say –
“We’ve endured low inflation for so long that people get easily excited. But growth is strong and actually we’re just going to a still low buy more average inflation scenario.”
And that makes perfect sense – Gracias Sr. Garayo…. Is he right? Have we all just become so desensitized to such artificially low rates that we can’t remember what normal average inflation should be or what normal average interest rates should be?
Either way – do not be fooled – there are those that still believe that simmering inflation – while low now – still has the ability to boil over – making a real mess of your stove…..FED Funds futures now point to a 21% chance of 4 interest rate increases in 2018…..and while we always toyed with 4 – chances of a 4th rise were still closer to zero….it is only recently that the odds are creeping up – and investors are getting used to the idea….Again – we will get a bit more info after the March FED meeting – when our new chair – Jay Powell gets an opportunity to address the nation and the world…..as he steers the ship thru what is now calm waters – but we know how fast that can change.
European mkts are all higher……. U.K. Retail Sales was the only economic report released overnight and the headline was soft, 0.1% vs. exp of 0.5%. Earnings is the other story and continued better than expected is helping to move mkts. FTSE + 0.58%, CAC 40 +0.75%, DAX +0.50%, EUROSTOXX +0.76%, SPAIN +1.06% and ITALY +0.92%.
Asian mkts were also higher even though so many of them are closed in celebration of the Lunar New Year – the Year of the Dog..so mkts in China, Hong Kong, South Korea, Vietnam are all closed. In Japan – the Nikkei closed up 1.2% to end the week. BoJ’s Haruhiko Kuroda has been re-appointed to another 5 yr term as the Governor of the BoJ (Bank of Japan). In Australia – the Reserve Bank left interest rates unchanged as that country continues to struggle with a higher than normal unemployment rate. ASX – 0.08%.
US Futs are up 5 pts in early trading…. We closed and thru resistance at 2721 yesterday afternoon ending the day at 2735….and while technically we are above resistance levels…. there is still some work ahead. My sense is that if we kiss 2750 and continue to rally – then we could see the momo guys (algorithmic momentum traders) kick in to end the week on a really high note. At the moment – 2721 now becomes support – so for today I am thinking that we are in the2721/2750 range….
Eco data today incudes Housing Starts – exp of +3.5% and Building Permits of 0%…. Everything else is more noise. And there are NO fed speakers today – so the action will be driven by the continuing rally…
The US dollar index – DXY continues to plummet and that is helping the whole commodity complex…think Oil, Gold, Sugar, Corn, Silver, Soybeans, Lumber, Pork Bellies…. Check out the Bloomberg Commodity index action…. (BCOM) it is up 4% since last week. While the dollar is down 3% over that same time….as the dollar hits a 4 yr low…. recording it worst weekly fall since February 2016. Concerns over mounting debt obligations, increasing gov’t spending and a ‘weak dollar strategy’ designed by Treasury Secretary Stevey Mnuchin are all reasons for the weakness…. The dollar is now down 4% for the year and down 13% since Stevey took over…. Recall his comments in Davos – “A weaker dollar is good for America and good for the Treasury”
OIL which had come under pressure after this week’s story about increasing supplies and an aggressive/healthy US oil industry – is now rallying a bit on the back of the weak dollar…. remember – commodities are priced in dollars – so there is an inverse relationship…weak dollar/stronger commodities and strong dollar/weaker commodities…. Currently WTI is flat at $61.38 up from $58.67 on Tuesday…… All on dollar weakness….
And Gold??? Up $3 at $1,360 on top of the 4% move higher over the past week – again think weak dollar…capisce? We are now approaching the January highs of $1,370…. if we break out there then a test of $1,400 is dead ahead (think big round number).
Take good care –
Dover Sole Francese
For this you need: 1 lb Dover sole, flour, eggs, parmegiana cheese, pepper, olive oil, butter, fresh lemon juice, marsala wine, garlic and some cornstarch.
Preheat oven to 300 degrees.
In a bowl – mix 3 eggs and a handful of parmegiana cheese and some pepper – beat well – set aside.
In a large sauté pan – heat up the butter and oil….
Now – dredge the sole in flour and then dip in the egg mixture
Place in the hot sauté pan – do not crowd…..
Cook the sole until nicely golden browned (maybe 2 mins max?) – now flip over and repeat – remove from pan – and place on an over proof dish and put in the over to keep warm until you finish all the pieces of sole.
Now – in the same sauté pan – add in some chopped garlic, fresh lemon juice (squeezed) and maybe ½ c of the marsala wine and 1 tbsp of corn starch (to thicken). Stir until you have a nice thick sauce.
Serve the sole on a bed of herb flavored rice pilaf and pour the ‘sauce’ over the fish. Serve immediately.
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