Baltic Dry Index 668 -53 Brent
Crude 62.75
Trump 25 percent
tariffs 28 days away. Brexit 56 days
away.
"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."
Henry Hazlitt
It is Super Bowl
weekend in America and the eve of the Chinese New Year, February 5th
through February 19. Stock market bulls will be hoping that the LA Rams win.
Bears hoping that the New England Patriots win.
On Tuesday, President Trump finally gets to deliver his delayed State of the Union Address
to a political audience in Congress and to the nation via TV.
Traditionally, the
party of the incumbent President gets to wildly applaud, cheer and jump up at the
slightest cause while the opposing party get to scowl, hiss and remain seated and
look generally distressed. Any
Supremes and Federal Reserve bigwigs attending, try desperately to look
impartial and unembarrassed. A good time is not had by all.
In reality, stocks
will largely respond to what the Fed does with interest rates, how the USA v
China trade war turns out, how much the global economy slows and what impact
that has on corporate profits and debt service, and to a lesser extent to
Brexit, and whether rump-EUSSR inflexibility pushes Germany into recession
alongside Italy.
Shorter term, how
much next week’s Chinese New Year, more correctly Lunar New Year, will drain
global liquidity from global stock markets, if any. The Year of the Pig is
supposed to bring in prosperity. That plus an LA Rams win, and a Federal
Reserve in his pocket, and President Trump’s got 2019 made.
Update 2.00
pm.
A Twelve year old Norwegian
takes on Bach's Toccata and wins.
Every
generation imagines itself to be more intelligent than the one that went before
it, and wiser than the one that comes after it.
George
Orwell. But not always.
Below, a look at the
week ahead. Try not to look at the rapidly sinking Baltic Dry Index.
21st century adage: Is that true, or did you hear it on the BBC?
Take Five: Dogs and Pigs. World markets themes for the week ahead
February
1, 2019 / 2:26 PM
(Reuters)
- Following are five big themes likely to dominate the thinking of investors
and traders in the coming week and the Reuters stories related to them.
GONE TO THE DOGS
Investors burnt in the 2018 stock market rout will be happy to put the Year of the Dog behind them. Instead, the end of the Chinese Lunar New Year holiday will usher in the Year of the Pig, a symbol of wealth and prosperity.The first month of the Gregorian calendar may augur well, too. The $4 trillion MSCI world stocks index just enjoyed the best start to a year since the benchmark began in 1988. The question is: Can the Pig help global equities sustain this stellar run?
Some bargain
hunting and short-covering were to be expected after December’s historic rout.
Hopes that the trade spat between Washington and Beijing may ease and signs of
a pause in U.S. interest rate hikes also helped. But a major issue behind the
selloff - China’s cooling economy - has not gone away.
What’s more,
investors obsessing over whether the global economy is sliding towards
recession are heading into February starved of crucial macroeconomic data that
would normally guide them.
China will
be shut for a week for the Spring Festival. That may drain global financial
markets of some liquidity. On the data front, Beijing tends to combine some
industrial activity data for the first two months to prevent a skew in the
numbers.
---- On Tuesday, President Donald Trump will deliver the State of the Union address before Congress - a week late after House Speaker Nancy Pelosi yanked the original invitation during their showdown over the government shutdown.
Trump looks
sure to keep up the pressure for the border wall and may renew calls for
infrastructure spending. Even with Wall Street focused on upcoming company
results, including Alphabet and General Motors, the annual address has the
potential to move markets.
While the
S&P 500 rose 0.05 percent the day after Trump’s speech last year, it jumped
1.37 percent after his 2017 inaugural address, its second largest gain after
the 1.51 percent rise that followed George W. Bush’s January 1991 message.
In fact, big
market moves that followed State of the Union addresses in the past have tended
to be downward.
Since 1965,
when Lyndon Johnson gave the first televised State of the Union address, the
S&P500 has fallen 1 percent or more the following day on 12 occasions. The
biggest loss came after Bill Clinton’s 2000 speech when it fell 2.75 percent.
The market rose more than 1 percent only four times.
----- RATES DOWN UNDER
With China on holiday for Lunar New Year, the spotlight is on its Asian neighbours. Having enjoyed its boom, they are now enduring the fallout from its slowdown.
In
Australia, a common proxy market for Chinese risk due to their trade links,
China’s slowdown has translated into a run of grim economic data. Those may
lead the Reserve Bank of Australia to signal at its Feb. 5 meeting that
interest rates will stay at 1.5 percent until well into 2021.
Until now,
the RBA has been doggedly optimistic, insisting its next rate move will be up.
But recent dismal readings on the economy have led markets to scrap forecasts
for a policy tightening; instead some are pricing in a cut.
More
Melbourne Housing Prices Plummet At Fastest Quarterly Pace Ever Recorded; Sydney Enters "New Territory"
"If you had asked me in September last year I probably would have been surprised to see Sydney and Melbourne values down more than 4 per cent over the rolling quarter," said Tim Lawless, head of research at CoreLogic.
"We
have seen the downturn accelerate over the last three months. At 4 per cent
down in Melbourne that’s the fastest rate of decline we’ve ever seen of any
rolling three-month period, and Sydney is virtually (the fastest outside) a really
brief period in the ‘80s."
The decline
in Sydney is now the worst since CoreLogic began collecting records in 1980 -
surpassing the previous record of 9.6 perdcent seen between 1989 and 1991.
Melbourne experienced a drop of 10% over the same period.
"Sydney
clearly is in new territory," said Lawless. "I think we can
firmly point towards tighter credit and lending conditions throwing a dampener
over the market."
---- While Lawless has characterized the drop as a consolidation, others foresee continued difficulty in the Australian housing market.
AMP Capital
chief economist Dr. Shane Oliver predicted an average peak-to-trough price drop
of 10-15%, while revising his forecast for Sydney and Melbourne down from a
drop of 20% to 25%.
"A
crash landing — say a national average price fall in excess of 20 per cent —
remains unlikely in the absence of much higher interest rates or unemployment,
but it’s a significant risk given the difficulty in gauging how severe the
tightening in bank lending standards in the face of the royal commission will
get and how investors will respond as their capital growth expectations
collapse at a time when net rental yields are around 1-2 per cent."
More
EU imposes curbs on steel imports after Trump tariffs
February
1, 2019 / 8:58 AM
BRUSSELS
(Reuters) - The European Union will impose limits on steel coming into the bloc
from Saturday in response to U.S. President Donald Trump’s metals tariffs, a
filing in the European Union’s official journal said on Friday.
Steel
imports will be subject to quotas to counter the concerns of EU producers who
say Europe could be flooded with steel that is no longer being imported into
the United States.
There will
be specific limits for major exporting countries and the quotas will apply for
three-month periods in order to limit stockpiling. The main exporters of steel
to the EU are China, India, Russia, South Korea, Turkey and Ukraine.
The measures
concern 26 steel product categories, with quotas set at the average of imports
over the period 2015-2017, plus 5 percent. Once these quotas are filled, 25
percent tariffs apply. They will replace provisional measures imposed in July.
The new
measures should remain in place for up to three years, but can be reviewed in
case of changed circumstances. The quotas should also rise by 5 percent from
July 1, 2019, and again by the same amount a year later, subject to reviews,
the Commission said.
More
Finally, as goes Deutsche Bank so goes Germany. As goes
Germany so goes the rump-EUSSR and the euro. What a shame. Brexit now before DB
self-destructs.
"We
shouldn't pour cold water on everything.
We, the eight or nine players in global investment banking, have a very
good future."
Deutsche
Bank, CEO Josef Ackermann. Davos, January 2007.
How Deutsche Bank Drifted Into Its Whirlpool of Woes
1 February 2019, 17:12 GMT
At this point, Deutsche Bank
AG’s biggest problem may simply be how many problems it has, how long
they’ve gone on and how they’ve fueled one another. Four years of sliding
revenue has spawned four failed turnaround plans and the steady
departure of senior executives. That’s alongside an equally steady stream of
lawsuits and investigations, topped by a raid on the bank’s headquarters in
November. Its next obstacle may be the solution the German government seems to
have in mind -- merging it with its troubled cross-town rival, Commerzbank AG.1. What’s gone wrong?
Chief
Financial Officer James von Moltke has said the bank is suffering from “a
vicious circle of declining revenues, sticky expenses, lowered ratings and
rising funding costs.” It’s repeatedly tried to reverse the slide, without
success. Problems include outdated technology, a talent drain and heavy fines -- $17
billion in the last decade -- for misconduct. Adverse market conditions, which
limited opportunities to profit from trading, and a credit-rating downgrade
have compounded the homemade difficulties. The bank’s shares lost more than
half their value in 2018.
2. Why can’t the bank turn itself around?
It’s been cutting costs to pare down to a more profitable size, but it’s been losing business even more quickly. The corporate and investment banking unit, responsible for more than half of total revenue, has lost market share to rivals that were quicker to fix balance-sheet and governance weaknesses after the 2008 financial crisis. The issues facing Deutsche Bank are also affecting many European banks:Because the European Central Bank is expected to hold interest rates near zero into 2020, revenue at bank retail units is likely to stay depressed. For Deutsche Bank, the situation is made worse by the structure of its home market, where numerous smaller banks keep margins razor-thin.
More
"It's strange that men should take up crime when there are
so many legal ways to be dishonest. “
Al Capone.
The monthly Coppock Indicators finished January.
DJIA: 24,999 +76 Down. NASDAQ:
7,282 +124 Down. SP500: 2,704 +71 Down.
Normally this would suggest more correction
still to come, but with President Trump wanting to be judged by the performance
of the stock market and the Fed’s Plunge Protection Team now officially part of
President Trump’s re-election team, probably the safest action here is fully
paid up synthetic double options on most of the major indexes.
