Delta in the UK – Not the issue you think, ADP and NFP this week

• “Ain’t happening here, Mate!” – that is the word from the UK.

• China reports weaker PMI, Jack Dorsey’s SQ buys Australia’s Afterpay at a 30% premium – stocks in Asia rally.

• European stocks are higher, US futures are surging.

• Last full week of earnings…expect some 100+ reports this week.

• ADP and NFP on Wed & Friday – sit tight.

• Try the Pea Pesto.

US Stocks were weaker on Friday – following the global markets lower…. A spike in the delta variant, lingering concerns about regulation in China and their clampdown on the internet and technology sectors as well as concerns over regional political issues, uncertain FED policy ahead, mixed earnings that are beating on all metrics are beginning to report that the next 6 months may not be as strong as the prior 6 months (and we knew that) are all causing some angst for investors – or at least it did on Friday…as portfolio managers did some window dressing….a common monthly occurrence that takes place on the last day of the month…setting them up for a new month which begins today….
By the end of the day - the Dow was off by 150 pts, the S&Ps off 24 pts, the Nasdaq down by 106 pts, and the Russell is down by 14 pts…

PG – which gained 2% on Friday -  is the latest blue-chip to report gains in almost every business unit but then sounded ‘somber’ as it warned of coming pressure on forwarding guidance due to higher costs for raw materials and transportation causing a slowdown in sales….which will put pressure on profit margins – suggesting that maybe higher prices are coming…….CEO David Taylor – who is stepping down in November had this to say –

“Commodities and cost pressure have escalated significantly.  You have a tough external environment and a pandemic that is raging.  Many parts of the world are at the worst they’ve ever been.”

And this is in line with what we’ve heard other CEOs say…. Church and Dwight (CHD) is just another consumer goods maker that manufactures and distributes household and personal care and specialty products……  and they are considering a 3rd price increase in 2022 on top of the 2 price increases in 2021 on everything – Oxiclean, Trojan condoms, Arm and Hammer detergent to a variety of shampoos, vitamins, pregnancy tests, and hair removers.  The company is still using shortages caused by Texas ‘freeze’ as a talking point…. OMG – get over it already…. that freeze was 5 months ago….

Friday’s eco data was a bit stronger than the expectations and that once again raises the FED issue – What will Jay do now?  The 10 Yr. Treasury ended the day yielding 1.22%, while the VIX (fear index) rose by 3%.  Oil ended down 22 cents at $73.73 and Gold is holding its own at $1,815 – after kissing resistance at $1,832.

This morning futures are up…. on the first day of trading in August….and again suddenly the concerns from Friday are not a concern for Monday…. Dow futures up 188 pts, the S&P’s up 28, the Nasdaq up 84, and the Russell is up 23 pts.
Asian markets kicked off the week and ended up strongly…. the Caixin/Markit Manufacturing PMI for July coming in at 50.3 – well below the expected 51.1 while the ‘official’ China gov’t version was 50.4 vs. their estimate of 50.9.  In Australia – markets were on fire…News that Square (SQ) – Jack Dorsey fame - is buying Australian firm After-Pay and that sent those markets surging….and the stock up 18% in Australian trading….... SQ is quoted a bit lower this morning on the news – $238.60/$239.40 – vs. Friday’s close at $247.26 and that makes sense…it was an all-stock deal that paid a 30% premium for AfterPay.   Afterpay is in the ‘installment loan’ business – very much like Affirm, PayPal, Klarna, even Mastercard, AMEX and Google are getting into that space…so it is hot, hot, hot and it is disrupting the traditional ‘revolving credit’ industry.  Japan + 1.8%, Hong Kong up 1%, China up 2.5% and Australia up 1.35%. 

European stocks are all higher on the back of the Asian performance and more positive earnings, M&A, and better economic data.  Carmakers and retailers leading the way higher…better earnings from HSBC, Heineken, a takeover bid for Meggitt PLC and word that Eurozone factories are hiring new workers at a record pace is causing all kinds of excitement…. I reached out to one of my many contacts in the UK and asked him about the delta variant and if it is as ‘out of control’ as the papers here suggest – his response “Not at all mate”…..while it is spreading – 80% of UK citizens are vaccinated so the effects are mild at best and deaths are plummeting….The sense is that we just have to learn to live with it, as we live with the annual flu virus…..the idea of another lockdown – ‘Ain’t happening mate’!  At 6 am – all markets across the region are up between 1% - 1.5%.

This week here at home we will get earnings from LYFT, AMGN, UBER, CVS, GM, ROKU, and Square.  Of the 60% of S&P companies that have reported – 88% of them have beaten on all metrics….EPS, top and bottom lines….and everything in between…that is about 15% above the norm…but it is what it is, and we knew this was going to happen.  This week also brings us a slew of economic data that includes the ADP employment report on Wednesday and the Non-Farm Payroll report on Friday…. but there is also – Manufacturing PMI’s, Services PMI, Construction spending, Factory Orders, and the other usual suspects.

Much attention will be paid to both the ADP and the NFP reports for obvious reasons – as it will detail job growth for the month of July…and that will be a key statistic that the FED will use to further their conversation about to taper or not.  Remember – the Jackson Hole FED boondoggle is Thursday – Saturday, August 26th – 28th.  Expect to hear lots of speculation all month about what to expect…and expect to hear from a variety of fed members opine on what is next for the FED – with both sides coming to the center court to float a different balloon…. Recall – that is how they take the temperature of global investors - toss something out there and watch the reaction….

And guess what oil is doing today???  YUP – you got it….it is under a bit of pressure because the China macro data was weak and so the paparazzi are telling you that because the macro data in China is weak that MUST mean that demand will fall off and omg…. oil prices will decline…PLEASE – stop the lunacy.  Demand is alive and well…. unless of course OPEC+ and the Americans begin to flood the market with so much oil that there is no place to store it, that prices collapse…Not happening mate!  Trendline support is at $70.60 – and while I do not believe it will go there, much depends on the conversation surrounding possible new lockdowns across the globe and to quote my British friend – Not happening here, mate!

The 10 yr. Treasury yield is up small, but it’s early…the VIX is down, which makes sense since stocks are up…. While Bitcoin continues to hover around $40k and Ethereum hovers around $2,600.  The $1 trillion bi-partisan infrastructure bill is making its way thru the senate and is expected to be passed by Thursday but House Speaker Pelosi refuses to bring it to the house floor unless they get the additional $3.5 trillion reconciliation bill that they want first….…. And don’t forget – the House is now on a 6-week summer vacation – so no one is home right now anyway….

Remember - Valuations remain rich, monetary policy can’t go on unchecked forever, 10 yr. and 30 yr. rates are expected to end the year higher from here.  We are beginning to see mask mandates again for everyone – vaccinated or not and that is causing tremors along political lines – …..breaking up friendships, marriages, and families…..In addition, we are about to enter the ‘danger zone’….the seasonally weak time of year that happens every August – October – so expect volatility to increase and as the VIX goes down and stocks go up until that relationship reverses and the VIX goes up and stocks go down…..this is not rocket science at all….

And let me remind you – that is no reason to jump ship, don’t panic, look for the opportunities that are about to be created.   Investing is dynamic…. not static.

The S&P closed at 4,395 and if the strength holds – expect to test last week’s high of 4425 early on…. but remember – the tune can change on a dime….so be ready to go shopping.   

In any event – it is the end of the month…. not surprised to see weakness after a strong month…no reason to think it is the beginning of the end…but the virus variants remain risk factors for the markets especially as we come into the fall which tends to be weak on its own….…. I am still thinking we get a 7 – 10% correction over the next 2 months….

In any event - stick to the plan…remember – investing is dynamic…keep some cash ready to deploy, but don’t be so quick on the trigger just yet…

Cavatappi with Pea Pesto

The pesto sauce originated in Genoa which is in the Liguria region of Northern Italy.  Liguria borders France, Piedmonte, Emiglia-Romagna, and Tuscany.... and sits right on the coast of the Ligurian Sea.  Portofino is just up the road from Genoa and is a popular summer destination for Europe’s rich and famous.  The hills lying immediately beyond the coast coupled with the sea account for a mild climate year-round. Average winter temperatures are 45 to 50 °F and summer temperatures are 73 to 75 °F.  This makes it a very temperate place year-round and as such remains quite popular.
Today's recipe makes use of the mortar and pestle - The verb Pestare means to pound or crush - Pesto is the past participle of this verb. - The reference to pounding is because of the way they used to make it in a mortar and pestle -  this is a tool that is used to crush/grind certain ingredients/herbs etc.... Today we will use a food processor.  Pesto is usually made with garlic, basil, pine nuts, parmigiana cheese, and olive oil... (In other recipes - I substitute - basil for Arugula, Asparagus, or Broccoli and make pesto out of those ingredients) so today we are going to use Peas. 

For this, you will need Frozen peas, Parmigiana cheese, 2 garlic cloves, a splash of lemon juice, a bit of chopped basil, pepper (the cheese is salty enough), and olive oil.

Bring a pot of salted water to a rolling boil. 

Next bring a small saucepan of water to a boil and add the peas...cook, until the water re-boils +1 min.  Now strain... Blend all the ingredients - taste - adjust, if necessary, then set aside.

Add the Cavatappi to the pot of salted water.  (You can use any type of pasta you want - but I like Cavatappi with this one.) - cook for 8 / 10 mins or until aldente...strain - reserving a mugful of the pasta water.  Put back in the pot and add back 1/4 cup of water to remoisten...stir....no puddle in the pan...capisce?  Now add the pea pesto and toss.  Serve immediately in warmed bowls. Always have extra grated cheese on the table for your guests.  Again - this is a simple meal and easy to prepare. Enjoy it for what it is - comfort food....