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The S&P closed at 2713.83 – So today’s circuit breakers are:
Level 1. 187.44 pts (7%) or 2490.23
Level 2. 348.10 pts (13% total) or 2329.57
Level 3. 535.53 pts (20% total) or 2142.14
March 2, 2018, 5:25 am…… Global mkts follow the US and are under pressure after the surprise announcement by the White House yesterday concerning steel tariffs…. By now I suppose you’ve heard that Donny has suggested (and I say suggested because it has not been done yet) that he will impose tariffs on both imported steel and aluminum to protect national security…….….US steelmakers rallied hard yesterday on the news while the broader mkt went into RISK OFF mode…. leaving the Dow 442 pts lower, the S&P 36 pts lower and the Nasdaq 92 pts lower. Now look – the mkt was already anxious – it was already vulnerable – so this news just threw more fuel on the fire…. shaking the trees, a bit more to see what falls out….
The announcement drew immediate protests from a range of US industries dependent upon steel and aluminum while also prompting screams from around the world…. Industries from automakers, to air conditioners to beer and soda companies to boat manufacturers all expressing their discontent……In the end – the higher cost of steel and aluminum will be passed along to the consumer never mind what it will do to disrupt global trade. The move was met with mixed emotions inside the ‘Trump House’ – with those against the move suggesting that we will do harm to our allies while those for the move repeated the rally cry – “America First!”
Investors/traders reacted immediately……. buyers drew in line bids and moved lower – sellers ramped up hit any bid that was left…. the selling began at just about 10:30 am……as word leaked out and analysts/strategists all weighed in……As the mkts collapsed – suggestions that Trump would reconsider the move in light of the mkts reaction began to take shape……and to that I say –
HAHAHAHAHAHAHAAHA…. that is NOT happening at all…. If you think Donny is going to pull back on this major announcement just because the mkt sells off a bit – think again……Like Jay Powell – Donny will not be led around by the nose when traders on Wall St. throw a hissy fit. Investors will re-assess – and by the way – this announcement did not come out of left field at all…we have been having this discussion since the Presidential campaign began back in early 2016 and in fact – it was one of the pillars of Donny’s campaign platform (MAGA)….so for anyone to say they got blindsided – think again…. The possibility was always out there – now if you made investment decisions assuming it would never happen – then now is the time to reconsider that decision……
The losses yesterday have now once again taken the Dow into negative territory for the year…and leaves the S&P barely positive, while the Nasdaq remains up 4% ytd. Now the other chatter yesterday was that these tariffs will ignite inflation – because the ‘levies will likely push the price of goods higher’ and while that may be true – that is not the type of inflation that Jay Powell is concerned about at all….he is much more concerned about organic inflation that has been birthed by a decade of negative to near zero interest rates……an inflation that once it rears its ugly head will surge up and thru 2% on its way to 5% or 6% or higher…..It’s an inflation that we haven’t seen since the late 70’s.
Additionally the concern that these tariffs will spark a trade war among the world’s nations….caused all kinds of speculation about who would do what when……In the end – let’s just see how this plays out…….Many of the big industrial names took it on the chin…BA lost 3.5%, TXT – 2.7%, GM lost 4%, F – 3%, GD lost 1.5%, HXL gave up 2% and the broader industrial ETF – XLI gave back 2% on the day…… all while the steel makers surged on the news…..US Steel – X + 5.7%, USAP + 7%, AKS + 9%, NUE + 3.5% and CMC rallied by 5%.
Now in the background was Fed Chair Jay Powell…..opining on the state of the economy to the Senate Banking Committee…..saying that inflation was not a concern (yet) but investors/traders are not sure they are buying that at all….so it was a ‘shoot first ask questions later’ mentality….as the focus is now on next week’s NFP report (Non-Farm Payroll) to see not only how many jobs were created last month but what are employers having to pay those employees….Will we see ‘WAGE PRESSURES’ in that report? And until we have a clearer picture on that – the anxiety in the mkts will continue as we approach the 3% yield on 10 yr treasuries…. Will 3% be the big bad boogeyman or are the mkts ‘ok’ with it now?
The VIX index (fear index) as you can imagine surged 13% yesterday on all of this turmoil….and this morning it is up another 7% at 6 am……S&P Futures are down 17 pts while Dow futures point to a triple digit loss on the opening…..as investors/traders get in the shower and prepare for another day….……Intermediate support – which we breached yesterday afternoon – is 2665…and if futures do not recover before 9:30 am…then we will slice right thru support and then look to test the 200 dma again….and that number is 2560 on the S&P or just about 110 pts lower from last nights close…..Again – once we slice thru support -then risk management systems that react to technical breaches will kick into high gear and the move lower could be swift……now remember – it’s not that there are no buyers – there are plenty of buyers – they too have risk management software programs that will also re-define the risk causing them to draw in line bids only to bid lower….and this is how the mkt works……it is a pricing mechanism and prices today will very different than they were only days ago…..
Overnight – global mkts convulsed as well…. on the back of the steel tariffs… Now non-US global steel makers all got kicked in the gut as investors assess the damage that will be done to them if Donny moves ahead with this plan….and there is no indication that he will not – (just FYI) and while the steel industry is not the be all end all of industries – the negative tone is permeating mkt sentiment………toss in the fact that BoJ Governor Kuroda announced that he too is considering withdrawing stimulus if Japan hits their inflation target…..which only served to have investors there run for the exits as well. Japan – 2.5%, Hong Kong – 1.5%, China – 0.81% and ASX – 0.74%.
European mkts are mad as hell….and are all trading lower….as these tariffs are raising fears of a potential trade war with the EU……The EC (European Commission) plans on going to the WTO (World Trade Organization) to protest loudly…….and if they don’t get anywhere with them – then the fear is that other countries will impose tariffs on products that are imported to the US causing US consumers to PAY UP. Later today – UK PM Terry May is due to discuss her vision on what the new relationship will look like between the UK and the EU (European Union). FTSE – 1%, CAC 40 -1.88%., DAX -2.21%, EUROSTOXX -1.80%, SPAIN -1.67% and ITALY -2.23%.
The dollar index – DXY – is a bit lower on all this drama….it also did hit resistance at 90.54 and is now down 0.41 at 89.94….
OIL – is off by 11 cts at $60.88…. Intermediate support for oil is at $58.71/barrel…. And with all the turmoil it feels like it wants to test that.
Gold is rallying – now up $17 at $1,322…. fear of a trade war is what’s behind the move……US imposed tariffs and the resulting retaliation against America by other nations would be a negative for the dollar which will be a net positive for gold. Resistance is right here at $1,325…if we pierce up and thru then watch as gold moves back to the $1,350/$1,360 range.
There is not eco data today of any real significance. – so, expect more discussion about the coming conflict over global trade….
Take good care – Have a good weekend….
With the nor ‘Easter slamming the east coast and the mkts under pressure – it feels like a soup day…. try this one – won’t you?
For this you need:
1 lbs of sweet sausage, garlic, onions, olive oil, chicken stock, white wine, 1 can of tomato sauce (you know those med sized Contadina brand cans…not crushed tomatoes or whole tomatoes – you want the tomato sauce), and a box of ditalini pasta.
Begin by adding olive oil to a large pot and sauté the garlic and onions until soft and translucent. Now add the sausage meat – out of the casing…. break it up with you the back of the wooden spoon….and brown nicely. Season with just a bit of s&p.
When it is all browned – add the tomato sauce and stir, now add one cup of white wine and let it come to a boil and burn off the alcohol….3 mins or so, next add the chicken stock – enough to cover the sausage and then some…. You are making soup right, so make soup.
Bring to a boil and then turn down to simmer for 15 mins.
Fill a second pot of salted water and bring to a rolling boil – add the pasta and cook for 5 mins – leaving it hard but not raw…. now strain and add the pasta directly into the soup and stir – let it cook for 4 more mins and bang – it’s done. Serve with grated cheese and some toasted garlic bread.
Simple comfort food.
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