The Morning Call
3/6/18
The
Market
Technical
The indices
(DJIA 24874, S&P 2720) rose dramatically yesterday, following on the heels
of Friday’s bounce---though volume declined and breadth was mixed. The Averages finished above both moving
averages and within uptrends across all major timeframes. The technical
assumption is that long term stocks are going higher; though the Averages need
to overcome their former highs before we have an all clear signal.
The VIX fell 4 ¼
%, but remained in the narrowing trading range formed by lower highs and higher
lows but continued to trade at an elevated level, suggesting that there is no
end to the recent volatility.
The long
Treasury declined, ending below both moving averages, in very short term and
short term downtrends and is again nearing the lower boundary of its long term
uptrend, a breach of which would clearly intensify investors’ concern about
rising interest rates/inflation
The dollar was unchanged,
ending below both moving averages and in an intermediate term downtrend. It has managed to make a higher high after
bouncing off minor support; but it remains an ugly chart and should be doing
better as interest rates rise.
GLD was off fractionally,
though it is still above its 100 and 200 day moving averages and in a short
term uptrend. Still it couldn’t make it
above its prior high; and that is not a good sign.
Bottom line: investors
seem to have shrugged off fears of a trade war and/or buying the dip hasn’t
gone out of style. The technicals of the
equity market point higher.
Still the long
Treasury continues to point to higher interest rates/inflation; and the dollar
and gold (down) are trading in sympathy.
Fundamental
Headlines
Yesterday’s
economic data was slightly upbeat: the February Markit services PMI was in line
while the ISM nonmanufacturing index was above estimates.
Trade
remained front and center in the news flow with Trump crawfishing a bit from his
hard ass routine and the vast majority of business and congressional leaders
pleading for a rethinking of his position.
There was also news on the latest round of NAFTA negotiations, hinting
that the Donald’s rhetoric may be a negotiating ploy (ala art of the deal);
that is, he considers the tariffs an ‘incentive’ for a successful outcome.
Tariffs
are taxes (medium):
Checking
Wilbur Ross’s math (medium):
***overnight, the EU
announces countermeasures if Trump goes through with tariff threats (short):
https://www.zerohedge.com/news/2018-03-06/eu-retaliates-trump-trade-war-tariffs-targeting-gop-states
Bottom line: it would seem that my rather dismal analysis
in yesterday’s Morning Call of the current tariff threats (Playing out before us is a huge gamble by Trump: is he right about the
extent of price cheating and that there will be little response or is he about
to start a real trade war?) and counter threats left out a third scenario:
that we are witnessing just an elaborate ‘art of the deal’ bluff. Silly me; because I have proposed this
alternative numerous times in these pages.
Not that that is what is happening.
But it is certainly a viable third possible outcome to what is now only
a battle of words.
More
on valuation (medium):
News on Stocks in Our Portfolios
Revenue of $664.7M (+20.7%
Y/Y) beats by $34.09M.
Economics
This Week’s Data
US
The
February Markit services PMI was reported at 55.9, in line.
The
February ISM nonmanufacturing index came in at 59.5 versus estimates of 58.8.
International
Other
In
yesterday’s Morning Call, I referred to Jeffery Snider’s assault on the
credibility of the Fed’s math. Here is
another edition. (medium):
Here
is a study on the effects of central bank communications (medium):
Fed
considering revamping the Volcker Rule; what could possibly go wrong (medium):
Update
on US business cycle risk (medium):
The
latest look at the US budget---deficit (medium):
Update
on oil supply/demand (medium):
What
I am reading today
Nouriel Roubini on
blockchain technology (medium):
Why does money make some
people miserable? (medium):
***overnight,
North Korea says that it is ready to de-nuclearize; ‘says’ being the operative
word (short):
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