**Breaking news overnight – Markets under pressure! The outlook worsens! **
Hubei Province in China announces 15k NEW cases and 130 additional deaths caused by COVID19 and extends work ban through February 20th. Total cases in China rise to 60k and deaths rise to 1400. Beijing removes two officials in Hubei Province for what they term “the cover-up” (they’re most likely dead now and they weren’t sick). A Hong Kong official is removed as well. Hong Kong extends school closure until March. Japan discovers 44 new cases aboard cruise ship and another cruise ship (Carnival) with no reported cases of the virus has been banned from most ports in Asia will finally dock in Cambodia today. Car sales plunge in China, the IEA (International Energy Admin) CUTS 2020 global oil demand by 30%, lowest since 2011 while saying that the knock on effects will be more significant than the 2003 SARS epidemic. India has 16k people under surveillance across 34 states, Australia extends entry ban from China and the US confirms #14 being held at a San Diego air base. Markets around the world in risk OFF mode. How’s your day going?
Step back to yesterday for one minute, to see how the outlook changed.
Dow surges up and through creating a new closing high, ending the day UP 274 pts or 0.94%! The S&P added 22 pts or 0.64%, a new high, the Nasdaq up 87 pts or 0.90%, a new high. The Russell added 12 pts or 0.71%, not a new high. The move in US stocks tracking the move seen from both the European and Asian markets on Wednesday. That also saw gains of anywhere between 0.50% and 0.90%, and in fact many (not all) European markets ending the day at new highs as well. Spain, Eurostoxx, France, Germany and Italy, ALL making new highs. Economics around the world ain’t so bad and in fact. The market, which is a discounting mechanism, is assuming it’s only gonna get better and Fed Chair Powell intimating that he is prepared to “do what it takes” only adds fuel to the fire. Even in the face of so much political uncertainty in Germany, Ireland, Italy and the US.
Fear over the COVID19 virus was clearly abating, as China did report lower numbers of new cases suggesting a decline is in the works (not so much anymore). That is what many medical professionals are also suggesting. But the truth is, we still don’t really know. Do we? As good as this feels, right now the fact is we could still get hit with a wave of selling if the headlines suddenly suggest something different. Just beware that’s all. (And how the story changed overnight!)
Politics and the Market. While this is NOT a political blog at all, it will be part of the conversation about markets in the months ahead as it will be a directional driver for investors/traders and algos. Yesterday saw Bernie Sanders take the “win” in NH. Ok, sounds good, but let’s just think about this for one minute. Bernie took the lead (barely) from a guy that is crawling right up his backside who is a local mayor from South Bend, Indiana, Petey Buttigieg, who took the lead in Iowa.
So let’s just put them side by side for one minute so that you understand the markets thinking.
Petey was a relative unknown less than one year ago. He is only 37, too young (by most accounts), he is enthusiastic, a Rhodes scholar, a veteran, a more center moderate and speaks eight languages: (English, Norwegian, Italian, Spanish, French, Maltese, Arabic and Dari (Afghanistan)). He recognizes that change is needed but is not nearly as bombastic as some of the other candidates.
Bernie is 78, too old (by most accounts to be elected) as he is still running and NOT currently President. He is also enthusiastic, he is more experienced in DC, he is not a Rhodes scholar, he is not a veteran. In fact, he was a “conscientious objector” (not making a judgement just making it clear what he chose). He does not speak eight languages but he is all about the histrionics, wanting to take the country “left” and create a Socialist society. So what does NH’s primary really say about Bernie’ s chances? My guess is it really isn’t the win he is making it out to be.
In fact, the market’s reaction yesterday is celebrating that win except NOT the way you’d expect. Because here is the deal, the market does not believe that Bernie is a real viable candidate. If he does become the nominee, the market is betting on a Trump win, and if a more moderate (Petey) becomes the nominee, the market is betting that that would be better than the far left but still is betting a Trump win. If Mikey Bloomberg should rise in the polls the market is assuming it would be a Win, Win, Win for the markets, as he is much more level headed about change and may actually challenge Trump. And Amy? She made a nice showing, pushing Lizzy and all of her “plans for anything that ails us” to the back burner (which is bullish), while also becoming the DNC’s choice for VP. It doesn’t appear she will gain enough traction for the top spot. But, THAT could change. Let’s see and let’s not even talk about the poor showing by Joey (Biden). Andy Yang is on the verge of dropping out, while Massachusetts Governor Deval Patrick did drop out. So the field is getting culled down. All very exciting but all very volatile as well.
The macro data continues to be robust, the FED and other central banks remain accommodative and tariffs on China appear to be working. They came to the table and signed Phase One and it looks like they are coming to the table to discuss Phase Two. USMCA is signed, sealed and delivered and that is also causing excitement for the North American economies: US/Mexico/Canada. Developed markets around the world are making new highs and the ones that aren’t are on their way. (Or at least they were!)
What could derail the excitement?
Well, negative news on COVID19 clearly could. We are seeing that NOW, increasing new cases, more deaths, more closures, more work stoppage, declining energy demand, and we still haven’t been able to put a price tag on all of this because as of now, it’s only getting worse, not better. How will the Chinese economy, never mind the global economy manage? While there is much speculation, it is just that, speculation.
Elections around the world can also create short term noise while the election in the US can create more of a disaster. A Bernie win will not be good for the markets at all, and like Lizzy Warren any suggestion that the far left could win, will cause markets to sell off dramatically. But, that is a summer/fall event. And in the end, unless the elections produces far left candidates in both the senate and the house, a far left president left alone with a more moderate/center congress will find himself/herself a lame duck – locked out, forcing him/her to reconsider their position which could then help the markets find stability. The chances that we would elect a far left President AND a far left congress (both houses) is 0! (ZERO). And that is what the markets are telling us. No worries, it’s all good. Americans can’t be that foolish. Or can we?
Fed policy could derail the rally. If we don’t get any rate cuts this year, it could cause some pullback. But if the global economy heats up, and causes a real change in global central bank thinking. Think rate HIKES versus CUTS. THAT will send the markets careening, and considering how parabolic the market has been, just think about how fast it will collapse when everyone hits the sell button and runs for the door at the same time. Oh boy, based on today’s news, the chances of this happening have now fallen a bit. But that’s today!
As noted, global markets are under pressure with the new data and headlines surrounding COVID19. The focus will now be on the ripple effects to the economy based on this new data out of China. Asian markets fell as this news hit the tape. Now there are some that are trying to explain it away as “nothing.” Chris Watling, CEO of Longview Economics told CNBC’s Squawk Box Asia:
“I think the market is going to grapple with this new method of calculating cases. I suspect they might look right through it once they work out that it doesn’t sound like more cases, it’s just a change in the methodology.”
Dude? Really, the change in methodology DID produce MORE cases. 15k people previously undiagnosed have now been diagnosed. That is not NOT more cases, that is 15k MORE cases and growing apparently causing more slowdown and more closures and more quarantines. Did I miss something?
By the end of the day Japan lost 0.14%, Hong Kong -0.34%, China -0.62%, while the ASX gained 0.21%.
European markets are under pressure falling harder than what happened in Asia as the news spreads. Now remember what I pointed out at the top of the page, many of these markets made new highs yesterday and in the prior weeks as the fear was subsiding. So any change in that mindset will see them fall a bit faster which is what we are seeing. IMF Director Kristalina Georgieva telling CNBC that the virus is “clearly more impactful on the world economy” which sounds a bit more negative rather than positive. And the algo’s respond in kind. In the UK, PM BoJo (Boris Johnson) is working to reshape his own government as they move beyond BREXIT. FTSE -1.46%, CAC 40 -0.95%, DAX -1.09%, EUROSTOXX -1.15%, SPAIN -1.14% and ITALY -0.70%.
US futures are DOWN as the news overnight caught many by surprise. While markets are weaker, this news will cause some to ring the cash registers as they take advantage of the recent gains. Once again, where could we go? Futures now show the Dow down 220 pts, the S&P off by 23, the Nasdaq down by 81 pts and the Russell is down 12 pts. Do not be surprised to see a 3% – 4% pullback (3250-ish) as this story unfolds today and tomorrow. Remember, tomorrow is Friday and then the weekend. So much more can happen so the risk off mentality going into the weekend becomes elevated.
Oil, which rallied nicely yesterday, is under a bit of pressure this morning (expected based on the headlines) but it is holding at +$50/barrel. That is a positive.
Take good care.
Herb/Balsamic Marinated Pork Chops
Start with 4-6 pork chops on the bone… thin or thick cut – whatever you like. Rinse and pat dry. Set aside. In a bowl – add olive oil, balsamic vinegar at the ratio of 1:1.
Next add dried rosemary & thyme and fresh basil. Season the chops with salt and pepper. Marinate the chops in the oil/balsamic mixture for at least 1 hour… (You can prepare up to this point the day before and leave marinating in the fridge overnight.)
When ready to eat -preheat oven to 400 degrees. Place chops in a baking dish – with the marinade… cover tightly and place in oven and cook for 30 mins.
Remove cover – and turn on the broiler… broil chops to create a bit of a crust – flip and repeat… Be careful not to dry them out. (You can also do these on the grill if you choose)
Serve this dish with roasted smashed potatoes and a green vegetable like French cut green beans – steamed and dressed with a dab of butter and s&p. As usual also serve with a salad of Boston lettuce, arugula, red onions, cucumbers and tomatoes.