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Monday – July 8th
– NFP Rocks It! US Creates 224k jobs
– Germans report ‘much weaker’ Manf and ‘weaker’ Industrial Production
– FED Chair Jay Powell to address congress on Wed/Thursday
– UK set to elect a new Prime Minister
Stocks managed to close on the highs on the abbreviated session on Wednesday…..as the players – investors, traders, analysts and strategists all got ready to enjoy the holiday with their families –….The eco data that was reported on Wednesday was mixed at best with weakness in ADP job creation, consumer comfort and durable goods – all suggesting that the FED was still on the path to cut rates at the July 30th FOMC (Federal Open Mkt Committee) meeting. By the end of the day – the Dow (finally) closed at a new record high – its first in 9 months – as it added 180 pts or 0.67% – closing at 26,966. The S&P tacked on 22 pts or 0.77% – leaving it just a hair below the next century mark at 2,995, the Nasdaq rose by 61 pt or 0.75% and the Russell surged by 11 pts or 0.74%. – Then there was the holiday….and then it was Friday……
All eyes on the ‘number’….NFP (Non-Farm Payroll) – and after Wednesday dismal ADP report – nerves were frayed – would the gov’t also report a weak number? And if they did – then the conversation would turn to a 50 bps cut at month end……but in fact – the gov’t reported that we created 224k jobs – or 25% more jobs than we were prepared for…and it blew the ADP number out of the water…..and while we can celebrate that news as being good for Americans – it presents a conundrum for the FED. By end of day on Friday the Dow had given up 44 pts, the S&P lost 5 pts, the Nasdaq gave back 8 pts and the Russell advanced by 3.5 pts – as investors try to figure it out – are we getting a cut or not? .
Look – The truce – between the US and China – reached one week ago has clearly given new life to the algo’s and the weaker eco data is almost guaranteeing a rate cut vs. nothing. The 10 yr treasury yield has fallen to a multiyear low of 1.953% as the ‘expectation’ of a cut gets priced in….. and remember it is all about ‘expectations’…..( Wednesday yield is 27% below where it stood in December at 2.684%). Whether the FED actually cuts or not is still up in the air – but the mkt has been pricing it as if it is a ‘fait Accompli’. Weaker eco data that we have been seeing (although – not horrendous), a slowdown in manufacturing along with a range of other data points is sending the smoke signals to DC – but remember – Donny did reach a ‘time out’ with Xi Xi and now the gov’t tells us that job creation is surging……so it would not be out of the question to see the FED just sit back and let this unfold – now you’re right – the meeting is 25 days away (3 weeks) and a lot can happen – the talks could fail (again) or in fact we could actually reach an agreement – and THAT outcome is sure to play a role into what the FED does and how the mkt reacts…..….so while the mkt is expecting a cut – it’s not over, til its over…..
This week is full of FED speak – on Wednesday and Thursday – Fed Chair Jay Powell is due to address congress on the second part of his Humphrey Hawkins testimony – or what is formally known as The Full Employment and Balanced Growth Act – signed into law during the Carter years on October 27, 1978 – it was legislation designed by Congressional Representative Augustus Hawkins and Senator Hubert Humphrey (thus the name) –
The Act is clear – it:
Explicitly states that the federal government will rely primarily on private enterprise to achieve the four goals.
Instructs the government to take reasonable means to balance the budget.
Instructs the government to establish a balance of trade, i.e., to avoid trade surpluses or deficits.
Mandates the Board of Governors of the Federal Reserve to establish a monetary policy that maintains long-run growth, minimizes inflation, and promotes price stability.
Instructs the Board of Governors of the Federal Reserve to transmit a Monetary Policy Report to the Congress twice a year outlining its monetary policy.
Requires the President to set numerical goals for the economy of the next fiscal year in the Economic Report of the President and to suggest policies that will achieve these goals.
Requires the Chairman of the Federal Reserve to connect the monetary policy with the Presidential economic policy. (Wikipedia)
It is a presentation done in February and then again in July and it is testimony that investors pay close attention to and you can bet that they will be paying very close attention this week as Powell delivers his report to congress and expect that this will guide mkts on timing and amplitude of the next move. – considering that all the chatter is ‘Not If’ – but “How much’ the FED will cut at month end…..and like I said above and like I said on Friday morning’s Squawk on the Street (link below) -don’t be so sure that there will a cut at all….FED funds futures were predicting a 100% chance of a 50 bps cut only 2 weeks ago – they are now predicting a 93% chance of a 25 bps cut…..(and you see how the mkt is reacting – right?)
US futs are all suggesting confusion…..on overnight trading Thursday into Friday the S&P pierced the next century – 3000 – and the Dow kissed 27k – and then it all turned after the Germans reported that factory orders were ‘much weaker’ than expected – futs turned lower, Euro mkts turned lower and by end of day the US mkts ended in the red…….and then it was the weekend – time to reconsider the news, ……and again last night – futs were up and then turned lower after Japan and South Korea got into an argument over reparations of ‘forced wartime labor’ on top of curbs imposed by Tokyo on the export of ‘high-tech material’ to South Korea – then toss in the FED question (will he or won’t he) and you see how the algo’s respond……..sending Asian mkts down over 1%……Japan – 0.98%, Hong Kong -1.54%, China – 2.3% and ASX – 1,17%.
This morning in Europe – mkts are following suit – all a bit lower as investors/traders there try to interpret the next move – recent German eco data has been weak and that is creating a bit of angst….As noted above – the UK is set to elect a new Prime Minister – with Boris Johnson and Jeremy Hunt the likely choices. And while the sense is that the ECB and the FED will keep the fire going with ‘accommodative’ rates – the mkts will learn more on Wed/Thursday (or maybe not….) FTSE -0.13%, CAC 40 – 0.25% DAX – 0.26%, EUROSTOXX -0.20%, SPAIN -0.40% and ITALY +0.07%.
US futs are all pointing lower…..Dow futs are off 110 pts, S&P’s are off 11, Nasdaq is giving back 50 pts and the Russell is down by 4 pts. And guess why? Yes sports fans – concern over the next move…..Friday’s data has clearly dampened those expectations and remember it IS all about expectations. On Friday and over the weekend – Xi Xi re-iterated that while he and Donny shook hands and kissed the babies – the fact remains that finding a clear path is still dependent upon some ‘pre-conditions’ that were laid out prior to the meeting last week…..and that is the complete removal of ALL TARIFFS placed on all Chinese goods…and if we don’t comply – then we understand that the talks will ‘go backwards’ once again…..Hmmmm – so while that will cause some of the fluff that was created last week to come out of the mkt – it will support the rate cut that the mkt expects….so expect the mkts to first back off (as it takes out the 2+% or so that it gained last week) before it focusses back on what the rate cut could look like – 25 or 50 bps.
Next up is the start of earnings….and as you have noticed (or maybe not) those forecasts are getting worse by the hour…..80% of the S&P companies have cut ‘expectations’ and now the street analysts are jumping in…..so not to be embarrassed – Now while no one should be surprised that this dance is happening – what they should consider is the pace at which it is happening…..Look – this always happens….because then it makes it easier for the reporting company to ‘beat the estimate’ and give you the optical illusion that things are fine…..they’ll say – “Look at us beating the estimate”!. In the end – it IS earnings (and profits) that drive stock prices – so someone better start paying attn to this fundamental fact and put the trade deal on the side burner……Because in the end – while downward revisions are not unusual – it is the extent of the negative tone that is unusual….and this leaves the long term investor in a position to sit back and wait….look – there is no rush if you have a long term view….you can afford to be patient and let the data and reports play out. Once again – what is also important is the tone of the conference calls – what are these guys (generic term for CEO’s and CFO’s) going to say now? How much of the ongoing trade war is responsible for the cuts in estimates and the guidance going forward?
You can feel the fact that the S&P wants to challenge 3000 – but you can also feel the pressure that the mkt is putting on the FED…..I suspect that we are in the 2950/3000 range until the start of earnings and I also suspect that the path of least resistance is a bit lower right now…..
Oil – which pierced resistance last week at $59.50 setting it up for a surge higher – has in fact done the opposite – which I just think is a head fake – as they try to rattle the branches and see who falls out…..Once again the media is making out that the ongoing trade war and weaker eco data are reasons to dampen demand – sending prices lower – I’m not buying that at all….The EIA (Energy Info Admin) reported a decline of 1 mil barrels of crude on Wednesday….much less than the 5 mil barrels reported by the API (Amer Petroleum Inst) and they are using that as an indicator that demand is weakening……It’s noise…..and while – oil remains just above the $55 level…remember – the Saudi’s, Russia and OPEC will start making more noise any day now and the Iranians have the ability to disrupt the flow of oil…..so as discussed we remain in the $55/$65 range…. Also defined as the Saudi/Trump range…because at $55 dollars the Saudi’s scream and at $65 – Trump screams…..
Take good care
Lemon Basil Swordfish Steaks
Lemon, Basil Marinated Swordfish – This is an easy and delicious summer dish….swordfish steaks are great on the grill and when you present it on a bed of arugula and tomatoes – it is just beautiful. For this you need:
Swordfish, olive oil, fresh lemon juice, chopped basil, chopped mint, chopped garlic (like 2 cloves), s&p…..
Mix the olive oil, fresh lemon juice, chopped basil, chopped mint, chopped garlic and taste to make sure you got it right….now pour half of the mixture over the steaks and let marinate for 30 mins…..
Heat the grill – Now place the steaks on the grill and cook for about 3 mins and then flip (clearly if the steaks are thick – then grill a bit longer).
While the steaks are cooking – prepare the plates with a bed of arugula and sliced – beefsteak tomatoes. Season with s&p, and a squirt of fresh lemon juice. (You can add a splash of balsamic if you like). Now place the grilled swordfish steak on the arugula and serve with your favorite chilled white wine. Simple – yet elegant.
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