Markets Thrash, Weaker US Data, Stronger Asian/Euro Data - HK Concedes Markets Soars +4%

What You Need to Know Today

• Hong Kong stocks soar Carey Lamb announces the removal of the extradition bill – sending mkts higher

• US ISM Manufacturing slips below 50 – sending shivers thru the mkt

• Asian and EU PMI’s better than expected – sending mkts higher

• US futs try to regain Tuesday losses

Stocks began the month in negative territory…..imposition of new US tariffs and new China tariffs setting the stage and then at 10 am – the gov’t reported that US ISM (Institute of Supply Management) Manufacturing Survey slipped below 50 – sending that indicator into contractionary mode causing  the algo’s to blow a gasket…… the S&P went from 2914 to 2891 – or a 23 pt swing in the matter of min as the news hit the tape…..because you see, the drop in manufacturing suggests that the global economy is weakening….and that the impact of the lack of a US/China trade deal is beginning to hit home…….so look – this indicator has been weakening and that has been causing some alarm bells to go off, add that to the inverted yield curve, and weakening  commodity demand (think oil and copper)  and falling interest rates around the world and we begin to have a bit of a clearer picture of what the future might look like…..  By the end of the day – the Dow gave up 285 pts or 1.06%, the S&P fell by 20 pts or 0.70%, the Nasdaq lost 88 pts or 1.1% and the Russell once again got smashed giving up 22 pts or 1.5%.  And the fact that the Russell – which is an index of US centric names that typically have little to no exposure to trade war rhetoric – fell the most may just be the canary in the coal mine….what is this US centric index telling us? 

Look the Russell is considered a barometer of the American economy….it is about the confidence in the American economy……and this index contains 2000 names of smaller US companies that do very little business abroad – and this means that they are more exposed to what happens here at home…..they are a better barometer of the US economy vs. the multinationals that are more dependent on the global economy…. And the idea that this index moves more than the broader mkt on both down and up days just goes to show you that investors remain nervous about the US economy….because if they weren’t – this index would be a bit more stable….just sayin’….

Industrials fell nearly 1.4% as a group,  tech lost 1.2%,  financials fell 1.15%, communication stocks also got hit hard – falling 1.%.....the bright spot?  You guessed it – Utilities….rising more than 1.7% - bringing its YTD performance to better than 23%!  They are utilities!  Boring, conservative, not-sexy, not exciting, but are one of this year’s best performing sectors…and why?    Because they are boring, conservative, not sexy, and not exciting and they represent ‘value’  – so  in a time of concern and caution – they are the go to sector that offers equity exposure, healthy dividend payments, stability and safety in the storm…when the mkt gets hit,  they rally and when the mkt surges they back off – just a bit – they do not have the wild swings that other sectors have…..they are considered one of the asset classes known as the safety trade – other classes include gold, treasuries and real estate. 

And as such – we saw gold and treasuries continue to rally as money from abroad moves into those assets as well as US money coming out of equities that is looking for a home…..10 yr treasuries are now yielding 1.49% - they were yielding 1.50% on Friday!  And gold?  Continues the march higher….ending the day yesterday at $1,555/oz – a spectacular surge higher since early June…..when gold was trading at $1,295/oz,,,,representing a 20% move up – all as a result of the growing concerns over US/China trade, increasing geo-political issues (BREXIT, Hong Kong, Italy, Argentina, China, North Korea and the Mid-East) and slowing global growth – causing every central bank around the world to consider more cuts to already historic low interest rates….Which, on the one hand is putting a floor under equities (which is going to become a problem) but on the other hand raises questions about the health of the global economy…..

Overnight – stocks around the world got a boost from the Hong Kong news – which had been rumored all night and was made official just hours ago…..and that sent stocks in HK to soar by 4%.  China also reported better than expected composite PMI data for August – coming in at 51.6 – up from 50.9 – putting that indicator back into solid expansionary mode – (this report was the best it has been in 5 months) ……and stocks in Australia came under a bit of pressure after the RBA (Reserve Bank of Australia) left rates unchanged at 1% and data showing that their economy is performing as expected….. Japan +0.12%, HK + 3.9%, China +0.84% and ASX -0.31%

And not to be left outdone – the EU (European Union) reported a headline PMI number of 53.5 up from 53.2 – and that is equally as bullish as it puts the EU further into expansionary mode as well.  Both of these reports are helping to ease the concerns about the health of the global economy (at least for today).  And on the political front – UK PM – Boris Johnson suffered a setback when members of his conservative ruling party jumped ship and voted with the opposition to stop the UK from leaving the EU with a ‘No Deal BREXIT’ – meaning that the Brits have now decided that they are not going anywhere without a clear path and plan.   This caused Boris to immediately EXPELL them from the party and call for a snap election – resulting in more drama…..……The Italians are appearing to set up a new gov’t after the ‘anti establishment party’ (M5S) is combining forces with the center left Democratic party (PD) and that should begin to calm the angst created by that latest drama.  And the French are handing the Iranians an olive branch – offering a $15 bil credit line thru December 2019 – PROVIDIING that they return to full compliance dictated by the 2015 nuclear deal (remember John Kerry?) – and all of this rides on Donny saying ‘OK’.   FTSE + 0.34%, CAC 40 + 1%, DAX + +1%, EUROSTOXX + 0.78%, SPAIN + 0.66% and ITALY + 1.55%.

US Futs are UP – taking back everything they gave up yesterday…..but remember – if the Dow lost 1.08% by falling 285 pts yesterday – today they would have to rise by 1.1% or 287 pts just to be even….Capisce?  Right now – Dow futures are up 197 pts, the S&P is up 22 pts, Nasdaq is up 78 and the Russell is ahead by 10 pts.  Much of this move is being credited to the news out of HK (which will be short-lived) because that was a specific country political issue and not an economic issue…..but news out of Italy – and news out of the UK – are much more global economic issues and are therefore a bit more relevant to how investors consider the future of the global economy.  
Eco data today includes – Mortgage apps which came in down 3.1%, and the FED’s Beige Book – which details eco conditions around the country within the 12 Fed Reserve bank districts.  I suspect that we won’t learn anything significant – and that the report will continue to show a mixed at best picture.  It could though cause some pundits to opine on the extent of the next move in rates by the FED later this month.  Will it be 25 bps or 50 bps.   Expectations currently call for a 25 bps move – anything more dovish (think 50 bps) would be welcomed by the mindless algo’s that still can’t interpret the spoken word. 

We have a busy schedule of Fed speakers today:  NY’s Johnny Williams (9:30 a.m. ET), Dallas’s Ricky  Kaplan (10:00 a.m. ET), Fed Governor Mishy Bowman,  St Louis’s Jimmy Bullard (12:30 p.m. ET), Minneapolis’s Neely Kashkari (1:00 p.m. ET), and Chicago’s  Charlie Evans (3:15 p.m. ET).  What could all of these mouthpieces possibly have to say and will they support each other or will they show a splinter in the group?

The S&P remains in the 2850/2950 range – a range we have been in since the July breakdown.  And while today’s action feels positive – my sense is that there is still some volatility ahead – so be patient….stay invested but don’t get dragged into chasing any names with new money…..

 

Chicken, Sausage and Sweet Vinegar Peppers

You will need: Thighs (bone in/skin on), s&p, olive oil, sweet Italian sausage, Vinegar peppers, butter, garlic, white wine, chicken broth, marinated artichoke hearts and flour.   Total time 1 hr...start to finish....

Preheat oven to 375 degrees - Preheat grill for cooking the sausages

Season chicken pieces with s&p - heat up oil in frying pan - when hot - reduce heat to med/hi - now add chicken and brown on all sides - maybe 10 mins total.  Now remove and place in a baking dish and put in the oven and continue to cook for about 30 mins....

Next - cook the sausage on the grill - careful not to burn....maybe like 10 mins total....remove from grill and let rest for 3 or 4 mins then cut into bite size pieces.

In the meantime - add the chopped garlic to frying pan (that still has the juices and oil from chicken) along with sliced vinegar peppers - sauté. Now add the sausage, a bit of butter and some white wine and reduce (5 mins) - next add chicken broth and the artichoke hearts....sauté for another 5 - 8 mins...

In a separate bowl - whisk together some flour and milk (you can use water) and add to the frying pan - allowing it to cook and thicken a bit....do not let it get too thick - you can add a bit of broth if you need to.  Re-introduce the chicken to the frying pan and allow to simmer for 2 or 3 more mins.

Now serve on a large warmed platter family style.  Accompany with a large mixed salad and a green vegetable – maybe some sautéed broccolini.