China UPS the Ante!

Stocks were a bit weaker on Friday, after 5 days of flat trading closing on the lows of the week. Selling pressure increasing as the day wore on suggesting that the traders became a bit more aggressive ahead of the weekend as they limit their exposure ahead of so many geo-political issues this week.

The weakness and sideways trading that we are now seeing likely reflects some profit taking by traders. Volumes remained subdued signaling that long term investors are not anxious but traders are more likely questioning whether stocks can remain at these levels with what appears to be a short term correction beginning to develop. The realization that some form of an interest rate hike is likely over the next 6 months is finally setting in and this will most likely limit the upside despite the launch of the European QE program.

Last week - as expected - the Commerce Department revised 4Q GDP lower - to 2.2%, reflecting an incredible slowing pace of economic growth despite the traditional holiday bump in consumer spending. Remember that 3rd qtr GDP was reported at a 5% growth rate – so this latest report was a disappointment for sure. But it causes one to wonder whether or not the better explanation for such a big drop is that both quarters were artificially adjusted to read much higher than they actually were. Peter Bockvar - Chief Mkt Analyst at the Lindsay Group had this to say.

"Bottom line, the U.S. economy remains stuck in the 2.25-2.5% range as productivity growth remains well below the long term average."

Recall that in the 3Q of 2013 we saw a huge 'overstated' inventory build which was then adjusted in the 1Q of 2014 - The gov't told us that last year's nasty winter is what drove GDP negative. Are we seeing the same thing happening all over again? 3Q of 2014 saw a huge GDP number (5% - well above any expectation) due to a greatly overstated inventory build. We wondered out loud whether or not retailers were really loading up on inventory going into the holiday season after such a bad experience in 2013. We discussed and doubted the inventory build in 2013 and then again in 2014 - so are we now seeing the adjustment of that 'inventory build' in a downward revision of 4Q GDP?

I suspect that we will see 1Q final revision of GDP lower than the final 4Q revision of 2014. This is not what we want to see nor is it a healthy sign. Lower energy prices should be acting as a stimulus for greater spending, but it appears that consumers are saving the extra money created by lower energy prices - counter to what the gov't wants us to do......and this does not bode well for a rising GDP.
Last week - we continued to get mixed data on housing - so no clarity there, but the spring selling season is now launching - so it will be the future reads on housing that are really important....Will we see buyers become aggressive ahead of a possible rise in rates? Will we see sellers become more reasonable?

So what's on the docket this week? Well - China starts the week off on the right foot - the PBoC (Peoples Bank of China) ups the ante, cutting their benchmark deposit and lending rate for the second time in 3 months. The cut came out BEFORE the Purchasing Manager report - which did show a slowing for the second straight month. No one should be surprised - we have been talking about when they would turn up the heat. Many analysts will tell us that this move was likely targeted at helping to support the current valuations in the property/real estate sector - but this move will also help put a floor under equities. Valuations in China are still relatively cheap, considering the real underlying growth rate of their economy and this move shines the spotlight on their willingness to lower domestic exchange rates to boost competitiveness. Asian mkts all enjoyed an up day with Japan + 0.15%, Hong Kong + 0.26%, China + 0.78% and ASX + 0.51%.

So does this throw a monkey wrench into the FED's thought process? I expect an increase in the chatter from Washington as the recent weakness in the Renmimbi vs. the dollar is only going to place more pressure on the Fed and the balance of trade - so once again - Will we see rates rise anytime soon? Not so much......

And according to JPM's economist - Bruce Kasman - we can expect Poland, Australia, Canada, Norway, Hungary, Thailand and South Korea all to join in the party.....before it's over...as deflation worries seem to be subsiding and oil seems to be finding a bottom here at $50/barrel. (Look for oil to trade into the $60/$70 range as the global economy firms up) - causing the FED to raise rates in June......

US futures are flat this morning - but were a bit higher in overnight trading. Traders will have to digest this news but we have been hitting our heads on resistance at the 2115 level.... Today will bring us a range of more macro data - Pers Inc of +0.4%, Pers Spending of -0.1%, Markit US Manf PMI of 54.3, Const Spending of +0.3%, ISM Manf of 53. As long as these reports come in as expected and there are no surprises - then I would continue to expect the mkt to churn and test a bit lower at 2085 ish. Either way - nothing for the long term investor to worry about at all.

Friday brings us the monthly NFP and Unemployment report....exp of +225k jobs created along with a drop in unemployment to 5.6% will be the focus.

European mkts were all higher on the back of the China rate cut but have since moved into negative territory..... European Manf PMI for the whole of the Eurozone were mostly in line with estimates and imply that the EU economy is beginning to see signs of real growth BUT the flash inflation rate report came in negative at -0.3% - again sending mixed messages to investors. FTSE -0.2%, CAC 40 -0.79%, DAX -0.14%, EUROSTOXX -0.40%, SPAIN -0.27% AND ITALY -0.24%.

Herb/Balsalmic 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 hr....(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.


Buon Appetito.