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  • Apple announcement draws     sellers ( but are they real?)
  • GS follows my lead –     Downplays significance of the inversion
  • FED Fund suggest 1 rate     CUT in ’19 and 2 more in ’20
  • PM May Loses control of     BREXIT

The mkt waffled yesterday – doing nothing dramatic – as the Dow ended the day up 14 pts, the S&P down 2 pts, Nasdaq lost 5 pts and the Russell 2000 gained 7 pts……On the equity side – Apple was the main attraction yesterday as they hosted a star studded event in Cupertino, CA – featuring the likes of Oprah and Steve Carrell –  announcing a new video streaming Apple TV+ service, a new Apple Credit Card (to get you to spend more money on Apple products – like they do at Disney world) –  and while the party was all very exciting for Timmy (Cook) investors weren’t so sure they were blown away….the stock fell by 1.2% yesterday piercing its 200 dma at $190 ending the day at $188.74.  Now again – be careful how you interpret that….Apple was up 39% ytd……and it moved up 7%  last week – ahead of this event….so the small pullback is just traders taking money off the table after the announcement……it is not an indictment of Apple TV or the cc at all…..its about traders ringing the cash register and larger asset managers trading around a core position as they try to create alpha….(trading around a core position means that the asset manager owns say 10 mil shares – of which 8 mil is considered ‘core’ and 2 mil shares they get to play with – so as the stock moves up – they may peel some off – ring the register – and when it moves back down – they may jump back in – all while maintaining the core position of 8 mil shares).

 Yesterday – the ‘other’ talk was all about the inverted yield curve that happened on Friday and what that means for the mkts and the US economy…….By now you must know that the 3 month T-Bill paid more than the 10 yr T-Bond – an action that some say forewarns of a coming recession….well – NOT so much…..and in yesterday’s note – while I pointed out the inversion – I also said  do NOT get drawn into the battle – it’s premature to start raising the red flag…… – it’s when the 2 yr’s and the 10 yrs invert – THEN you’ve got something to be concerned about…..(Currently the yield on the 10 yrs is 2.4% while the yield on the 2 yrs is 2.24%, so it is NOT inverted)

 Overnight our friends at GS re-iterate that very point (must have read my note) ….in a Bloomberg article this morning – “Goldman Joins the Chorus Downplaying Menace of Inverted Yield Curve”  – Goldman Strategist – Alessio Rizzi and Christian Mueller-Glissman had this to say:

 “The proportion of the yield curve that’s inverted isn’t as high as in past recessions, and part of the reason 10 yr yields have slumped can be attributed to dynamics outside the US…American credit spreads also aren’t telegraphing stress. While 10 yr yields fell below 3 month rates for the first time since 2007 on Friday, they remain ABOVE those on 2 yr notes.”

 And the fact that some in the industry want to highlight an inversion of the 3 month/10 yr treasuries is ridiculous….and just to set your mind at ease – if an inversion of the 2’s and 10’s happen – the omen suggests that we would likely go into a recession within the next 18 months…..So while a recession is possible and likely sometime in 2020 – it’s likely not happening today or tomorrow and so much can happen in between so let’s not panic…….

 But the disconnect continued yesterday as the chatter over the inversion continued…..US bond yields continued to fall – reflecting the ‘flight to safety’ trade as investors put more money into the bond mkt at all ends of the curve forcing yields lower across the board and as all yields fall – the spread between them remains so nothing to write home about, it’s when the long end of the curve (10’s and 20’s) fall and the short end of the curve (2’s) do not – that’s when the spreads tighten and the curve inverts.

 Yesterday – The leading role on stage was being played by Fed Fund Futures – which are suggesting that the next move by the FED will be a 25 bps CUT this year and 2 more CUTS in 2020!  And that is a BIG turnaround from the December expectation of 3 rate HIKES in 2019!  Oh boy……my head hurts…And while Jay Powell did do an about face – going into neutral – he did leave the door open to a cut vs. a hike – so this isn’t a dramatic turn of events at all either….in fact – a number of strategists/analysts have been saying it now for a while….but the fact that the Fed Funds Futures mkt is now acting like it’s a done deal – is new…almost becomes a self-fulfilling prophecy – so stay tuned – more to come. 

 Overnight – all the chatter of the yield curve subsided….mkts in Asia rebounded (except China) – Japan rallied 2.1% while Hong Kong and Australia rose by 0.15% and 0.07% – mkts in China continued to fall – ending the day down 1.1%.  Now look – like the US mkts – Asian mkts have had a nice run ytd…..with Japan up 7%, Hong Kong +10%, China UP 23% and The Aussies up 8.5% – so when the chatter turns to inverted yield curves and US rate cuts,  slowing global economy, trouble between the UK and the EU, US/Sino trade etc….then what do you expect?  While an inverted yield curve could cause a US recession (and most likely will in 2020) many analysts still consider the US capital mkts the best positioned for 2019.

 In Europe – mkts there are all higher…. The UK Parliament took control of the Brexit process late yesterday – leaving PM Theresa May in the lurch – but the news is not having a material impact on the European mkts….…… In France  – Eco data confirmed that 4th qtr GDP of +0.3% meant that 2018 annual GDP grew at 1.6% – in line with expectations……and Chinese President Xi Xi – inked 15 commercial deals between the two countries including a $1.1 bil deal for an offshore wind farm for China, 300 Airbus airplanes, $1.2 bil deal for 10 container ships etc…all good….…Other headlines suggesting that ‘recession fears are FADING’  because overnight the US 10 yr yield ROSE to 2.439% – again that’s a bit ridiculous…on Monday yields fall and everyone is screaming…on Tuesday yields rise (slightly) and suddenly talk of recession is nothing but a distant memory?  Do you see how fickle the mkts can be?  Stick with the plan ….FTSE +0.31%, CAC 40 + 0.48%, DAX + 0.07%, EUROSTOXX + 0.29%, SPAIN +0.18% and ITALY +0.21%.

 US Futures are all HIGHER this morning…Dow futs up 161 pts, S&P adding 15 pts, Nasdaq higher by 35 pts and the Russell up 7 pts on guess what?  Receding fears of a recession…  I said on Friday and again yesterday that the S&P was looking for stability at 2800 and apparently found it – while the S&P did close at 2798 – this mornings action suggests an opening around 2807/2810.  My sense is that 2800 will be the floor leaving us in the 2800/2850 trading range. 

 Eco data today includes Housing Starts -exp of -1.6%, Building Permits of -0.9% and the Richmond Fed Survey of 10. 

 Oil continues to trade in a tight range…..WTI up 76 cts at $59.58/barrel as ongoing supply cuts by OPEC and Russia weave their way thru the supply chain……Talk of the inverted US yield curve and the coming ‘economic slowdown’ has supposedly kept a lid on prices from moving much higher.  The idea that recession risks are now at the highest point since 2008 is causing some angst and seeing that global factory output growth came in at 1% last qtr and is looking like it is in stall mode this qtr is not helping the conversation.  All that being said – oil is still up 30% ytd…so not sure how all the talk of an economic slowdown is really causing oil to ‘back off’?  IT’S UP 30% YTD….Capisce?  Doesn’t feel like a slowdown to me – yeah but you say OPEC/Russian cuts are supporting oil and I would say that record US Production is offsetting that…whatever…..…..Now long -term resistance is at $60.83 – it does appear that oil is having trouble getting up and thru there…but if it does – the most likely next stop would be $66.60 or so….or another 10% move higher….I’m still thinking we are in the $55/$60 range for now.

 Gold remains in the $1315/$1330 range driven higher by recession fears and then driven lower by fading fears…..

 Take good care.

 Kp

Rigatoni w/Broccollini & Grilled Sweet Sausage

 This is simple to make – yet makes a great dish when serving family style…Presents well, and goes with any other entrees you make at a summer dinner party…..Broccolini – is a green veggie – similar to broccoli but has smaller flowers, and longer, thinner stalks.  It is a hybrid of broccoli and the Chinese veggie – Kai-Lan.  It is a versatile veggie and one that you can use in numerous dishes.

 You will need:  1 ring of Italian sweet sausage (no fennel), s&p, onion, garlic, olive oil, 3 heads of broccolini and 1 box of Rigatoni pasta.  

 Bring a pot of salted water to a rolling boil and heat the outdoor grill to high. 

 When hot – place the ring of sausage on the grill and lower heat to med low……allow to cook for 4 or 5 mins and then turn and cook other side for 4 / 5 mins….you can flip one more time and cook for another 2 or 3 mins….remove from heat- let stand.

 Next – rinse the broccolini and then slice the stalk and the flowered head into bite size pieces – set aside.

 In a sauté pan – heat up some olive oil, add chopped garlic – 3 or 4 cloves – and sauté….now add 1 large sliced onion and sauté until soft…maybe 3 mins or so..  Now add the broccolini.  Season with s&p, and stir…reduce heat to low and cover – stirring occasionally.   While this is cooking – slice the cooled sausage into bite size pieces and then add to the broccolini mix…..season with s&p and cover again.  Stir occasionally.  

 Bring a pot of salted water to a rolling boil.  Add pasta and boil for 8 mins or so – until aldente.  Strain – saving one mugful of water to remoisten.  Put pasta back in pot – add back ¼ mug of water and stir….now add the Sausage /Broccolini mix and stir.   Add two handfuls of grated Parmegiana cheese and toss.  Present on a platter family style and enjoy.

 Buon Appetito.