**See my appearance on CNBC WorldWide Exchange this morning – click here….
In a complete about-face to what the Europeans did on Friday, where all of those markets ended the day higher by 1+% US indexes, got slammed. While they appeared to want to trend higher in the early morning, the tone quickly changed as news of the spreading coronavirus got worse. Officials around the world are now confirming at least 26 cases outside of China with more expected. While in Asia, more than 2750 people are said to have the illness with 460 in “critical condition.” Another 80 have already died. Officials there locked down 13 cities and quarantined more than 28 million people. Instances of new cases on two other continents only served to create new and more angst. Many are now wondering what is next? The WHO (World Health Org) still had not declared this a global emergency leaving one to wonder: Why not? Dr. Tedros Ghebreyesus, WHO Director General, is on his way to Beijing to meet with officials saying: “more data needs to be collected before the virus is declared a global emergency.” Expect travel and leisure stocks to get crushed.
While the broader markets got slammed, treasuries, gold, and utilities saw buyers as investors chose to move once again into the safety trade. This sent Gold up 0.4% or $6/oz. to $1,571. It sent bond yields down to 1.68% (from 1.735% on Thursday). And in the equity space, Utilities, were the only sector in the green. The XLU Utilities ETF advanced by 0.25%.
Energy is taking it on the chin as the argument suggests that global demand is about to take a hit due to this outbreak. Again, this doesn’t make complete sense to me. Countries still need oil to fuel cars, run manufacturing plants, heat homes, turn on the lights, fly planes, drive cars, make plastics, etc. While the outbreak will cause disruptions in the daily lives of many, the world does not stop spinning. You still need oil to run the world, but analysts are all saying that demand is going to plummet due to this illness causing global GDP to take a hit. But remember, supplies remain robust. So I guess we have a supply/demand issue. When supply is greater than demand, you will always get lower prices for the product in question. It’s Econ 101. My only argument is not that this illness will curb demand. My argument is and has been that no matter what. There is way too much supply in the world. We are awash in oil and have been for a while now and while this outbreak is becoming more serious by the day, it is hard for me to think that this outbreak is causing oil to collapse. When supply exceeds demand (for whatever reason) prices decline. By the end of the day, oil lost 2.5% and is lower again this morning by another 2% as the story unfolds. We have now broken $55 as oil plunges towards $50/barrel. BUT, it’s not all bad. Expect gas prices to plunge as well and that will be a boost for the consumer.
This morning US futures are lower, once again getting slammed, as the world tries to come to grips with the coronavirus. The uncertainty continues to weigh on the markets. In addition, there is a report out that a BA airplane belonging to Ariana Afghan Airlines has crashed in Afghanistan, killing all 83 people. BA stock trading down nearly 2%.
US Futures took a hit last night as the sun rose over Asia. Remember, most Asian markets are closed for the week due to the lunar new year holiday. This morning, they still have not recovered and in fact have gotten worse. Dow futures are down 486 pts, the S&P is lower by 54, Nasdaq is giving up 200 pts and the Russell is down by 24 pts at 6:30 am.
Now while the S&P should find some temporary support in the 3250/3260 range. It doesn’t appear to be the case today, with futures now plunging and the latest BA news is not helping. It may be better to sit back and let this sell-off happen. The coronavirus is not going away today or tomorrow, so the tone will remain a bit negative. The next move will depend upon the tone of the “crisis,” the tone of earnings and the tone of the macro data. Remember, the pendulum always swings too far left and then too far right. It feels like the swing left is going to take some of the “air” out of the recent swing right!
This is a BIG week for the markets. First we have a bunch of high profile earnings. AAPL, now worth $1.4 trillion has a lot on the line. Earnings exp of $4.54/share vs. last quarter of $4.18/share or +9%. Wearables/home +38%, Cloud Services +20%, iPhones flat. In the event of a “miss”(unlikely), $290-ish would be support. But let’s consider the fact that we could also get a “buy the rumor/sell the news” type of event. Look, the stock has soared in value. It is up 127% since January 2019 and shot up 47% since October in anticipation of the holiday shopping season. So is this all priced in? Will the broader weakness in global markets due to coronavirus cause a selloff in Apple? This morning with markets weaker, Apple is quoted down 10 pts.
We will also hear from GE, FB, IP, BA, CAT, LMT, XOM, CVX, NOVARTIS, ANTHEM AND PFIZER, MCD, SBUX. BA will be one of the highlights for obvious reasons. Will we learn anything new from the report that we don’t already know? Can they come up with something “good” for investors to hold onto? Now while it closed at $323 on Friday, it did trade down to $300 earlier in the week. That level will be the one to watch. What will we hear about the 737 MAX now? Will they try to divert the conversation to the new 777 plane that they demo’d on Friday?
The FED FOMC meeting will take place on the 28/29th, with Jay Powell to hold a conference after the announcement at 2 pm on Wednesday. Depending on whether his tone is believed to be hawkish or dovish will determine the next move by the algos. Look, nothing new is expected. Rates are to remain low for this year. I don’t think they lower them anymore, but nor do I think they go up either, as the FED does not want to appear to be partisan during an election year. But there is rising concern among the central banker paparazzi about what they could do next “in the event of a downturn.” I do NOT expect a downturn at all. The economy is robust, unemployment low, wages up, consumer is healthy, blah blah blah… But we do need to discuss it.
The UK is saying goodbye to the EU. BoE governor Mark Carney is to host his final meeting on Thursday. What will he do ahead of the divorce? Lower rates? Leave them alone? My sense is that he will leave them be. The new BoE gov, Andrew Bailey, will have to deal with it. We are sure to hear what he is thinking.
Overnight, Asian markets (the ones that are open) are down. So we are not getting a really good picture of what investors there are thinking. We are getting a look at Europe. Futures markets are suggesting RISK OFF, with indications of those markets giving back all and then some of the move higher from Friday. Markets across the continent are looking to open lower by 1% – 1.5% and they did, and are now all down more than 2%. In Italy, the right wing Lega party failed in its attempt to oust the center left Democratic party during Sunday’s elections in the northern region of Emilia-Romana. There is no major economic data due today, so the focus will be on earnings and the virus.
FTSE -2.46%, CAC 40 – 2.33%, DAX – 2.34%, EUROSTOXX – 2.2%, SPAIN -1.77% and ITALY – 1.76%.
Oil has now broken all three trend line supports. So the algos are pushing it lower again just to see where the bodies lie.” The chart is ugly and $50 does look like the next stop. But again, the pendulum always swings too far.
Gold is UP $11 at $1,589/oz. as the flight safety move heats up. With global equities under selling pressure, do not be surprised to see gold to test $1600 today.
Take good care.
Beef Short Ribs
Begin with 6-8 beef short ribs. season with s&p and then brown in a frying pan with a bit of Olive oil. Make sure to brown all sides being careful not to burn the meat. After you have browned them – place them in a large/deep baking pan. Lining them up on their sides.
Next – large Chop – 2 large White Spanish Onions, 1 bunch of celery stalk, 1 bag of carrots.
Smash 4-5 cloves of garlic and add to the meat – making sure you disperse the garlic all around. Next add the chopped veggies right on top.
In the frying pan that you used to brown the meat – add: 1 can beef broth, 1 can tomato paste, and ¼ to ½ bottle of red wine. mix well and let the broth come to a boil for a couple of min as you steam away some of the alcohol in the wine. Bathe the short ribs in this mixture and cover tightly. Place the baking dish in the oven – preheated to 350 degrees. Let cook for 4 hours – tightly covered.
The presentation: Remove the baking dish from the oven. Puree ½ the veggies in the food processor. On a warmed serving platter – pour the pureed veggies down the center of the platter. Arrange the short ribs on top of the pureed veggies and then place the balance of the cooked veggies around the meat.
Complement this meal with oven roasted red new potatoes. Rinse the potatoes – toss in baking dish… season with s&p, add a bit of olive oil to coat the potatoes. mix well. Prior to putting in oven – add ½ stick of butter – cut into pieces and strategically place around the potatoes. Cover and roast at 400 degrees for 40 mins. Remove cover and lower heat to 350 degrees and roast for another 15 mins or so – check for doneness by piercing with a fork.