Thing you need to know.
- Mkt awaits the ECB – then the FED
- Are we in a rate cutting cycle?
- BoJo – gets put in the corner
So if you just look at the indexes – it looks like they were little changed from Friday (except the Russell Small/Mid cap) ….with the Dow up 38 pts, the S&P flat, the Nasdaq off by 15 pts and the Russell up 19 – Again – the Russell was the big winner – up 1.2% on the day….But in reality – the mkt did have a couple of ‘swings’ yesterday….with the Dow down 140 pts, the S&P with a loss of 20 pts and the Nasdaq down 80 all intraday….but by the end of the day – it looks fairly boring……like a bit nothing done…but that was not really the story…..Lots of bottom fishing going on….stocks that have gotten really beaten up – appeared to have been on the menu yesterday for some investors……XLE (Energy ETF) +2%, XLF (Financials ETF) +1.5%, both showed signs of life while some of the ‘hotter’ sectors came under pressure…… XLU (Utilities ETF) lost 0.49%, XLK (Tech ETF) gave up 0.75%, & XLP (Consumer Staples ETF) gave up 0.23%.
So, where are we? Did yesterday’s move hit the pause button on stocks until we hear more from the ECB (European Central Bank) and the FED – as I pointed out in yesterday’s note? I mean look – while we all agree that the big central banks have been supporting the mkts with all of the ‘Kool Aid’ that they have been and will continue to serve up…..we must ask – Are investors/traders just being patient until the news hits the tape? The risk is that the ECB actually disappoints the mkts…..– yesterday I said that
“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…..”
So- the risk is clear…if Uncle Mario (Draghi) does not do ‘whatever it takes’, if he does not do what the mkt now expects him to do – then yes…guess what? The algo’s will go into temper tantrum as they express their displeasure with that decision…..and we’ve all seen how fast that can happen….and if that happens, that will put more pressure on the FED to absolutely cut rates (take any risk off the table) and that should somewhat blunt any move lower…..But if Draghi does as expected – and does not disappoint – then I think the mkt will hold in here – not necessarily rally hard (although you might get an initial surge) only because the expectation is mostly priced into the mkt……and the same with the FED…..the expectation of a 25 bps rate cut is priced into the mkt…..which is why we’ve seen the move 5% off the August lows….and no matter that the recent US economic reports have been ok and not a disaster – everyone expects the FED to cut – Period. The next question will be – What will Fed Chair Jay Powell say about future cuts?
The talk of a ‘rate cutting cycle’ is now the plot…..that this second cut in as many months is just the beginning of a longer round of cuts……and so – it will be nearly impossible for the mkts to correct at all….unless of course the data turns really ugly fairly quickly – catching the FED off guard with little to no ammunition left in the gun closet…..And then when the mkt recognizes that – then it will be nearly impossible for the FED or The Donald to stop the bleed …..remember – Oct/Dec 2018…..a swift 20% ‘sell off’ with individual names getting slammed even more…..but remember – if the focus is long term….then in that mess, is opportunity……so remember – Patience IS a virtue.
Overnight Asian stocks traded mixed…..China reported that producer prices (PPI) fell 0.8% (vs. the exp of a decline of 0.9%) ….the worst year over year contraction in 3 yrs…..all this while the consumer price index (CPI) rose by 2.8% y/y. and this move in the CPI can be tied to the surge in food prices – y/y…of 10% and this on top of a surge of 9% in July. And if you dig even deeper within that report – Pork prices shot higher by 46.7% y/y….and this is because of an outbreak of swine fever that has decimated the pork industry in China. So I guess – you don’t eat pork…….because if you take the surge in pork prices out of the equation – then food prices would not have skyrocketed by 10%……so basically – the rest of the food chain is not out of control at all. Japan +0.35%, Hong Kong flat, China – 0.34% and ASX -0.51%
In Europe -mkts are just treading water…..BoJo (UK’s PM – Boris Johnson) as he is now referred to – shouted out that he would NOT request an extension from the EU concerning BREXIT. Recall that Parliament passed a new law that FORCES him to get on his knees to ‘beg for forgiveness’ if he can’t come to a deal by October 31st…..Any extension would take him out to January 2020. (recall I told you that this ‘can” was going to be kicked down the road as well…..no matter what BoJo says). But all eyes across Europe are now keenly focused on Thursday’s ECB announcement – the ultimate question being – will Mario do ‘whatever it takes’ and then toss it into Christine Lagarde’s lap before he walks out the door? FTSE +0.06%, CAC 40 – 0.14%, DAX + 0.25%, EUROSTOXX – FLAT, SPAN -0.05% AND ITALY -0.29%.
US Futs are all lower…..(no surprise)…..Dow -23 pts, S&P -5.25 pts, Nasdaq -26 pts and the Russell -3.5 pts. Tech under pressure as almost every state Atty General is ‘probing’ the industry over antitrust issues…..putting more pressure on the FEDS to keep the investigation going…..FANNG stocks for sure to come under scrutiny as the investigations will delve deep into a range of practices that they all employ…and what that means for privacy. It will also reveal the amount of money that these companies are making off of all the data that we produce for them – and what exactly that means for the future. Regulators have already slapped fines on two big names in the group – but even those fines have done little to cause any real concern for investors…..but the issue is – will the gov’t hit the industry with a bigger blow?
There are no FED speakers now – until after the FOMC meeting next week…..so that leaves the focus on the ECB and any new developments in trade talk. If tech comes under pressure over this latest investigation – then I would suspect that the broader mkt will get dragged down a bit – but NON-Tech names should not be implicated at all, so to the extent that they are – that creates an opportunity. Capisce?
Take good care
Roasted Chicken w/ Hull Peppers
This is a great chicken dish and so easy to prepare and make. I made this yesterday and thought it would be perfect for today as the world watches this game of chicken taking place in the mkts.
For this you need: Chicken thighs, legs and split breasts – all skin on. s&p, adobo (a Spanish spice that you can find in the Spanish section of your grocer – it is used on so many things – so get it and keep it in the spice rack) white vinegar, a large jar of Hull Red Peppers in the juice, garlic, and onions.
Preheat oven to 400 degrees
Rinse the chicken and pat dry with a paper towel Place in the roasting pan. Next add in 5 or 6 garlic cloves – rough chopped, 2 sliced yellow onions, season with s&p and adobo. Splash with the white vinegar – and mix well with your hands making sure to coat all the pieces. Now – open the Hull Peppers and dump the juice in the pan – remove the peppers and rough chop them into pieces…do not dice – chop. Add to the pan.
Place in the oven – uncovered and cook for 30 mins. Then turn the pieces and place back in the oven – reduce the heat to 350. Let cook another 30 mins or so…making sure that you are not burning the chicken. The tops will get a little brown – that’s ok. There should also be a fair amount of liquid in the pan…you can leave it or choose to remove some of it. I find that leaving it is always better.
Now – turn on the broiler and place the pan under the broiler to crisp it up a bit. Turn the pieces so that they broil on all sides. When ready – remove and let sit for 10 mins. Serve family style on a large platter. Enjoy with a mixed green salad and mashed potatoes.