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Monday July 1, 2019

Things you need to know

  • US and China agree to move forward
  • Saudi, Russia and Iraq agree to extend production cuts 6-9 months
  • Oil surges up and thru resistance (no surprise)
  • Global mkts celebrate

Celebrate good times – Come On!  Stocks ended the month, qtr and 1st have of the year in a good place…in fact, it was the best first half since the last century….1997 to be exact….with the Dow up 14%, the S&P tacked on 17%, the Nasdaq surged higher by 20% and the Russell gained 16%.   The idea of a US/China trade deal being the main focus for the mkts and then the about face taken by the FED – giving some the idea that a rate cut is up next vs. a rate increase.  FED Fund futures are betting (100%) that we will see a 50 bps cut in July – while the talking heads (FED members) are trying to manage that expectation and talk traders off the edge.  Recall that last week – St Louis’s Jimmy Bullard (who had been calling for 50 pt cut) did an about face and is now supporting only a 25 bps cut (he is a NON VOTING MEMBER) so his while he talks a lot – he does not have any real say in the vote.  And then FED Chair Jay Powell went so far as to suggest that maybe ‘no rate cut was in order’ which sent the mkts into a bit of tailspin for a day or so – until that was just dismissed by the mkts.    Weak global economic data and falling treasury yields did little to slow the advance over the month/qtr – in fact 10 yr treasuries closed out the qtr at 2%……or a 50 bps drop from where they were at the end of the last qtr.

Oil and energy names – which had underperformed for the first 5 months of the year, found new life in June – as the geo-political drama heated up across the Middle East – with Iran taking center stage as the pressure of ongoing sanctions mounts on them and their economy.  Disruptions in oil production across some of the oil producing states and supply cuts dictated by OPEC and the Russians have all helped to stabilize oil giving it new life to surge ahead.  As of Friday – Oil had gained 17% since the lows of May/June leaving it just kissing all 3 trendlines – converging at $59.50/barrel.  The recent attempts at piercing resistance have caused some struggle – but I have made it abundantly clear that the next attempt would be successful causing oil to surge up and thru – and when it does-  we could see oil race to the $65/barrel range in short order.

Over the weekend – a couple of things happened….and they are all good.  Donny and Xi Xi – shook hands and kissed the babies…and while there is no deal – there is a path forward – there was some compromise and movement on both sides and this is what the mkt wanted to and needed to see.  No new levies (tariffs) from either side and Donny is allowing US firms to once again do some business with Huawei Technologies – the firm that Trump had blacklisted and labeled a National Security Threat. Apparently there are plenty of hurdles to meet before it just ‘game on’ so before we start panning this agreement – let’s just see how it plays out.  But FL Senator Marco Rubio (Republican Pres candidate 2024)  wasted no time – taking to Twitter to say that  “any concession on Huawei will destroy credibility of the administration”.

So don’t get lulled into a state of euphoria just yet…..while the talks are on – there are still plenty of obstacles ahead as both sides will now have to take this back home and appease the troops.  Chinese officials remain skeptical of Trumps motives while both Republicans and Democrats here at home worry that he (Trump) may give up too much in the end as we move in the next gear of the election cycle.

Next up – The Saudi’s, the Russians and the Iraqi’s  agreed to EXTEND the current oil supply production ‘limits’ for another 6 – 9 months (expected)  – a decision that will be made formal today when they meet in Vienna, Austria.  This headline caused oil to surge UP AND THRU $59.50 overnight – trading as high as $60.10 before settling down – a 3.2%  move higher and one that should surprise NO ONE.  Watch the energy names benefit today – as the XLE should continue its recent advance – having moved up 8% from the May/June lows as oil firmed up.  Today’s surge in crude will cause energy and the broader mkts to celebrate.

Gold – is another commodity that struggled for most of the qtr – but found real support in the past 2 weeks as tensions flared across the Gulf of Oman and the Strait of Hormuz – after Iran blew up a couple of oil tankers and then shot an unmanned US drone out of the sky causing President Trump to wonder out loud and on Twitter what was next.  Talk of a retaliatory strike on some Iranian assets raised the temperature in the room – and that caused the ‘flight to safety’ trade – as investors went all in on gold – taking it up and thru resistance at $1310 – to settle at $1400 before the end of the month. (a 12% move in just 3 weeks)  This morning with tensions calming in the Mid-East and a handshake at the G20 between the US and China  – we see gold backing off – as the trader types ring the cash register.  This morning – Gold is down $21 at $1,392/oz.

So if you watched my appearance on Squawk on the Street on  CNBC last Friday morning – – Wilfred Frost – asked me what the mkt needed to see this weekend – and I said it just needs to see movement, it wants to know that there is a path forward – and BOOM!  That is exactly what we got – a path forward.

– and investors around the world are voting with their trading accounts….Asian mkts soared overnight with Japan and China both up better than 2%…

This morning in Europe – investors there are also breaking open the bank and sending stocks surging…..all of the developed mkts are in the green as investors are feeling a bit more settled after the G20.  Photos of both Trump and Xi Xi – beaming, shaking hands and patting each on the back were all the rage this weekend and then the surprise visit by Trump to demilitarized zone (DMZ) between South and North Korea only added to the ‘feel good mood’ as he tries to cool the simmering tensions in that part of the world.  This historic ‘step’ over the line and into NK by a sitting US President was a sight seen round the world and one that caught most people by surprise and while this did not solve anything – it’s all about the optics, in fact – all of the drama this weekend is about the ‘optics’.

Today marks the 22nd anniversary of the handover of Hong Kong.  (Another 1997 event) – the handover that released HK from British rule and placed them back under Chinese rule.  And while Xi Xi promised ‘One country, two systems’ – the recent uprisings in HK suggest that “One country, two systems’ may be more of a pipe dream.  

Eco data today includes:  Markit US Manf PMI – exp of 50.1, ISM Manf – exp of 51.0, ISM New Orders – exp of 52.5 (all bullish – but you can argue they are approaching neutral).  Wednesday is a ½ day for the mkts (close at 1pm) in preparation for the July 4th holiday.   Friday – brings us the monthly NFP (Non-Farm Payrolls) report – exp of +160k jobs  (ADP expects +140k new jobs) .  I suspect today and tomorrow to be the busiest days this week -as so many will extend the holiday and make it a 4 day weekend.

US futs are surging in the pre-dawn hours – reflecting what is happening in other mkts around the world.  Dow futs are + 280 pts, S&P + 33 pts, Nasdaq is racing ahead by 130 pts and the Russell is tacking on 14 pts.  As discussed last week – good news over the weekend would cause the mkts to soar and test the next century mark…if all stays the same – we will open near 2970 – putting us just 1% below 3000…..and while we may not get there today – we can expect to move higher if the news continues to be supportive of trade and rates.  But look – the FED may decide that if a deal is in the works – that maybe they can forgo a cut in July and be patient (I also said this in my CNBC appearance)  – this would not be the worst thing at all…..but the mkts first reaction may be one of disappointment – as the algo’s throw a fit….do not make an emotional decision….

Take good care.


So I gave you the Short Rib Burgers on Friday to make for July 4th – so today try the Mussels/Clams Posillipo

This recipe comes to us from the suburbs of Naples – Posillipo is a well to do suburb of Naples; it was built during the 19th century by the very affluent –  high on a bluff with a view of that famous Bay of Naples.   Posillipo is a recipe that you can use for both clams or mussels –

You need: Mussels & Clams…..3 doz…thoroughly washed of any sand.  White wine, Clam juice, garlic, olive oil, s&p, 1  28 oz can of imported Italian Plum tomatoes -(Not in Puree), Fresh Basil

In a pot – heat the olive oil and sauté the garlic – until lightly browned – do not burn.

Add 1 ½ c of dry white wine – nothing fruity – stir and let come to a boil – after about 2 mins…rough crush the tomatoes and add to pot with the juice.

(When you rough crush – you literally crush them in your hand – over a bowl to catch the juice. – you can also use the blender – but do it quick – do not puree) Add enough of the tomatoes to give it some substance and color – you do not need to add the whole can if you are not serving it over linguine.

Add the small bottle of clam juice and fresh basil leaves.  Season with s&p. Turn heat down to simmer and cook for about 15 mins or so.  Now add the mussels & Clams to the pot and cover tightly.  Cook until the shells open – should be maybe 8 to 10 mins more…..Discard any  that refuse to open.

Present this dish in a large bowl with the mussels & clams  bathing in the Posillipo sauce.  This dish demands toasted garlic bread to dip in the sauce.

Buon Appetito.