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Things you should know.

  • Big week for earnings
  • Mkts settle for 25 bps     cut
  • Iran and the UK – get     into a fight over oil tankers

 Stocks continued to churn all week last week – bouncing between a high of 3017 and a low 2976 as investors/traders and algo’s interpreted the macro news, the earnings news and the latest FED news…..Complete confusion last Thursday and Friday when NY Fed President (and vice chair of the rate setting committee)  Johnny Williams and  FED Vice Chair Ricky Clarida disrupted the mkts and the confused the conversation with comments they BOTH made – that they both swear were not supposed to be indicative of potential FED policy moves next week – but comments that the algo’s took on face value, comments that while interesting in fact were not indicative of any change of heart by the FED – but again – the confusion speaks to the inability of artificial intelligence (that run the algo’s) to really understand the tone and the message.   And let’s be serious – Of course the mkt is going to hang on every word – given the timing of this speech – just 10 days before the meeting and only 1 Day before the ‘quiet period’ – a period that closes the door on any more FED speak until July 31st

 So on Thursday – when both men spoke – the algo’s went wild assuming now that the next move by the FED will be a 50 bps CUT in rates vs. the 25 bps expectation……..stocks surged around the world – until they didn’t…..Until the FED clarified those comments on Friday – saying that while they are prepared to cut rates to sustain the US and global economy,  they are not prepared to SLASH rates… the surge in the mkts seen on Thursday was met with a decline on Friday.  By end of day – the Dow gave back 69 pts or 0.25%, the S&P fell by 18 pts or 0.62%, the Nasdaq fell by 61 pts or 0.74% and the Russell lost 8 pts or 0.50%. 

 Which brings up the next question and one that so many have been asking for weeks now…..Do we REALLY need a rate cut?  And while we all know that the FED can cut rates, we must ask do they NEED to cut rates? (Well they do now because they told the world it was coming)   Now, by now – it is clear – the mkt is demanding it and the algo’s and traders are demanding 50 bps (just fyi)  – but just because they are demanding it – Just because the trader types and algo’s are stamping their feet  – Does it really mean that it is necessary?  Because remember 10th grade science class – ‘For every action there is a reaction, you can never do one thing’. 

 How can we have deleveraging in a weaker interest rate environment? In fact – lower rates will only encourage more leverage…..  Lower rates will force equity valuations to rise so how can we prevent the asset bubbles that are sure to build as they cut rates in a strong, health economy?  Bingo – there is the problem….Is it a strong healthy economy or isn’t’ it?  I mean where is the weakness?  So the argument is there may not be weakness right now, but there could be weakness 18 months out……and thus the issue…….So do we stimulate now to prevent that slowdown?   As we discussed last week – the macro data has NOT been horrendous at all, in fact – some of the data points were showing strength during the Powell testimony, testimony where he declared that the economy was weakening…Payrolls are strong, Retail Sales were off the charts, GDP is healthy, PPI and CPI were better and manufacturing is in fact improving….so why are we cutting?  To weaken the dollar,  pacify the President or because there really is weakness ahead?  Look – there are a lot of analysts in the ‘slower/weaker global economy camp’  that are suggesting will expose the US to a bigger slowdown……thus the need to cut……Hmmmmm –   We are about to find out….

 Over the  weekend – there wasn’t any trade news, but there was a fair amount of geo-political news that is sure to cause angst in the oil mkts….On Friday the Iranians started to cause an issue with a British oil tanker and then on Saturday – the Iranians seized that British oil tanker in the strait of Hormuz……in apparent retaliation of the seizure of an Iranian oil tanker by the Brits earlier last week….and this is causing the conversation to turn to supply disruptions in a route that sees 20% of the world’s oil supply flow through.   Video of Iranian military rappelling down a rope onto the British tanker have taken over the airwaves and the internet and this is causing global oil mkts to surge.  (  That ship has now been re-flagged – as the British flag was removed and replaced by the Iranian flag….

 Add in a decline in Saudi crude shipments and you have an oil mkt that is surging…. Currently up 1.5% – at $56.50/barrel.   Now in the bigger scheme of things – a 1.5% move is fairly muted considering that oil is now down 15% since the April highs……Watch how the Brits respond to figure out the next move…..continued angst will certainly see oil move up and thru the trendlines again…..while any easing of tensions will see it test lower.  We remain in the  $55/$65 range. 

 Trading in Asia – saw those mkts trade lower – it’s the usual story….concerns on trade, earnings and now Iran and the UK.  In China – a new Nasdaq style Tech platform – called STAR – surged as demand for those ‘home grown technology and healthcare firms’ way outstripped supply sending valuations well above what would be considered ‘normal or reasonable’.  More to follow as this bold attempt at capital mkt reform takes hold.  By the end of the day – Japan -0.23%, Hong Kong – 1.37%, China -0.69% and the ASX -0.14%.   

 Trading in Europe is seeing those mkts move higher… investors there consider only a 25 bps cut by the FED.   The UK is voting for a new PM today and the polls will close at 5 pm UK time or noon on the east coast.  Boris Johnson appears to be the frontrunner but Jeremy Hunt is not giving up just yet…..Whoever wins tonight – will take office on Wednesday morning.  From a political perspective – Johnson supports a BREXIT by October 31st while Hunt prefers to delay any withdrawal process to negotiate the right deal.  FTSE +0.40%, CAC 40 + 0.22%, DAX + 0.24%, EUROSTOXX +0.26%, SPAIN +0.24% AND ITALY +0.09%.

 US Futs are slightly higher…. Dow futures point up 40, the S&P is ahead by 5, Nasdaq is up 34 and the Russell is up 5 pts.  The mkt appears to be ok with the lesser cut (or actually the expected cut all along – the greater cut was never really an option – so the mkt is just regrouping).  It’s a big week for earnings – and the FAANG names are all due to report along with 140+ other S&P names…so it’s a big week.  Of the 75 S&P names already reported – more than 78% of them have beaten the estimates – (we talked about this – the bar is VERY LOW – look for that number to pierce 80% or better by end of season).   I still believe that we are in the 2975/3000 range as we move thru earnings…the FED cut has already been priced in – so don’t look for a surge from that unless the Fed makes it abundantly clear that another 25 bps cut is in the cards for September…..I think they remain neutral for September – but time will tell. 

 Tech firms are meeting in DC today to discuss the Huawei blacklist – so expect to see even more action as that discussion become public.  China and the US trade officials are suggesting a new meeting is only weeks away…..

 Take good care.


Summer Shepherds Salad

 This is easy to make and works well with any summer dish.

 For this you need – Cherry tomatoes (sliced in half), cucumbers, red onions, avocado,  feta cheese, a splash of olive oil and s&p.

 Cut the cucumbers in half and then in half again. Now slice into small bite size pieces.  Mix the sliced tomatoes, cucumber and dices red onion.  Add in the sliced avocado.  Season with s&p and a splash of olive oil  Now add in the crumbled feta and place in the fridge.  Remove 10 mins before you want to eat it.

Buon Appetito

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