China PMI Goes Expansionary, EZ Inflation Falls & The S&P Goes Golden

What You Need to Know Today

• China PMI surprises mkts – Asian mkts surge

• Japan Tankan Survey continues to show weakness

• Eurozone inflation slows to lowest in a year

• US/China trade talks set to continue in DC

• S&P to create Golden Cross  today

Stocks posted their biggest qtrly gains in almost a decade even though analysts are all screaming about a global slowdown…… – as central banks around the world reversed course – pledging to hold rates steady or in some cases go in reverse……US interest rates have come in significantly – the a recent inversion setting off another round of despair among some in the investment community….. German Bunds yields went negative 2 weeks ago as the German economy gasped for breath and Japanese bonds remained in negative territory as their economy continues to struggle and foreign investors juice up their returns by exchanging their currency into Yen and then buy Japanese debt – pushing the price higher while sending the yield plunging…..In December the FED pivoted as the fear of a global slowdown took on a life of its own forcing the FED to reconsider ‘the plan’.  YTD returns for the US indexes were in the double digits led by the Nasdaq  (think the role of technology and how that sector got absolutely smashed in the October/December ‘correction’), followed by the Russell 2000 – US centric small/mid cap names followed by the Transports (speaks to the health of the economy as goods need to be ‘transported’ around the world and the country) , the S&P and the Dow – with qtrly returns ranging from +11% to +16.5%.   

Look -while the FED indicated that they were ‘staying the course’ -  with US/China trade talks seemingly stalled (at the time), Eurozone growth going from warm to cold, and investors/traders/ analysts and strategists pointing to what they defined as weakening data around the world including the US – the mkt went into a meltdown – Tech got slammed, then industrials and before you knew it the broader mkt went from bull to bear as the indexes plunged better than 20% - dragging everything thru the mud.  Fear of continued selling brought calls from the President and some street analysts for the FED to call a ’time out’.    Jay Powell held his ground until he didn’t – and when the FED announced their pivot in late December – stocks suddenly represented a screaming buy opportunity in light of the fact that the story had now changed.  And that was then……and this is now……..Read on…… 

Back in January – my partner Chief Strategist Nancy Tengler (Tengler Wealth/ButcherJoseph Asset Management)  quoted the late John F Kennedy in her opening remarks of her weekly report.  In it she said:

  “When written in Chinese, the word ‘crisis’ is composed of two character.  One represents danger the other represents opportunity.”  

She went onto write why she believed that China was more opportunity than danger – and has told everyone she can think of that China will drive global growth in the latter half of the year.  And this morning we are now seeing the ‘green shoots’ of growth….. (Remember the term ‘Green Shoots’ took on a life of its own during the GFC – Great Financial Crisis….and is a term used to describe the sign of and economic recovery DURING an economic downturn.) 

China surprised investors over the weekend  – as the private Caixin/Markit Manufacturing PMI survey surged to 50.8 (expansionary) and the official survey surged to 50.5.  Expectations were for 49.5 from February’s 49.2 (Contractionary)  Remember 50 is the dividing line – sub 50 is contractionary while better than 50 signals expansion. Non-Manufacturing PMI (services) also rose to 54.8 from 54.3 – (even more bullish).   In her report this week (released this morning)  – she points out that

“We are beginning to see the fruition of over 70 easing acts by Beijing…..this is good news for investors wondering what the next catalyst for stocks will be in 2019.”

Asian mkts soared overnight….with China posting a near 4% surge as the sun was rising over the continent….Japan surged by 1.7%, Hong Kong +1% and the ASX rallied by 0.79% -  The better than expected Chinese data now suggests that there is a real possibility that China may be bottoming out and that caused the algo’s to run hog wild…….In addition  – US/Sino trade talks are set to resume later this week in DC – and all expectations are for continued success as some of the more prickly issues drive the conversation.  On the other hand – the Tankan Survey – released by the BoJ (Bank of Japan) showed continued weakening confidence among the big manufacturers – causing more angst for the BoJ – suggesting that maybe they need to add more stimulus……as inflation in Japan remains at just 0.2% far from the 2% target figure…..Either way the excitement overnight and this morning in Europe and soon to be in the US is going to be all about the Chinese data and that maybe we are seeing the bottom.  By the time the day ended – the Nikkei surged by 1.4%, Hong Kong added 1.76%, China ended the day higher by 2.6%, the Aussies added 0.59% and the South Korean Kospi was ahead by 1.29%. 

In Europe this morning – mkts there are also all higher as news of the better Chinese data hits the airwaves raising hopes that a turnaround  there will signal a turnaround across Europe.   Eurozone inflation readings released this morning revealed that inflation slowed ‘unexpectedly’ in March sending core prices to their lowest levels in nearly a year – strengthening the case for even MORE ECB stimulus……. Unemployment at 7.8% is the lowest in more than 10 years and wage gains – like in the US – are doing little to ignite inflation.  Mario (Draghi) ECB President is now looking for ways to maintain his ‘ultra-accommodative’ policy and is expected to announce a new program by June.   UK PM Theresa May is expected to put her BREXIT withdrawal agreement up for a 4th vote tomorrow as Parliament seek a compromise to ‘break the impasse’ that continues to exist.  In early trading mkt centers across the continent are all higher – FTSE +0.65%, CAC 40 + 0.59%, DAX +1.21%, EUROSTOXX +0.69%, SPAIN +0.62% and ITALY +0.66%. 

US futures are on fire……Dow futures +183 pts, the S&P up 23 pts, the Nasdaq up 67 pts while the Russell 2000 is surging by 10 pts – and yes…it is all about the China data and the US/Sino trade talks giving relief to investors worried about the rising fears of a global downturn. Last weeks ‘inversion’ of the 3 month/10 yr yield curve sent mkts gyrating initially but cooled off as the week came to a close. The trend remains constructive – as all of the indexes posted solid performance in the 1st qtr.  History suggests that when gains of better than 10% happen in the 1st qtr – then the year goes onto show gains 9 out of 10 times.  That being said – it is the beginning of the 2nd qtr and after a burst like we will most likely see today – it does feel a bit ‘peaky’ setting us up for weakness as we start earnings season - before a turn higher into the late spring.   We could see a surge to the March highs of 2860 today…..and then back off.  I still think we find support at the century mark of 2800 while trendline support remains at 2755.  The S&P is about to create its Golden Cross today and you know what that means psychologically. 

Eco data today includes Advance Retail Sales exp of +0.3%, Ex autos and gas of 0.3% as well.  Markit US Manf PMI – exp of 52.5 and ISM Manf Survey of 54.5, while Construction Spending is expected to fall by 0.2%.

Oil is rallying on the China news (go figure) as any signs of a turnaround in the worlds 2nd largest economy will ‘create more demand’ sending oil prices higher.  Coupled that with tighter supply because of OPEC and Russian production cuts and sanctions on Iran and Venezuela and you have the perfect recipe for forcing prices up and thru $60/barrel.  Washington instructing refiners to cut Venezuela off or risk penalties as well.   WTI did test and pierce long term resistance at $60.75/barrel even if for a brief moment – and is now trading at $60.59/barrel.  If predictions of a turnaround in China come true then expect the talking heads to start talking of $80 oil again – as OPEC/Russia threaten to  extend the production cuts in June.

Gold – last week we saw gold collapse on Thursday -as US/China trade talks showed real progress…..Gold broke support at $1,315/oz falling 25 pts to test intermediate support at $1,290/oz – this morning – gold is hovering just about at $1,294/oz and if the China story has real legs then we could see Gold come under more pressure and test long term support at $1,265/oz.  For now – it feels like we are in the $1,290/$1,315 range.

 

3 Meat Burgers - Chuck, Brisket & Short Ribs

So, you gotta try this the next time you feel like a burger…..You need:  Ground Chuck (with plenty of fat), ground brisket and ground short-rib meat, s&p, potato rolls, Yellow American Cheese (or a cheese of your choosing)  a bit of butter, cole slaw, arugula, red onion and the mayo/ketchup mix.

Start by combining the meats into a large bowl.  Season with s&p – mix well to incorporate.  Now make your patties with a hamburger press – (if you don’t have one – then  make a large meatball –  using a larger flat bottom glass – press on the meatball to flatten it out – leaving it a nice thickness.  – then using the same glass – turn it over to ‘cut’ out the burger – set aside on wax paper and repeat until your made all the burgers.

Light your grill and grease the rack so that the burgers don’t stick.  Place the burger on the rack – DO NOT press on it at all….just let it cook.  Flip it just once – again do not press on it – when it’s almost done – place the cheese on top and let it melt.

In the meantime – slice open the potato roll – melt some butter in a frying pan and place the roll flat down and ‘toast it’ – remove – place on your plate. Dress with the Mayo/Ketchup sauce, a slice of red onion (optional), some arugula, and a scoop of cole slaw.  When the burger is complete – place it on top  and ‘close the lid’   Delish……(I also made a meatloaf out of the it as well – had a lot of meat!     I will report back on that once I cook it!)