18 May AS EXPECTED THE DATA IS HORRIFIC

Posted at 12:56h in Market Commentary by
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As widely expected April’s economic data is horrific. Retail sales and factory output registered the steepest declines on record. Retail sales fell 16.4% and industrial production plunged 11.2%, shattering a 101-year record.

If one is looking for some optimism, the decline in manufacturing was not as bad as forecasted and job openings were nominally higher than expected so were various consumer sentiment indicators, perhaps the result of massive stimulus checks.

As written a gazillion times, the economy must reopen or the risk of even greater and longer lasting damage increases exponentially.

Entire industries have been shuttered causing unemployment to soar and only massive public spending is keeping millions of households [and businesses] afloat. Government can not keep on printing money. At some juncture this fiat money creation will crumble.

Perhaps Jenga is a great example of current monetary and fiscal policy. At what stage is the proverbial tower?

Equities traded lower on the data, however a surge in oil lifted energy companies. Crude is trading around a six-week high, rising for the third consecutive week. Production has been cut by record amounts and signs are continuing to suggest demand is recovering, perhaps at a rate much greater than expected.

Oil is still down 50% from early year levels. Some are suggesting that prices could rebound back to these levels if production remains shuttered and demand continues to rise.

All oil theocracies are hemorrhaging monies. Iran requires over $300-barrel oil to pay its bills. Iraq requires $125/barrel. Saudi Arabia $75. The Economist wrote the massive economic imbalances in Middle East Theocracies could potentially cause generational changes that could rival the changes as to when the modern Middle Eastern borders were drawn following WWI.

Wow! The potential ramifications are endless.

What will happen this week?

Last night the foreign markets were up. London was up 2.37%, Paris up 2.39% and Frankfurt up 3.021%. China was up 0.24%, Japan up 0.48% and Hang Sang up 0.58%.

The Dow should open nominally higher on reopening optimism and from belief the Federal Reserve will step up stimulus as needed to counter the pandemic impact. Oil is up almost 10% as Chinese oil demand is almost back at pre-virus levels. The 10-year is off 3/32 to yield 0.65%.

 

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