24 May WILL WASHINGTON BEGIN TO WEIGH UPON THE MARKETS?
Is the circus in Washington beginning to weigh on the markets? To date Washington has been viewed nothing other than a freak show, a made for reality TV and cable show. Has all crossed over the proverbial lines? Perhaps the only concrete statement to make that if a public company acted in a similar manner as Washington, those shares would have been crushed and the Board replaced. The frightening aspect is that government spending is about 21% of GDP.
Speaking of politics, what words can be used to describe Brexit? Similar to Washington, London’s happenings have been a market nonevent. Is this too about to change.
And then there is the Middle East. In some regards words such as anarchy and brinkmanship describe conditions. In my view there is little geopolitical premium in prices.
And then there is economic activity, monetary policy and trade. In some regards economic activity is strengthening (jobs) and in other regards slowing (a third tier manufacturing report).
Monetary policy has not been a recent factor but the markets have already discounted an interest rate cut. The issue at hand is Fed officials have stated their next move in short term interest rates could be either up or down. Will this lack of clarity become a factor?
The current primary market catalyst is trade, in which volumes have already been written.
The question at hand is whether the other five issues listed above evolve into major catalysts?
Radically changing topics, yesterday Merrill Lynch issued a warning regarding “FANG.” Merrill wrote they are about to get “smacked down” by the regulatory entities with risk heavily weighted to the downside. The report did not mention trade but as widely discussed 59% of technology sales are from abroad and the vast majority of production facilities are domiciled in China.
Volumes have been written but warnings have yet to be heeded about the massive concentration of funds in these names. Is Merrill attempting to get out in front of the issue?
Commenting about yesterday’s trade induced selloff, Bloomberg writes the selloff is far from memorable. Yes 86% of stocks fell in the S & P 500, just shy of the 90% readings that convey emotion and lopsided selling. Moreover 80% of the volume was in declining issues. But that is the issue…the volume was anemic. If we use history as a guide, light volume declines are viewed as suspect.
All must remember that 2019 advance was also on light volume.
Commenting further about yesterday’s action, the 10-year Treasury traded to the lowest yield since December 2017. There are also questionable reports that China is “dumping” Treasuries. I ask if China was really dumping Treasuries, would yields not be rising instead of falling especially as the dollar is also getting crushed? [A falling dollar can cause higher interest rates]
The falling yield also begets another question? Treasuries trade on inflationary expectations and if tariffs are as hyper inflationary as the mantra is suggesting, then why did yields fall?
Wow! I am happy today is the start of a three day weekend!
What will happen today?
Last night the foreign markets were up. London was up 0.80%, Paris up 0.95% and Frankfurt up 0.92%. China was up 0.02%, Japan down 0.16% and Hang Sang up 0.32%
The Dow should open moderately higher at the end of a bruising week that was focused on trade. The 10-year is off 2/32 to yield 2.33%.