Apple is unable to define the hit that it is about to take to the top and bottom lines (thanks to COVID19), sending all of the suppliers around the world down the drain. And with the Moody’s downgrade of China’s GDP and economy (thanks to COVID19) and the negative news surrounding HSBC, you would think that was enough to cause the markets to back off just a bit. Yet while they were down anywhere between 0.5% – 1% during the day — they managed to rally back — taking back almost all of the losses as the day drew to a close.
In fact, the Nasdaq (all about technology) which was off 60 pts at one point, (far less than many thought) (think Apple and all of the suppliers) managed to surprise the street and go POSITIVE by the afternoon, ending the day UP 1.5 pts! And we still don’t know what the hit will be to Apple! Apple which had opened lower, and was at one point down nearly 4% managed to pick itself up by the bootstraps and end the day ONLY down $6 or 1.8%. I have to say, that is pretty impressive, considering the role that Apple plays in the Chinese economy and the global economy. Apparently, what this tells you is that in the end. COVID19 is not spooking anyone (yet). By the end of the day the Dow fell by 165 pts or 0.56%, the S&P lost 10 pts or 0.29%, Nasdaq gained 1.5 pts or +0.02% and the Russell lost 4 pts or 0.24%. In fact, with the exception of the Nasdaq, our major indexes fell in-line with how the European markets also performed, which is usually a good barometer for how US markets will perform, barring any country specific issues.
Now what I find interesting is that we still do not know what the extent of the hit to the global economy will be. We still don’t know how many more people will be infected and quarantined, never mind dead as the world closes its doors on travel to China. Street analysts/strategists are unable to define the impact all have ideas on what it could mean to global trade and the global economy, but none of that appears to be unsettling investors. Markets remain closer to the highs than not. In fact, overnight after news of more infections and more cruise ship passengers getting sick, global markets are once again surging.
Some Asian markets “bounced back” as workers in China slowly return to work. At least that is what they want the world to believe. The Chinese government is announcing more stimulus to prevent any further disruption while the State owned media has reported that 80% of the “state owned enterprises” have resumed work. Some are not buying it. Rodrigo Catril Sr. Foreign Exchange Strategist at National Australia Bank had this to say:
“This news should have been embraced warmly by the market, however high frequency data such as pollution levels and traffic congestion gauges in Beijing do not at this stage corroborate the upbeat official message, keeping investors wary.”
China’s Shanghai index finishing the day in negative territory, which runs counter to the upbeat announcement, fell by 0.46% while the other market centers did rise a bit.
Japan +0.89%, Hong Kong +0.49% and ASX +0.43%.
Recall that on Monday, Japan’s economic data did show declining growth in that country was worse than expected as they detail the impact that the virus is having on them. In Singapore, a country hit hard by the outbreak, they announced that they have set aside $4 billion to help their economy push through the effects of the virus outbreak. On the one hand, the markets appear resilient, while on the other hand companies continue to raise concerns over supply and demand disruptions but investors/traders and algos are taking it all in stride. Remember, events like this do not price stocks in the long term, but they can create volatility. Although, this one is creating less than many imagined, at least for now. I am still in the camp that we have not seen the worst of the impact yet, but we will begin to see it in the March data and then we might see more of a pullback.
European markets are all higher this morning as well, as the focus turns to the macro data. UK inflation is due out, while Eurozone construction and flash PMI readings for France and Germany are due to hit the tape as well. Again, today they are putting any virus concerns to the back burner, even as the number of cases continues to rise and the death toll in China stands at 2,004. News that the EU continues to try to reign in the big US tech companies: FB, AMZN and GOOG is not having much of an impact on the tech sector. And negotiations between the UK and the EU begin to take on more of “defiant tone” as the EU demands that the expected fair competition guarantees between the two must “stand the test of time.”
At 5 am, we have the FTSE +0.70%, CAC 40 +0.61%, DAX +0.38%, EUROSTOXX +0.39%, SPAIN +0.39% and ITALY +0.5%.
US futures are pointing higher at 5 am, in line with European markets. Dow +65 pts or 0.22%, the S&P up by 7pts or 0.22%, the Nasdaq rising by 32 pts or 0.33% and the Russell is ahead by 5 pts or 0.26%.
Economic data today includes: Housing Starts – exp of -11.2%, Building permits of +2.1%, PPI (Producer Price Index) of +0.1%, Ex food and energy of +0.2%. Final PPI demand year/year of +1.6% (still well below the 2% target). The FED is also due to release the FOMC minutes from December. Do not expect this to shed any new light on FED thinking. We will hear from some of the talking heads today. Atlanta’s Ralphy Bostic, Minneapolis’s Neely Khashkari, Dallas President Bobby Kaplan, Richmond Fed President Tommy Barkin and Cleveland’s Loretta Mester are all expected to opine on the US economy at separate events around the country. I don’t expect that any of them will move the markets. What will they say?
“We continue to watch the effects of the virus on the US and global economy and will respond in kind if we need to…”
The S&P closed at 3370, and still feels like it wants to challenge 3390. Although that is NOT happening today. Yesterday I said that the downside felt like 3365/3370. In fact, we traded down to 3355 before rallying back to close at 3370. With the mood today, expect the markets to attempt to find support and push higher towards 3390. Do not expect Apple to say anything else right now. They already said they wouldn’t know the effects until April. My guess? They take back all of yesterday’s losses. In Europe Apple is trading UP 1.3%… Capisce?
Oil which has tossed and turned during the course of this outbreak, is higher today. Guess what they are saying today? (You won’t believe this…): “Optimism that the economic impact of the virus will be brief!” Are you kidding me? All the oil traders did was tell you how dire the news was: OMG — the virus will kill demand, oil is going to plummet, blah, blah, blah. And today, someone wakes up and says they expect the impact to be brief meaning demand will surge? Whatever, the recent move up has more likely been due to the production cuts and US sanctions on Venezuela. Either way, oil is trading up by 1.44% or 75 cents at $52.69/barrel, remaining in the $50/$55 range.
Gold? As expected, with a nervous market, investors are once again flocking to gold (and treasuries and Utilities). Gold ended up trading up and thru $1600 yesterday as the Apple warning caused investors to go all in. And this morning, it is up $5 more at $1,612/oz., appearing ready to challenge the highs at $1,620/oz. The gold market, unlike the equity market, is telling you that it is more concerned about the virus, and that central banks will remain more dovish at this time, which is why the equity market continues to find support!
On a side note, last night was the CNN Town Hall with Bernie, Petey and Amy. Tonight is the broader DNC debate which will feature Mikey Bloomberg. Expect shots to be fired at the former NYC mayor as Bernie is going “all in” on this one. Lizzy is fighting or her life and Joey appears to be fading fast. Petey and Amy, holding on. And did you see that Stacy Abrams has thrown her hat in the ring for the VP spot for anyone of the nominees. Pull up the couch and get the popcorn. This is “reality TV” at its best. Are we looking at Bloomberg/Abrams 2020 ticket? Or Amy/Petey 2020 ticket?
Take good care.
Dover Sole Meuniere
So all of this back and forth feels a bit fishy to me. Is China telling us the truth or not? Are they getting back to work or not? Are more people dying than they are letting on? Either way, try the Dover Sole…
Sole Meunière – easy to make and can be varied according to your own tastes:
You will need: Dover sole (or lemon sole) flour, eggs – scrambled to make an egg wash, s&p, butter/oil, lemon, parsley and capers (optional).
Rinse and pat dry the filets – Combine flour, salt and pepper – dredge the filets in flour and then place in the egg wash.
In a skillet over medium-low heat, melt the butter and add a splash of Olive oil to prevent the butter from burning. As soon as the butter stops foaming place the filets in the pan – being sure not to overcrowd the pan (maybe 3 fillets at a time). Cook for 2-3 mins then turn and cook for an additional 2-3 mins depending on thickness of the filet. Only turn once during cooking.
Place the filet on a warmed platter and melt a bit more butter in the skillet – turn off the heat so that you do not burn the butter… squeeze the fresh lemon into the butter – add capers if you want and stir together.
When completed – pour this sauce over the filets – sprinkle with fresh parsley and serve immediately. Serve this dish with French cut green beans – that are first blanched in salted water, then shocked in a cold bath then quickly sautéed in a bit of butter and s&p. Easy, quick and good for you.