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Things you need to know

  • Rumor has it that ‘this     time will be different for trade talks’
  • Today’s NFP report and     Fed Powell speech will be the catalysts
  • UK’s Johnson under     pressure (hate when that happens)

 Stocks exploded higher on the news that the US and China have apparently put an October date on the calendar to have another discussion over trade…..Well, ok…..that was just one piece of the puzzle and really – what is new about that?  We have been expecting a meeting – Trump has all but told us that the Chinese keep calling to ‘schedule a date’ and in the end – what does that really tell us?  There is absolutely nothing new, there is no new agreement, and there is no sense of clarity at all – and the algo’s went wild Why?  Because they don’t know any better…all they know is that a meeting should be a positive (but is it?)  How many other meetings over the past 18 months have resulted in a BIG NOTHING DONE?   Recall the “we are 90% there” comment by Stevey Mnuchin back in June when the mkt lost a quick 2% over the trade confusion – causing the mkts to re-group on the idea that ‘hope is alive’. 

 So, let’s not overthink this just yet….I mean – Yes – Trump needs to settle this soon or he risks a blowup next year…..I mean he has pushed this hard (and rightly so) but if Xi Xi doesn’t play with him in the playground then you can be sure that this will become an election cycle issue for sure…..BTW – isn’t it interesting that so far the trade war has not been an issue that the Dems are using against him – and why?  Because they know he is right, that the current trade agreements need to be re-written, that China has in fact had the better end of the stick…..and secretly – they are hoping that China decides to wait it out – because chances are that NO Deal produces a win for them in November 2020……And we know, and it has been discussed that this is a strategy that the Chinese could employ to put pressure on Trump to back off a bit….and the clock ticks…..

The other pieces of the puzzle  were all about the macro data points …… ADP employment number blew it out of the water at +195k jobs vs. the exp of +148k jobs.  Markit US Services PMI came in at 50.7 (exp was 50.9) – Composite PMI was 50.7 as well (exp was 50.9) – both a tad weaker, Factory orders came in at +1.4% (exp was 1%) better, Orders EX transports at +0.3% (exp of 0%), Durable Good of +2% (exp of +2.1%), Durables EX transports of -0.4% – spot on with expectations,  and ISM Non Manf Survey did blow it out of the water at 56.4 (exp was 54)….and that speaks to the US economy…. Because Non-Manufacturing is just that – NON_MANUFACTURING – which speaks to the Service Sector – defined as retail, hotels, banks, education, health, social work, computer services, recreation, media, electricity, gas and water supply (otherwise known as intangibles)…..…..…..and since the US economy is 80% service – this is a solid number….Now, it is in contrast with the Markit Services report – but either way both are still in expansion mode…..and that is bullish….. US futures were pointing higher in the pre-mkt yesterday and when the opening bell rang – all of the indexes surged…..with the Dow adding more than 450 pts at one point during the day or better than 1.7% before backing off a bit and settling at up 372 pts or 1.4%.  The S&P rallied as much as 1.5% higher before ending the day up 38 pts or 1.3%, Nasdaq added 140 pts or 1.75% and the Russell surged by 26 pts or 1.75% as well. 

 Now I still think that the pending trade talks was the fuel that lit the flame yesterday…….the very thought of coming back to the table rekindled hope that maybe this time would be different…..Even Beijing made comments saying that they were ‘hopeful for substantive progress’ in October – and that sent the algo’s into a frenzy……It was Risk On for stocks and Risk Off for the safety trade….Treasuries sold off – sending yields up, (no more inversion),  Gold ended the day down $35 and is down another $10 this morning… while I do agree that the news yesterday did cause the selling – let’s be clear – Gold has surged by  more than $250 since June – all because of the angst and nervousness created by the trade war – so again – any sign that we are talking will surely cause the trader types to cash in and take some money off the table of a very good trade…. I do think that gold will find support at $1500 (for now) and if trade talks proceed and it appears we are really making new progress then I suspect that Gold will fall back towards $1475 (trendline support) …..any sign that trade talks have failed – will send it back up… we wait…….All very exciting….

 This morning – we see that overnight Asian mkts surged and ended the week on an upbeat… investors there await today’s NFP report and celebrate the idea that the two countries are set to chat again……CNBC runs with a story that says 

 “Reliable China Insiders Hint that this Round of Trade Talks Could Lead to a Breakthrough”

 And that reliable source?  Hu Xijin – Editor in Chief of the Global Times – a division of the People’s Daily….Now you have to chuckle…the article goes onto say that Hu has been ‘spot on’ with his reporting over the escalations in the trade war….going so far to say that he ‘warned about the Chinese retaliation just hours before the official announcement’….. Really?  What am I missing?  Xi Xi – told the world that China was going to retaliate after Trump announced the imposition of new tariffs as of September 1st…..and when September 1st came – China retaliated…..So – Hu did what exactly?   So, in today’s story – Yun Li – points out that in the “1200 word commentary’ (must be like an opinion piece) – Hu Xijin says that “it is very likely there will be new developments in the upcoming trade talks”.  So that settles it…..

Japan +0.54%, Hong Kong + 0.66%, China + 0.59% and ASX +0.52%.

 In Europe – mkts there are mixed at best…..German Ind Production came in at  (-0.6%) – below exp of +0.4% (big miss).  They are also waiting on the US NFP report – but they are also intrigued over the massive breakdown in UK politics….PM Boris Johnson suffering numerous blows to his young administration…..The opposition party denied his request for a SNAP election, he has suffered party defections – the most notable was his own brother – and this morning all of the other parties – Labour, Scottish National, Liberal Democrats, Plaid Cymru and the Independent Group for Change all banded together to ensure that the UK CANNOT exit the EU without a deal by October 31st……Talk of taking a No-Confidence Vote over Johnson’s administration – while very real was not pushed forward just yet – (but where there is smoke there is fire) because while Johnson says he wants a deal – he also said that he is prepared to take the UK out of the EU ‘Do or Die’ by October 31st.     He has until October 19th to secure a deal otherwise recent legislation will force him to request a delay to BREXIT……(so like I said in one of my notes two weeks ago – we can expect that they will kick that can down the road again)   FTSE -0.07%, CAC 40 -0.02%, DAX +0.38%, EUROSTOXX +0.08%, SPAIN +0.06% and ITALY -0.08%.

 US Futures are all higher again  this morning….Dow +63, S&P + 5, Nasdaq +11 and the Russell +3….. Mkts will focus on Eco key events, the Jobs Report exp of  +160K, Unemployment: 3.7%, Wages: +0.3% AND a speech by Fed Chair Powell (12:30 p.m. ET).   Now it feels like the Mo-Mo guys  (momentum) want to take the mkt higher…… extend this week’s rally and close out the week on a positive note……to do this BOTH events need to be “just right” in so much as the job number hits the target and Jay Powell leaves the door WIDE open to more accommodation in September, and beyond.   Any sense that Jay Powell is squirming will cause the algo’s to throw a fit…..and I don’t expect that Powell will disappoint – but I am not a believer that the FED should cut rates at all…..Just sayin’ 

 So yesterday – we broke out and surged up and thru resistance leaving a  gap in the chart….and while they will try to keep pushing we need to wait to hear what Jay says…..Mkt is expecting (98%) that he will cut rates on Sept 18th by 25 bps…..and it is expecting that he will cut again in December…..I think that is a problem, I think he should hold the line and stop appeasing the children….  We are no where near recession and even Ray Dalio of Bridgewater fame – who predicted a 40% chance of a recession in the next 12 months (last week) has already pulled back on that and changed it to a 25% chance….for whatever that is worth….. the services sector is strong, the yield curve has ‘un-inverted’, we are creating jobs, unemployment is at record lows, wages are rising, consumer is strong and inflation is still below 2% …..yes – manufacturing is a bit weak – but you can credit the ongoing trade war for that – so if we get any movement at all on trade – I suspect that manufacturing will rebound……and I still don’t believe that a recession is around the corner…..I’m in the 2021 camp……

Take good care.


 Risotto All’Amarone

 This is one of my favorites and comes to me from the Puglia region of Italy.  This is the region that represents the heel of the boot – halfway up the calf.  It is on the Eastern coast of Italy on the Adriatic Sea.  Lucera – is an ancient city – one that is full of wonder and historical significance.

 For this you will need:  Vialone Nano Rice – similar to Carnaroli but produces a more creamy delicious risotto, Fresh Monte Veronese cheese – this cheese is made from cow’s milk and is produced in Northern part of Verona.  It is thought to be one of the great cheeses of the Lessini mountains.  You will also need: finely chopped onion, butter, beef bone marrow, extra virgin olive oil, beef stock and a ½ bottle of Amarone della Valpolicella.

 Begin by heating up the Amarone. – do not boil – just slowly heat it.

 Bring the beef stock to a boil and then turn to simmer.

 In a separate saucepan, heat the butter, bone marrow and a bit of olive oil, sauté the onion. When the onion gets golden brown, add rice, stir and toast over the heat for several minutes.  Season with s&p.  Slowly add the Amarone – stirring all the time as you add allowing it to absorb in the rice.

 To complete  – add the hot beef stock one ladle at a time.  As it is absorbed add another ladle always stirring with a wooden spoon. Taste and adjust seasoning.  Cook until the rice has absorbed all of the broth and the grain retains it texture – do not cook so much that you make it mushy.  Turn off the heat; add a dollop of butter and the grated Monte Veronese cheese.

 Serve immediately in warmed bowls.  It doesn’t get any better than this!

 Buon Appetito