Things you need to know
- European mkts re-group and consider even more stimulus from the ECB
- FED backed into a corner – must cut next week (Whether we need it or not)
- Oil remains stuck in the $55/$58 range – no matter the tensions in the mid-east
OK – so here is how yesterday started…..at 7:45 am…ECB (European Central Bank) President Mario Draghi lays it out…..essentially saying that ‘ the risk of a recession is low but we ARE lowering rates – just not yet” (KEY interest rates in the EZ is ALREADY NEGATIVE at -0.04%) ….. while at the same time saying
“ We are determined to act” and “a significant degree of monetary stimulus is needed and the outlook is getting worse and worse” and “Basically we don’t like what we see on the inflation front”
Which leads you to ask – WHAT ARE YOU WAITING FOR? You keep telling us the EZ economy is struggling, you point out all of the macro data is weakening, you tell us that you are prepared to ‘insulate the wobbling EZ (Eurozone) economy from global headwinds’ and of the need to stimulate and then you have the opportunity to serve up that stimulation and you do what? You sit back and say – we’re continuing to watch the data points? You tell us that it is getting worse and worse yet you sit still yesterday and assure the mkts that the easing will come in September? And then you want to know why the mkts sold off. European mkts which had been up prior to the announcement ended the day lower and US stocks which were up in the pre-mkt ended the day in negative territory. Dow lost 128 pts or 0.47%, the S&P gave up 16 pts or 0.53%, the Nasdaq coughed up 83 pts or 1% and the Russell feel by 19 pts or 1.2%.
While he may have said all of the right things – traders and the algo’s wanted to see action, not words. Which is exactly why the FED is backed into a corner….First they have telegraphed that a rate cut IS coming in July and Second – the ECB’s latest statement puts even more pressure on the FED to act…..so, if the FED doesn’t follow up with action next week – watch how fast the algo’s punish the FED chair and the mkts…..(I am not be any stretch saying that the FED won’t cut, I’m just pointing out why he is trapped and now has no choice but to cut)
Now what the mkts are focusing on today is the idea that not only will the ECB act on September 12th but the expectation now is that it will be a suite of stimulation…..a rate cut, more QE (Quantitative Easing), that’s the ‘bond buying program and in what is now becoming the talk of the town…..possible equity purchases (now that is NOT happening just yet – but it is now on the table to consider) ….see the CNBC article yesterday
And that then creates a whole new conversation about the role of any central bank and how investors/traders and algo’s should prepare (talk about a floor under equity prices!)…in fact another very good article appeared in the FT (Financial Times) on Wednesday…..
So while both European and US equity mkts ended the day lower yesterday – this morning the tone has changed once again as investors/traders and algo’s consider the implications of what’s next.
Now Asian mkts sold off on the news…..on the fact that the ECB did not cut rates and now the fear that the FED will not be as dovish as some have expected (headlines report it as ‘less aggressive’) ….yes – the FED will cut rates next week, but what will they do going forward? Will FED Chair Powell lay it out or will he ‘suggest’ that further cuts remain in consideration without defining the schedule and that then means how many rate cuts are we getting? Recall that some people are pricing in as many as 4 cuts over the next 12 months – which would bring brings rates back to 1.5% at a time when the US economy is surging…..others are expecting a total of 3 cuts – which means two more after next week….either way – Asian investors decided to sell stocks going into the weekend. Japan -0.45%, Hong Kong – 0.69%, China +0.19% and ASX -0.36%.
European mkts are flirting higher (for the most part) as European investors consider what’s next for the FED. Individual stocks (and sectors) continue to react to earnings as mkts prepare for the US/China trade talks next week. FTSE + 0.58%, CAC 40 + 0.48%, DAX + 0.32%, EUROSTOXX +0.33%, SPAIN -0.68% and ITALY -0.34%.
US futs are up……taking back some of what they lost yesterday. Early indications – fed by a rash of better than expected earnings helping to turn the tone positive early on. Dow futs are + 58 pts. S&P +10 pts, Nasdaq +69 (even with the AMZN miss) and the Russell is up 3 pts.
Of the 8 companies that have already reported today – 6 of them (75%) beat the estimates. ( in line with the trend).
Eco data today includes the first peak at 2nd Qtr GDP. Expectations are for it to show +1.8% (annualized) which is down from the 1st Q rate of +3.1% (annualized) . Now here is the issue with this report today……If it surprises in either direction – you may see an exaggerated move in the mkts. A strong number (better than a 2 handle) will weaken the argument for continued FED easing – which the mkt has priced in and is expecting – causing the algo’s to throw a temper tantrum. A weaker number (less than 1.5%) will only strengthen the argument for continue FED easing causing stocks to remain positive. (think bad news is good news).
Oil – while up 46 cts today has remained in the $55/$58 range all during this past week as tensions in the Mid-East remain elevated – yet as discussed it has not spiked the way it would have only 3 or 4 yrs ago. Talk of weakening demand due to US/China trade continues to be a source of concern – but again my guess is it is NOT a demand issue – it’s a supply issue – and the world is awash in the stuff. It is struggling to break up and thru trendline resistance yet again so expect to hear from the Saudi’s any day now!
Take good care – Have a great weekend.
Chicken & Sweet Sausage w/Sweet Vinegar Peppers
You will need: Thighs & legs, (bone in/skin on), s&p, olive oil, sweet Italian sausage, Vinegar peppers, garlic, white wine, chicken broth, marinated artichoke hearts, thin sliced potatoes, s&p and flour. Total time 1 hr…start to finish….
Preheat oven to 400 degrees – Preheat grill for cooking the sausages
Season chicken pieces with s&p – heat up oil in frying pan – when hot – reduce heat to med/hi – now add chicken and brown on all sides – maybe 10 mins total. While this is cooking – place the sliced potatoes in the baking dish – season with s&p – add a splash of oil. Now remove the chicken from the frying pan and place in the baking dish and put in the oven and continue to cook for about 30 mins….
Next – cook the sausage on the grill – careful not to burn….maybe like 10 mins total….remove from grill and let rest for 3 or 4 mins then cut into bite size pieces. In the meantime – add the chopped garlic to frying pan (that still has the juices and oil from chicken) along with sliced vinegar peppers – sauté. Now add the sausage and some white wine and reduce (5 mins) – next add chicken broth and the artichoke hearts….sauté for another 5 – 8 mins…
In a separate bowl – whisk together some flour and milk (you can use water) and add to the frying pan – allowing it to cook and thicken a bit….do not let it get too thick – you can add a bit of broth if you need to. Remove from the oven and Re-introduce the chicken/potatoes to the frying pan and allow to simmer for 2 or 3 more mins.
Now serve on a large warmed platter family style. Accompany with a large mixed salad dressed in a balsamic vinaigrette dressing. Enjoy your favorite chilled White wine –