What You Need to Know Today
Mkts tread water ahead of the FED and all the Eco data
FOMC expected to prime the pump (again)
Oil finds resistance at $56 over global eco concerns
S&P and Nasdaq hit a new record! Closing prints – Dow + 51 pts or 0.19%, the S&P + 22 pts or 0.74%, Nasdaq + 91m pts or 1.11% and the Russell surged by 17 pts or 1.12% Earnings on Friday knocked it out of the park! All names you know – and all of this coupled with a robust US economy, a strong consumer and an expected FED rate cut on Wednesday caused the momentum algo's to go all in. the GDP report came in at +2.1% (vs. the exp of +1.8%) only added fuel to the fire. Now what's really interesting – is that GDP was expected to come in at +1.8% (we knew that and yes, it was down from the 1Q 3.1% rate) yet the WSJ chooses to run with this negative headline...
"Economic Growth SLOWED to 2.1% in the Second Quarter" - do you see the negative? It could have said
"Economic Growth SURGES beyond Analysts Expectations" - See the difference? One accentuates the negative while the other accentuates the positive....
in the end – a 2.1% rate is a solid number and a solid performance....First because it is a 2 print and next because GDP got a boost from consumer spending – and the consumer spending makes up about 2/3 rds of the US economy...so this 2.1% print reflects a healthy consumer and a healthy US economy......which begs the question about the coming rate cut on Wednesday. And we can expect more questions about the rate cut as the next 3 days unfold. In addition to the expected cut (25 bps) – investors/analysts/traders etc will be paying very close attention to WHAT FED Chair Powell says....The mkt is also beginning to question whether or not he will announce the immediate end of the balance sheet reduction program.... Something that has not been discussed broadly.....and something that I'm not sure is fully priced in.....and the end of that program will be another boost for the mkts.
Now look, there are still some people out that are betting on a 50 bps cut on Wednesday.....(which seems a bit ridiculous) – but can Jay Powell say something that will soothe the angst? The angst being the expectation that we NEED a 50 bps cut...... Look, the mkt is expecting this rate cut – whether we need it or not, they have forced this down our throats – threatening to throw a temper tantrum if they don't get what they want . I mean look at what happened with NY Fed President Johnny Williams – his speech generated a lot of talk about ‘slashing rates' (read 50 bps) and that caused the mkts to surge and then sell off when he and the NY FED pulled back – saying that the mkt misunderstood his comments.
We sold off and then proceeded to rally to new highs on the back of good earnings and on the fact that the FED and others quickly tried to calm the mkts suggesting that this cut is the beginning of a round of cuts...supporting the 3 ‘expected' rate cuts this year. A move I am not in support of but a move which the mkt is screaming for.......So, you will need to listen to the tone and the words on Wednesday.....
My concern is that the mkt (think algo's) will throw a fit (temporarily) if Jay cuts 25 bps but does not indicate the next one or two, or does not indicate the timing of the next one or two Over the weekend - former FED Chair Janet Yellen – jumped on the band wagon....saying she supports this cut while also saying she does not believe it is the beginning of a series of cuts (contradicting the mkts expectations)
"the United States isn't an island. We are part of the global economy. What happens in the rest of the world – in Europe, In Asia – affects the United States. The global economy has weakened. I think partly it's weakened because of conflicts over trade and the uncertainty that's' caused for businesses"
This is all despite eco data that points to a strong US economy – so the idea that this is an ‘insurance' move, a move to protect the US economy from a supposed weaker Europe/Asia is how they are selling it. So, it is what it is....but if you give the algo's an inch – they want a mile....so if they don't hear that another cut is coming then expect them to hit the SELL button. Which leads me to ask once again – who is driving this bus? The FED or the black box algo's?
Which now brings up what is the VIX telling us? The VIX is the fear index – it details what the tone is looking forward – are investors nervous or calm? As of Friday night – the VIX is suggesting continued calm.....It closed at 12.78 – a level that is very complacent - but the chart suggests building pressure.....It is and has been building a base for the month of July.....so if the mkt does not hear what they want on Wednesday – then watch for a spike in the VIX – 14.60 ish is resistance – a pop thru that will see it go to 17.25 very quickly. (or a 34% move higher from here).
There was very little eco news over the weekend and nothing definitive on trade. Stevey Mnuchin and Bobby Lighthizer are on their way to Beijing for the next round of talks – talks that are expected to yield very little – I mean it all looks good, but is it more about the optics?
Eco data today includes: Dallas Fed Survey – exp of -5 which would be up from -12 so that would be considered positive. Later in the week – we get Personal Income – exp of +0.4%, Personal Spending – exp of +0.3%, Pending Home Sales of +0.5%, ADP employment of +150k jobs, Employment Cost Index – exp of +0.7% (this index details the qtrly changes in costs for labor – defined at wages and benefits. The report is broken down by sector and industry.) Wednesday brings us the FOMC rate decision and the Challenger Job Cuts, Thursday brings us Markit US Manf PMI of 50.1 (right on the cusp of expansion/contraction), ISM Manf PMI of 52, Construction Spending of +0.3% and then Friday brings us the monthly NFP (Non-Farm Payroll) report.....and that expectation is for + 170k new jobs with unemployment holding steady at 3.7%. Factory Orders – exp of +0.7% and Durable Goods.
Oil trades up to resistance at $56.91 and backs off.....easing tensions in the Mid-East and all that concern over a slowing global economy, coupled with more supply – is causing investors to remain cautious.
European mkts treading water....ahead of US/China trade talks and Wednesday's rate decision. UK PM Boris Johnson is already getting heat from Scotland with Scottish Conservative leader Ruth Davidson already telling him that she would not support BREXIT without a true deal. It is August (almost) - most of Europe goes on vacation and mkts remain quiet – yet can be volatile – just like it can be here in the US. As we move thru August and prepare for the Fall... FTSE +1.62%, CAC 40 FLAT, DAX +0.11%, EUROSTOXX +0.17%, SPAIN FLAT, and ITALY -0.19%.
US futs are flat....Dow +10, , S&P -1.5 pts., Nasdaq -3.25 and the Russell +1.73 pts. With the mkt at new highs – and all of the news this week – this mornings tone is not surprising....It is a another BIG week of earnings....we are expecting more than 150 reports before the week is out and if that is the case then we can expect 80% of those to BEAT THE ESTIMATES and offer better guidance if the trend holds and if that is the case – then expect more talk about the strength of the US economy and why we need more than the 1 cut we are getting. Look for the S&P to find resistance right here at the 3025 level (thing trendline). Both the S&P and the Nasdaq have pierced 20% ytd performance with the Dow and Russell crawling right up behind at 16.5% and 17.5% respectively.
Seared Scallops w/Tomato Bruschetta
Ingredients: Sea Scallops, Dried Porcini Powder, Butter, s&p,
For The Bruschetta: Ripe, Plum Tomatoes, Garlic, Peeled And Sliced, Olive Oil, s&p
Make the bruschetta and let it sit. Dice the tomatoes and place in a bowl.
Add the sliced garlic - maybe 2 cloves, olive oil and then season with s&p. Mix well and set aside
Rinse and pat the scallops dry with a paper towel. Now - sprinkle the scallops with the dried porcini powder on both sides.
In a heavy frying pan - heat the butter - add a drop of oil until it sizzles - do not let it burn!
Add the scallops - maybe 4 at a time - if you add to many - they will cool the pan and not sear properly. Sear on med high heat for about 3 minutes on each side. The scallops will have a light, crisp outer crust. - Remove and place on a plate - (Cover with tin foil to keep warm) and repeat the process until finished - placing 4 scallops on each plate.
Once you sear them all finish by spooning a bit of the bruschetta over the scallops and serve immediately. Serve with your favorite white wine. A simple - yet elegant dish.
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