Weighing The Week Ahead: Stalemate?

The economic calendar has plenty of important data. Fed speakers will be on the circuit. There is plenty of political and geopolitical news. On all of these fronts we see a stalemate.

(Learn more about stalemate tricks from Grandmaster and PhD mathematician Karsten Müller)

The financial punditry will ask: What does political stalemate mean for financial markets?

Last Week Recap

The President “marveled” at how one of his tweets seemed to move the stock market. (Business Insider).

Paul Schatz (Heritage Capital) writes:

After 30 years in the business, I keep saying that few things surprise me anymore, but I have to say that watching traders and market participants glued to Twitter for any sign of tariff walk back by the president is certainly a first for me. I can’t imagine what the great investors of yesteryear are thinking as they down on us from up above. Are the masses really hanging on every tweet from the leader of the free world? Apparently so.

Mike Williams (TruVestments) captures the action.

The tweets hit a vacuum of other news, and we can see the effect in our one-chart story.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Investing.com. If you visit their interactive chart you can check out each of the highlighted news events. There is also a chart for the futures, which is great for getting the sense of overnight trading.

Tweet and news-driven volatility resumed as part of a loss of 2.2%. The trading range was nearly 4% and Friday’s trading highlighted the possibility of deeper losses. As always, our indicator snapshot in the quant section below summarizes volatility and the VIX index in various time frames.

Personal Note

Thanks to the Intelligent Economist for including A Dash of Insight in the Top 100 Economics Blogs of 2019. This list has many great blogs, including a few I haven’t seen. Choices are made on quality, not school of thought, politics, or popularity. This makes the suggestions especially helpful.

Noteworthy

Part of the reason for low unemployment, based on whether people say they are working, and labor market slack is the gig economy. The Visual Capitalist shows the amazing list of apps that “power the gig economy.”

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too.

When relevant, I include expectations (E) and the prior reading (P).

New Deal Democrat’s high frequency indicators are an important part of our regular research. In his post this week he reports that indicators in all time frames remain positive. Since he attributes this partly to a “flight to quality” in bonds, NDD remains watchful.

The Good

  • Inflation remains tame.

    • PPI increased 0.2%, in line with expectations and much better than March’s 0.6%. Core PPI increased only 0.1%, E 0.2% and P 0.3%.
    • CPI increased 0.3% on the headline (beating expectations and the March results of 0.4%) and only 0.1% on the core.
  • Earning reports continued a beat rate higher than in the last five years. (John Butters, FactSet). Brian Gilmartin reports improvement in expected earnings for the rest of 2019 and 2020.
  • Hotel occupancy increased 1.2% on a year-over-year basis. The 2019 results are now only slightly behind 2018. (Calculated Risk).
  • Mortgage applications increased 2.7% much better than the prior result, a decline of -4.3%. (Calculated Risk).
  • Mortgage delinquencies in March were down to 3.65% and foreclosures at 0.51%. These rates are close to record lows. (Calculated Risk).
  • The JOLTS report shows continuing labor market strength without excessive tightness. The official BLS site has plenty of data for analysis and a group of excellent charts.

The Bad

  • Initial jobless claims continued at a higher level, 228K. This is about the same as last week’s 230K, but worse than expectations of 220K.
  • Rail traffic continues to decline. Steven Hansen (GEI) uses year-over-year rolling averages to smooth the series. He also tracks separately the “economically intuitive sectors,” down -5%. Here is one of the charts in this through analysis.

  • Swine fever is devastating China’s pork industry and seems to be spreading. (TIME).
  • The 10-year note auction was the poor. The yield rose from 2.448% on Tuesday to 2.479% in the auction. This created a “tail” of 0.013 percent. These are big moves in bond terms. The WSJ attributes part of the reason to the failing trade talks and a Trump tweet. For context, readers should look at our weekly indicator snapshot, including past interest rates.
  • US/Chinese trade deal was not completed before the most recent deadline, Friday morning. Rumors and tweets whipped markets around during the week. There is no solid evidence for the timing or nature of a deal. Meanwhile, the US increased tariffs on another $200 B of Chinese goods, and China vowed to retaliate.

The Ugly

The Uber IPO. The pre-determined IPO price reflects the judgement of the company and its bankers about investor appetite. The early trades were expected by many to be in the 60’s, far above the offering price of $45. The stock closed at $41.57. It was the largest IPO in five years and the worst performing in history. (NYTGizmodo). The final valuation was barely higher than those used for the recent private investment rounds.

If you have been following Beth Kendig, one of our best sources and my colleague at FATRADER, you had advance warning on this one.

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Disclosure: 

If you are an investor, you should be focused on your personal goals and how to get there. Politics and geopolitics are sideshows on that journey.

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Gary Anderson 1 month ago Contributor's comment

The fusion of some Democrats who oppose free trade and Trumo, who hates all trade, is a disaster. It will play out in time. Remember, Trump is implementing his campaign promises. He already said he does not want Beemers and Mercedes on American streets. Wall Street needs to see where this all is going.