Things to know
- ECB announcement this Thursday
- FED next week
- Mkt breaks out of range – all on expectations of more Kool Aid
- UK forces Boris to play nice
So the ride continues – after the surge higher on Thursday …..stocks continued the move towards S&P 3000. On Thursday we broke out of the range that we lived in all summer…..surging up and thru the last resistance trendline (2946) …..in fact – we didn’t even ‘kiss’ it – we just jumped over it leaving a gap between Wednesday’s closing level (2937) to Thursday’s opening level of (2960). And then on Friday morning we got the monthly NFP (Non-Farm Payroll) report and the algo’s loved it – as they initiated more buy orders to celebrate what looked like a weaker than expected NFP report….which showed a gain of only 130k jobs vs. the expected 160k jobs….the assumption is that this ‘weak’ report only solidifies the FED’s next move……by the end of the day the Dow added 70 pts, the S&P rose by 3 pts while the Nasdaq and Russell gave up 13 pts and 5 pts respectively.
.But – the report was not weak at all – according to Larry Kudlow (Director of National Economic Council) as he defended the report suggesting that it was a solid and when averaged out – the rolling monthly gain is still better than 150k jobs…..well within what we need to keep this economy going…..Saying that the August print usually comes in lower and then gets revised higher….but the household survey – which represents smaller and newer businesses exploded……’EXPLODED’…….adding 590k new jobs in the household survey – virtually unprecedented……3rd straight month…..averaging 373k over the last 3 months…..Civilian labor force up 571k – again the 3rd straight month of gains – this details the number of people coming back into the labor force……and all this tells him is that America IS working…..Avg Hrly wages – is up 4.2% over the last 3 months on an annualized basis (that’s bullish) ….he re-iterates that
“this was a ‘blowout report – you just need to look under the hood’.
So look under the hood they did and while this may all be true – investors, traders, analysts and strategists are still expecting the FED to cut rates next week…..but before that happens – we will here from the ECB (European Central Bank) this week…and remember this is Uncle Mario’s (Draghi) last meeting as its President…… he is expected to hand over the reigns to Christine Lagarde (Current IMF – Int’l Monetary Fund – MD) – but he has hinted over the past 4 months that the ECB stands ready to ‘do whatever it takes’ once again to save Europe from another disaster….so here is my take…..
The mkt is EXPECTING both of these rate cuts. They are expecting Uncle Mario to announce some sort of hyper stimulus package that includes both cutting rates and restarting some level of QE – Quantitative Easing – (because he has hinted of such) to boost the European economy and to leave his final legacy on the global financial stage….This then will be followed by a US rate cut (which the WH and the mkt is demanding) next week at the FOMC meeting scheduled for September 17/18th……..and so stocks can’t go down right now…..they are being manipulated by excessive global monetary policy decisions…..and so it goes……recall that the move off the March 2009 lows was driven by excessive monetary policy decisions….who is kidding who? Historic low rates, historic negative rates in major developed countries has forced the search for yield and growth for money…..Where else are they going to go?
Now what I find really interesting is that all of this low rates stimulus over the past decade has done little (apparently) to really help the European or Japanese economies. So more of the same is the answer? Look, they never really hit on all cylinders ….Europe never really took off and Japan has been in a death spiral for more than 3 decades……and now we are going to cut rates again? I guess – you can argue that the global economy is a different economy today than the one we lived in – in the last century – so maybe this time it IS different – but that has yet to be proven…..
Now – as you know – I am not a supporter of lower rates in the US and I don’t think that cutting rates and introducing another round of QE in Europe is the right move either – the European economy is not on the brink of collapse at all and the US economy is not on the brink of collapse either…..I mean the brink of collapse was in 2007/2009….the brink of collapse was when we saw BS and LEH fail and then the near failure of Merrill, Wachovia, C, never mind the beating that every single European bank took…..….that brought the country and the world to the very edge of Armageddon……I mean do you remember what it was like? Have we forgotten what actually happened? is that what everyone sees now? Am I missing something?
Maybe it’s the equations we are using that need to be addressed…I mean we are still using equations to define economic activity that we used in the last century, yet so many things have changed – I mean things like the Internet, Amazon, Google, 5G, Wireless communication, smart phones, smart algo’s, smart Tv’s, smart cars, Smart kitchen appliances etc….have all changed the world, yet we still define economic activity by the same standards we did before any of this stuff even existed…..I’m just sayin…..maybe we change the equations! I mean – the Obama administration CHANGED the GDP calculation (June 2015) and look what happened when they did…. The supposed 0.2% contraction in the US economy in the first qtr of 2015 got wiped away and the report showed a small increase…in fact the story went onto say that
“the evidence of flaws in the GDP report has been mounting since 2011. Sometime exaggerations in GDP are dramatic, making it difficult to figure out what’s really going on in the economy. Those flaws can lead to plenty of mischief and misdirection in Washington, too.”
Go Figure! Plenty of mischief and misdirection? Really? Who knew!
Ok – So overnight – Asian mkts were mostly higher as China reports that their exports to the US FELL……pointing to further weakness in their economy – and guess what this did? It raises the prospect of more stimulus to prop up their economy….now this is a direct result of the trade war – so that might be understandable…..but all the more reason for them to come back to the table to resolve this issue….Japan reported a 1.3% jump in GDP – inline with expectations. Hong Kong mkts a bit lower following another weekend of protests….Japan +0.56%, Hong Kong -0.04%, China +0.62% and ASX +0.01%.
European mkts are also mixed……UK is calling an emergency meeting to force UK PM Boris Johnson to play nice…..forcing him to adhere to the law recently passed that will require him to ‘beg’ for an extension from Brussels if no deal is reached prior to October 31st. In addition – mkt participants are waiting cautiously for the ECB announcement on Thursday. FTSE -0.57%, CAC 40 – 0.12%, DAX + 0.29%, EUROSTOXX +0.56%, SPAIN +0.23% and ITALY +0.17%.
US Futs are higher…Dow futs + 54, S&P +10, Nasdaq + 17 and Russell +5. It’s the usual – better feelings toward US/China trade talks – as China did offer to buy more US agricultural products if the US eases up on Huawei and delays increasing tariffs on $250 bil of Chinese imports. Expectations of coming rate cuts from the ECB and the FED……And now that we surged up and thru the last resistance trendline – 3000 now appears to be in the bullseye….just because it is 3000, a nice round number and a psychological barrier to sentiment…..can’t you just see the headlines when we pierce it?
“S&P Back to 2019 Highs – Thanks to the ECB and the FED”
Because again – if we don’t get what the mkt is expecting then we can expect that the algo’s will implode – taking the broader mkt lower…..and by broader I mean the global mkt – since the mkts are so interconnected and ETF’s are more complex and leveraged – and don’t discount the role that these complex, leveraged ETF products will have on the marketplace – whether it’s today or next week or next year…..Can you hear the ticking?
The S&P now has 3000 in its line of sight and with rate cuts coming….I suspect that we will see it this week…now if the ECB disappoints on any level – then that will only put more pressure on the FED to perform…. There are 3 more meetings this year….September, October and December… some people are calling for cuts from all 3 meetings….and if that is the case our rates with be between 1.25% and 1.5% if they cut by 25 bps each time…..The S&P needs to fill the gap it created on Thursday so that is support – the upside – the ytd highs of 3020 ish…..for now.
Oil – is up 34 cts at $56.86/barrel – piercing the 50 dma and attempting to pierce the 200 dma at $56.93……OPEC and the Saudi’s remind us that production cuts will continue after the Saudi’s removed energy minister Khalid al-Falih and replaced him with Prince Abdulaziz bin Salman in a new effort to change the leadership, prop up prices and regain control all ahead of the Saudi Aramco IPO….which is in the news again as it is announced that JPM will land a leading role in this huge event…..leaving GS, MGS and C out in the cold…at least that is the rumor – the announcement is next week – and a lot could change…..Can you just see the look on Davey Solomon’s face right now? (GS CEO), or Mikey Corbat (C CEO) or MGS’s Jimmy Gordon? Now look, no one is holding a charity event for any of them….they will all participate but right now Jamie Dimon is working hard not to smile…..
Take good care.
Ice Cream/Brownie Sundae….
So this is for Norm – a dedicated MT reader and a dear friend. He loves ice cream and so considering all of the action coming this week – let’s have desert first.
For this you need – warm fudge brownies, classic vanilla, hot fudge, warm marshmallow topping, walnuts (wet or dry), and a cherry. (Now you can use any kind of Ice cream you want – but the classic American Sundae uses Vanilla.)
Place a warm brown in the bottom of a large parfait glass, add 3 scoops of ice cream, pour the hot fudge on top, add the warm marshmallow and top with a cherry.
That’s it….It just reminds you of being a kid in the summer time…..When the world was a different place.
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