Chinese stocks, which got slammed on Monday, wiping out nearly $720 billion worth of value, did a complete 180 and rallied as a new day dawned over the region, reacting to the surge in shares out of Europe and the US on Monday. Overnight, investors/traders and algos attempted to make sense of the plunge that took more than 7% out of Chinese equities on Monday. Tuesday’s trading saw the Shanghai Composite and the Shenzhen composite surge, as relative calm replaced the fear seen in the “whites of their eyes.” The latest coronavirus data now shows more than 420 deaths and more than 20k people infected with the virus in China alone (never mind outside of their borders). Talk of China being unable to fulfill its Phase One purchase requirements on a range of products, due to what is now being considered an “economic calamity” caused the conversation to turn to a weakening Chinese economy and the potential implications of what it will do to the global economy. Questions surrounding what the Chinese “knew” in December before they signed the agreement were being bandied about in the press. But even those conversations, which contributed to Friday’s US selloff and Monday’s China selloff appeared to be less of an issue in today’s trading.
Liquidity injections by the Chinese government and lower interest rates are helping to stop the bleed, as they had hoped. Cooler heads appear to be taking control. In Australia, the RBA (Reserve Bank of Australia) left rates unchanged at 0.75% (no surprise) as RBA Governor Phil Lowe said:
“Due to both global and domestic factors, it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. On the topic of the ongoing coronavirus outbreak – it was a source of uncertainty that is having a significant effect on the Chinese economy currently, though it is too early to determine how long-lasting the impact will be.”
And so it goes. From one day to the next, the virus is the topic of conversation that drives the action and then it’s not. By the end of the day, stocks across the region found solid footing and all ended in the green.
Japan +0.49%, Hong Kong +1.21%, China +2.64% and ASX +0.37%
This morning in the US, we see futures are up once again as we attempt to take back the night and resume the upward trend seen during the month of January. Yesterday’s surge higher saw the Dow add 180 pts (after being up nearly 350 pts in early trading), the S&P add 23 pts, the Nasdaq ahead by 122 pts and the Russell tacking on 18 pts. We now see the S&P and Nasdaq in positive territory for the year, while the Dow and Russell will make that up today, if all goes as it appears. Futures are up in overnight trading and this morning Dow futures are surging by 312 pts, the S&Ps ahead by 38 pts, the Nasdaq tacking on 120 pts and the Russell looking to add 18 pts. Treasuries decline, sending yields back up as we await definitive results out of Iowa and prepare for the State of the Union (SOTU) speech tonight, featuring President Trump in the house chamber where congress voted to impeach him. All of this as the sun prepares to rise over the Atlantic, bringing a new day to the Americas.
New Political Risk – or not?
Last night we all waited patiently (or impatiently depending on who you are) for the famed Iowa Caucuses. That goes a long way in predicting the Democratic (or Republican) candidates for President. Since Donny occupies the WH and appears as if he will remain there until at least November, all eyes were focused on the Democratic field. Polls had Bernie in the lead going into it but then something happened. The caucus results were thrown into a “state of confusion” as the newest “app” designed and built for this specific event appeared to “fail,” turning the night into a debacle for the Democratic party. Fail or not, the state found “inconsistencies in the reporting” and this held up the results, allowing each candidate to “make up their own story” about how they won the caucus. Concerns over “someone” hacking into the system (think: Russia maybe) were quickly dismissed as Mandy McClure, the state party’s communications director told us:
“…the app used to record and report results from each caucus site did not go down and this is not a hack or intrusion. The underlying paper trail is sound and will simply take time to further report the results.”
By the time it was over, it appears that the dark horse in the race, Petey, emerged as the blended winner leaving Bernie, Lizzy, and Joey wounded as the race now moves to New Hampshire on the 11th. In a statement to supporters and to the nation, Petey had this to say:
“So, we don’t know all the results, but we know, by the time it is all said and done, Iowa, you have shocked the nation. Because, by all indications, we are going on to New Hampshire victorious!”
You can be sure that there will be a lot of debate over this and it would not surprise me or you if Bernie or Lizzy call for a “do over” as they try to make the case that the system failed and the results are not what the voters wanted. Either way, what the futures ARE telling you is that it is EXACTLY what the voters wanted and the nation is about to dismiss the efforts of the “far left” this election cycle.
Next up, TSLA shares surged nearly 20% or $130, after an analyst from Argus Research upgraded the stock and put an $808 price target on it. It was a buying frenzy as the algos fought tooth and nail to buy stock. Sellers, seeing the anxiety, backed off and forced the algos to pay up for it. Shorts continue to get slaughtered and the short covering made it that much worse. Then, Lonnie (Musk) comes out to say he’s hiring and he doesn’t care if you even have a high school degree, while invitations to an AI party at his house are going out next week. This is all causing a buying frenzy in the stock. The stock is up 207% since October and appears to be setting up for a spectacular “something” (dare I say collapse) any day now…
GOOG reported after the bell, beating on earnings per share by reporting $15.35/share (expectation was for $12.49/share) on revenues of 10.8 billion for the quarter. But year/year revenues were “only” $37.6 billion while the street was looking for $38.4 billion. This caused the algos to sell it off in the after-hours session, sending it down 4% at $1,420/share after it rose 3% during the regular trading session closing at $1,485/share. This morning it is being quoted at $1,423/$1,432 as the futures surge once again accentuating the positives and this will take technology names, along with everything else with it.
In the Oil Patch
GS CUTS XOM yesterday to a SELL! The stock is down 42% from the highs of $102/share, now trading at $60/share and the price target, you’re gonna love this… $59/sh. Is someone kidding me? And this guy gets paid for that? I suppose they must have a large short position in the name. That is the only reason it would make sense at all. Once it hits that target, they’ll cover and go long and then do an about face and tell everyone how “cheap” it is. I mean you can’t make this up. Who would really believe you?
European markets are surging on the back of all this “good news” with markets across the region all reporting better than 1% gains across the board. Negotiations on new trade agreements between the UK and the EU have now begun in earnest and they have until year end to come up with a plan. Earnings continue to be the focus across the continent there as well, as the reporting season comes to a close. BP reported today better than expected full year profits, only down 21%, as oil prices plunged. The stock is trading up 3.6%. FTSE +1.34%, CAC 40 + 1.09%, DAX +1%, EUROSTOXX +1.05%, SPAIN + 1.32%, and ITALY + 1.34%.
As I noted yesterday, while I think this virus is not fully run its course yet, I also do not think it will cause a global slowdown. China pumped all kinds of money into the system and even cut rates to try and stop the bleed. A cocktail of drugs appears to be making progress in treating the virus (we can only hope) and even the Chinese macro data proved better than expected.
In Europe, the Eurozone Manufacturing PMI came in at a 9-month high of 47.9, still in the contractionary sector yet trending upwards. So that is a positive. Economic data here at home also reflecting better fundamentals. Markit US Manufacturing coming in at 51.9 (better) and ISM Manufacturing crossing the line coming in at 50.9 (bullish) – well above the 47.7 expectation while ISM employment rose to 46.6 up from 45.1 – again bullish because of the trend. Now this could all change, but I’m in the camp that it won’t. The markets around the world do NOT appear to be that concerned right now either.
Eco data today includes: Factory orders – exp of +1.2%, Durable goods – exp of 2.4%. Earnings on the calendar include: RCL (Royal Caribbean – expect to hear about the virus), SIRI, SYK, SPG, EMR, CMI, AXE, COP, CNC to name just a few.
By the end of the day, the S&P closed at 3248 after testing as high as 3268. You can feel the excitement in the air. It will be fun to watch as the momo (momentum) guys attempt to take it all back and pierce 3300. I don’t think they will (today), but once the momentum gets started. They’ll trip over each other, pushing and fighting to as they all try to outsmart each other.
Oil, which continues to get slammed over global growth concerns. fell below $50 for a brief moment yesterday as the pendulum swings too far to the left. Word that OPEC is “scared” about further price declines demands an emergency meeting on Wednesday and Thursday to discuss CUTTING production even more to try and “stop the bleed.” And I say Why? Global consumers are benefitting from falling oil prices lower prices will help the global economy stay on track, but the Saudis will have none of it. Someone should tell them that they no longer control oil supply. The US is now the largest producer and is a net exporter of this energy source. As noted we are the lows of June, August, and October of 2019. We are testing it and testing it forcefully. The markets want to know if buyers are waiting in the wings or if they are gonna walk away to see what’s next. Strap in.
Gold is lower by another $10 at $1571/oz. as the fear subsides, equities rallying, Bernie and Lizzy pushed to the rear, global macro data not confirming a recession is anywhere near and the Middle-East has been quiet. We remain in the $1550/$1600 range and any bit of negativity will see it surge once again.
Take good care.
So here is another apropos recipe for you to consider… given that the Senate has concluded the impeachment proceedings and appear ready to vote on it tomorrow – I thought it appropriate to feature a “Im-PEACH-ment” recipe and Peach Melba is one of my favorites.
You need to make two things – the raspberry sauce and then the poached peaches…
For the sauce you need: 3 cups of fresh raspberries, 1/3 cup of white sugar, juice of one fresh squeezed lemon, a splash of water…. (splash – like 1 tbsp.)
For the peaches you need: fresh squeezed lemon juice from one lemon, 1 vanilla bean – split, 3 firm peaches halved and pitted, your favorite vanilla bean ice cream
Make the sauce:
Combine raspberries, 1/3 cup sugar, 1 tablespoon lemon juice, water, in a saucepan over medium heat. Bring to a simmer and cook until sugar dissolves and berries melt, 2 to 3 minutes. When that is done – remove and strain into a bowl – keeping all the seeds out. Cool to room temperature, cover and refrigerate until thoroughly chilled.
For the peaches:
Combine 2 cups sugar, 2 cups water, the fresh lemon juice, and the split vanilla bean in a large saucepan and bring to a simmer over medium heat.
Place peach halves with cut sides up in the syrup and simmer until tender, 5 to 8 minutes, basting with the syrup occasionally. Remove from heat and allow to cool in the syrup. Transfer to a bowl, cover, and refrigerate for 4 hours.
Now take the peaches out of the fridge and peel the skin off – (it should come right off). In a nice bowl or parfait glass put a large scoop of the vanilla ice cream and then place one of the peach halves on top of the ice cream. Next – spoon the raspberry sauce over the top and serve…