Things you need to know.
- Mkts Surge on China data
- US macro data continues to be mixed
- Central banks maintain accommodative stance
Stocks around the world SHOT out of the gate on the first day of April – leaving some to wonder – Was this an April fools joke? China macro data surprised to the upside (setting off this surge) , while Germany cut its growth rate to the lowest level since 2012 – suggesting that things there are not good – yet their mkt rallied into the close as the China news is helpful and the ECB (European Central Bank) has made it abundantly clear that they aren’t going anywhere – which then set US algo’s on fire…..futures were pointing higher in the predawn hours and surged higher once the bell rang and the gov’t gave us a mixed bag of eco data…..weaker retail sales than expected, but stronger manufacturing data and construction spending …. By the end of the day we had seen Asian mkts higher, European mkts higher and US mkts higher…..(A triple play of sorts) – the Dow surged by 1.27%, the S&P added 1.16%, the Nasdaq added 1.29%, the Russell tacked on 1.06% and the star performer of the day? The Transports! They added 235 pts or 2.26% – sending that index surging up and thru it long term resistance – a level that it has been fighting with since early February.
Remember – this global move was driven by one event (and it was NOT about trade)……it was the jump in China manufacturing activity – after circling the drain and hitting its lowest point in 3 years in the month of February….China came out with some upbeat news suggesting that after months of worry – driven by the ongoing trade battle with the US – that just maybe the Chinese economy was on the verge of a rebound….. and BOOM…….now that was something the algo’s were not prepared for at all….and the surprise report was enough to get the party started around the world.
Stocks surged and bonds fell – sending yields soaring – in fact the 10 yr ended the day at 2.496% up from 2.416% – ending that ‘inversion’ with the 3 month treasury bill rate at 2.43%…..(How come no one is discussing this anymore? Last week it was all the rage because it was a negative adding to a negative a story – but when the macro data turns positive – and that negative goes away – you can’t argue it anymore ), All the talk of an imminent implosion – now nothing but a distant memory (for now….). Isn’t it entirely possible that the US economy along with the global economy has shifted into a state of slow and steady? (think of the Tortoise and the Hare….). Now to be fair – the data is still mixed for sure – and manufacturing in Japan and Germany is showing signs of exhaustion (and that does need to turn around)– but now – some are asking – Could China replace Japan and become the ‘Land of the Rising Sun’? (Whoa! Slow down big boy….not so fast).
Financials (XLF) killed it soaring 2.45% on the back of the surge in bond yields – remember that higher yields benefit banks because it boost lending profitability…..the Transports (XTN) ran a close second rising 2.05%, Industrials added 2.05%, Energy (XLE) adding 1.35%, Tech (XLK) +1.39%, Consumer Discretionary (XLY) adding 1.07% (see my discussion of Consumer Discretionary names from Friday’s NBR report on PBS – http://nbr.com/2019/03/29/market-monitor-kenny-polcari/ and the video link at http://nbr.com/2019/03/29/nightly-business-report-march-29-2019/ – fast forward to 20:20 to see the segment). Understandably so – Utilities (XLU) fell by 0.69% and Consumer Staples lost 0.34%. -as they are defensive plays and do better when the tone is RISK OFF vs. RISK ON and yesterday was a RISK ON day…..
Now look – the surge yesterday now leaves the S&P at 2,867, the Dow at 26,258 and the Nasdaq at 7,828 – all at the highest levels seen since the ‘break’ on October 5th……The Russell remains just shy of that level…. But with overall breadth strong yesterday and with industrials, tech, financials and transports all surging – the sense that we’re breaking out cannot be over emphasized…..Yes – the move could take us a bit higher – but I don’t think we are running away just yet……Could we see a push to 2900? Sure…..but I don’t think this time around…..My sense is that they try to push and fail….and stall out right in here….pulling back to find support in the 2840/2850 range as we wait for more news on trade. It is then that I think we rally up to and then pierce 2900 taking us all the way back to the September highs – erasing any memory of the debacle in between.
Overnight as you would expect – the mkts are taking a breather…the Reserve Bank of Australia (RBA) left rates unchanged at 1.%% but is the latest ‘central bank’ to warn of downside risks – RBA Governor Phil Lowe confirmed that inflation remains low but should gradually hit the target (now that sounds like a broken record), that low interest rates continue to support the economy and that the country’s labor mkt is strong – causing wages to grow leaving the ASX ahead by 0.41%. Elsewhere in Asia – most of the mkts took Monday’s move in stride and digested the surge. Japan -0.02%, Hong Kong +0.21%, China -0.07%.
Eurozone PPI was a small miss – coming in at +0.1% vs. the expected +0.2%. and while inflation remains subdued – the ECB is not changing their outlook (which is already one of concern….so instead of getting more concerned – they are just remaining with the status quo….). Construction activity slowed in March sending the Construction and Materials into negative territory. Market centers across the continent taking it all in stride. The UK is no nearer to resolving the BREXIT question and the Parliament failed to get enough votes for an alternative plan vs. PM May’s deal. April 12th is now the new D-Day for the exit – unless of course they extend it to try and resolve the issue. FTSE + 0.73%, CAC 40 + 0.34%, DAX + 0.45%, EUROSTOXX + 0.30%, SPAIN + 0.19% and ITALY + 0.04%.
US Futures are down 2 pts….(which is a WIN considering the surge yesterday). Eco data today includes really only Durable Goods – exp are for negative 1.8% – and with a lack of material mkt moving catalysts between now and Friday’s jobs report, expect the chatter to be about US/China trade negotiations and the bond market. If Treasury yields revisit last week’s lows, stocks will have a hard time holding the strong gains of the last few sessions, but if treasury yields rise and talk about ‘the inversion’ continues to fade we could see that push towards 2900…..Stay tuned…all very exciting.
Take good care
Tuscan Rib Eye…
This is one of my favorite recipes – I got this from my days studying in Florence during my junior year semester abroad (Fall 1981). 20 yrs old – living in Florence…HELLO!!!!
Start with a nice Rib-Eye – always on the bone as the bone provides so much more flavor and makes a nicer presentation for your dinner guests.
You will need: The steaks, 10 cloves of Garlic, Pork fatback, dried rosemary, coarse salt (kosher salt works nicely) and pepper. Remove steaks from fridge – rinse under cold water and pat dry with a paper towel.
Leave on a platter for about 20 mins so that they get to room temp. In a food processor blend the pork fatback, garlic, rosemary to a paste like consistency. Next – wash your hands and massage this mixture into the steaks – taking time to make sure that you have worked the meat and the mixture well. Now season with S&P. Set aside.
Light the grill – heat to high and allow the grill time to heat up – it has to be nice and hot. Place the steaks on the grill and cook for about 5 min/side – depending on thickness – This will result in a med rare steak…so if you add a couple more mins on each side you will get a more cooked center.
Remember though – when you remove the steaks from the grill – you will cover and let them rest for 4 mins allowing them time to continue cooking and allowing for the juice to flow.
Once ready serve immediately on warmed plates. Accompanied by both a starch and a vegetable. Smashed potatoes and peas – along with a mixed green salad with red wine vinaigrette dressing always a good option.
Enjoy this steak with a robust red wine of your choosing.
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