Things to know
- US stocks get clobbered
- Uncle Mario (Draghi) slashes growth forecasts and increases stimulus
- Canada & Australia voice their concerns
- Chinese stocks PLUNGE overnight on poor trade figures – casting a pall over global mkts
Stocks get CLOBBERED on Thursday, the S&P traded down to the trendline at 2750 – held – and then got clobbered again….as ECB President Uncle Mario (Draghi) stuns the world – taking out his carving knife and SLASHING his 2019 growth forecast for the EU – taking it from 1.7% to 1.1% and in addition announcing a 3rd stimulus plan that some are calling NEW – but is in fact a repeat of his prior stimulus plans aimed at the banking industry. The plan – enacted during the GFC (Great Financial Crisis) – is known as the ‘Longer-term Refinancing Operations’ and since this is the 3rd round – note the designation at the end! (TLTRO-III). Recall that this plan is a loan program – REALLY low rate loans provided by the ECB to the range of European banks which allows them to lend money to consumers – at low rates – which is supposed to help stimulate the economy. (Remember this is the 3rrd attempt). He essentially stood up and waved the white flag – in a move that suggests that the European economy is soft! And investors/traders/algo’s are now wondering what this means for the global economy. By the end of the day – the Dow gave back 200 pts or 0.78%, the S&P choked on 22 pts or 0.81% – closing BELOW the 2750 trendline that I pointed out as KEY, the Nasdaq fell 84 pts or 1.13%, while the Transports and the Russell Small Cap/Mid Cap indexes lost 99 pts or 0.96% and 13 pts or 0.86% respectively.
It was an ugly day for sure – it wasn’t panic, it was just ugly – Financials – XLF – falling 1%, Energy – XLE falling 0.60%, Tech – XLK losing 0.95%, Retail – XRT falling 1.4%, Healthcare – XLV -0.79%, Consumer Discretionary – losing 1.2%, but you know what outperformed? Utes! Utilities stocks – XLU surged by 0.33%….did you read my note from Wednesday when I told you to watch the Utes! They were like the canary in the coal mine – suggesting that ‘something was amiss’.
Remember – when the mkts began to unravel in October – US Fed Chair Jay Powell had a change of heart – announcing that the FED would move from drive to neutral as they assessed the macro data in the months ahead as the mkt and the industry expressed concerns about the speed and pace of normalization – taking the 3 (or 4) expected rate hikes OFF the table…… and NOW Draghi tosses in the towel admitting near defeat…….. and if that announcement wasn’t enough – recall that the BoC (Bank of Canada) expressed concerns late Wednesday as well – saying that there was ‘increased uncertainty’ over future rate hikes (think concern about growth) as the Australians revealed that their economy grew by only 0.2% in the 4th qtr. And so sports fans – the slowdown that some have been talking about appears to be more fact than fiction.
And overnight – Asian stocks come under pressure…….Japan -2%, Hong Kong – 1.9%, China -4% and ASX -0.96%. China chimes in – reporting trade figures that missed the estimates….Chinese exports fell by 20.7% (vs. the exp 4.8%) and Imports fell by 5.2% (vs. the exp 1.4%). Their trade surplus? That was $4.12 bil vs. the expectation of $26.38 bil – all of this as the trade war rages on…….Now Asian analysts tried to put ‘lipstick’ on this report – saying that while the mkt may be disappointed – the negative number should NOT be a surprise because we’ve been talking about a slowdown in China for months now and btw – don’t forget the week long Chinese new year holiday –The Year of the PIG – and what effect that had on the economy (think seasonal distortion).
In addition – a bearish call on a STATE OWNED Insurer delivered by an analyst at a STATE OWNED brokerage is being seen as a signal – a signal that the gov’t wants the 2019 rally to cool off – The gov’t controls both the state owned insurer and the state owned brokerage – (Chinese stocks were up 30% ytd – adding some $2 Tril of value – but have given back 10% in the last week.) And the algo’s had a field day – The Shanghai Composite Index plummeted by 4% overnight as the algo’s initiated sell order after sell order in a frenzy that feeds on itself…..by the end of the day in Asia – Chinese– stocks lost some $345 bil all while YOU were sleeping.
Zhu Junchun – analyst at Lainxun Securities summed it up this way –
“It’s about time that stocks took a pause, as regulators are increasingly concerned by a market that’s growing fanatic. While authorities want an active market, they don’t want one that overactive.”
In Europe – mkts there are following suit – earlier this morning they were all down about ½% as investors there try to put it in perspective but have since weakened further. The new LTLRO III program is expected to remain in place thru 2020 and near zero interest rates are here to stay for now. Some are suggesting that the ECB is trying to get ahead of the curve …..Hmmmmm – it appears that maybe the ECB missed that opportunity and is now behind the curve – either way – Monetary policy alone will not solve this issue – so gov’t better start to initiate sound fiscal policy initiatives to combat the drivers of the slowdown. Adding to the concern today is the lack of movement on BREXIT and what that means for next weeks vote. FTSE -0.91%, CAC 40 – 0.47%, DAX – 0.62%, EUROSTOXX – 0.60%, SPAIN -0.96% and ITALY -0.95%.
US futures are under the gun again…..Dow futures are off 97 pts, S&P down 10, Nasdaq is off by 45 and the Russell is lower by 5 pts….as investors here in the US digest the latest negative tone around the world. Eco data today includes – the Non-Farm Payroll Report (NFP) – exp of +180k jobs, Housing Starts m/m of +11%, Building Permits -2.9% (that is a mixed bag of data between those two reports) Unemployment rate of 3.9% and Avg Hourly Earnings of +0.3% m/m or +3.3% y/y.
The mkt selloff that we have been talking about this week appears to be alive and well. – Yesterday’s S&P break of 2750 now sets us up for a move to at least 2700 ish….with the next trendline support at 2680. While negative sentiment is not super elevated – this pullback will cause concern and that will feed on itself – but overall mkt breadth still feels ok and will likely allow buyers to stay close as they look for opportunities in names that have once again gotten unnecessarily beaten up. Don’t rush into buy stocks just yet…let this play out – it is Friday – so you could get a weekend flush as the day comes to a close – watch how the European mkts close – will they be sloppy like the Asian mkts were? And if so – we can expect that sloppiness to wash across our mkts as the 4 pm bell rings. Just sayin….
Have good weekend. Take good care.
Roast Duck, Moo Shu Pork, Grand Marnier Shrimp
In light of all the Chinese chatter –
Take your spouse or partner out for a great Chinese dinner.
General Tso’s, Moo Shu Pork, Grand Marnier Jumbo Shrimp, Roast Duck, Shredded Beef Szechuan Style, are all great dishes.
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