In the previous month, I often mentioned how hopes of continued stimulus aid and anticipated announcement of a Covid19 vaccine are driving the market upward from its March-2020 lows. Nothing has changed. Even though Congress is “miles apart” on a stimulus agreement as House Speaker Pelosi aptly put it, investors are not abandoning faith or this high-tech momentum fueled rally as evidenced by today’s sharp rebound in technology stocks.
Here’s something new… An uptick in inflation after today’s CPI reports and yesterday’s PPI data are driving treasury yields higher, which is what happens in a normal market. However, US Dollar weakness vs other major currencies suggests that not everyone is buying the economic recovery story. One among them is Boston’s Fed President Rosengren who forewarned that economic weakness may be prolonged more than expected if the US is unable to contain the coronavirus.
If you have any doubts, then consider other major college football conferences (e.g. PAC-12) canceling their football season along with the Big-10. Sports provide more than just entertainment. They also create jobs and serve as efficient conduits for recycling dollars into communities and subsidize costs at universities. Apparently the Southeastern, Atlantic, Big 12 and American Athletic conferences realize this and have no intentions of canceling anything. To be fair, some of this may be attributed to their regions being less impacted by Covid19.
Although Rosengren’s words should be heeded with respect, I will offer a ray of hope in that CDC data indicates that the country is headed in the right direction, regardless of how the media spins it. (The chart below indicates lower peaks and that the daily number of new Covid19 cases for the US is now trending below its 7-day moving average.)
Amongst tangible assets, Commodites are underperforming Real Estate for the moment. Gold has garnered much attention, but Homebuilders have delivered market leadership type of returns without the volatility of precious metals or technology stocks. A low interest rate environment such as this should continue to favor this group.
Market Moving Events
- Economy / US / Consumer: June-2020 Retail Sales (m/m) @ 8.0% vs estimates @5.4% and prior @ 14.4%; Retail Sales (y/y) @ 0.5% vs estimates @ -3.5% and prior @ -6.4%.
- Economy / US / Inflation: Core CPI (m/m) for July-2020 @ 0.6% vs estimates @ 0.2% and prior @ 0.2%; and Core CPI (y/y) @ 1.6% vs estimates @ 1.1% and prior @ 1.2%. CPI (m/m) for June-2020 @ 0.6% vs estimates @ 0.3% and prior @ 0.6%.
- Commodities / US Energy: EIA Crude Oil Inventories @ -4.512mm bbl vs estimates @ -2.875mm and prior @ -7.373mm. Cushing Inventories @ 1.336mm vs estimates @ 1.731mm and prior @ 0.532mm. Gasoline Stocks @ -0.7mm bbl vs prior @ 0.4mm; and Distillates @ -2.3mm bbl vs estimates @ 1.6mm.
- Real Estate / US / MBA Mortgage Applications: Aug-7-2020 weekly Index Changes were Composite @ 6.8% vs prior @ -5.1%; Purchases @ 2.0% vs prior @ -1.8%; and Refinances @ 9.1% vs prior @ -6.8%.
- Economy / UK / Growth: GDP (m/m) improved @ 8.7% vs estimates @ 8.0% and prior @ 1.8%. However Q2 numbers were simply awful: GDP (q/q) @ -20.4% vs estimates @ -20.5% and prior @ -2.2%; and GDP (y/y) @ -21.7% vs estimates @ -22.4% and prior @ -1.7%. Monthly GDP (3m/3m) Chg @ -20.4% vs estimates @ -21.2% and prior @ -18.7%.
- Economy / UK / Production: June-2020 Industrial Production (m/m) @ 9.3% vs estimates @ 9.2% and prior @ 6.2%. Labour Productivity @ -3.0% vs prior @ -6.0%. Manufacturing Production in June -2020 @ 11.0% vs estimates @ 10.0% and prior @ 8.3%.
- Central Banks / US: Comments from Boston Fed President Eric Rosengren highlighted that because states in the West and South opened up their economies too soon, it is impeding their economic recovery in contrast to the Northeast or even countries in Europe. He also believes that a failure to contain the virus will could “prolong the economic downturn”.
- Economy / UK: Business Investment in Q2 (q/q) contracted @ -31.5% vs estimates @ -2.5% and prior @ -0.3%. Trade Balance for June-2020 @ -5.1bn vs estimates @ -4.75bn and prior @ -1.77bn.
- Economy / Euro Zone / Production: June-2020 Industrial Production (m/m) @ 9.1% vs estimates @ 10.0% and prior @ 12.3%.
Technical Analysis Summary
- Equities: Both the SP-500 and Nasdaq-100 are trending higher within overextended and very narrow (very little to no consolidation) bullish channels and their momentum makes it highly probable that their previous highs might be tested and perhaps surpassed. The VIX is trending below its 55-week moving average.
- Bonds: With respect to treasury rates, the 10-year cleared its 50-day moving average and the 30-year is just below its 50-day average. Such benchmark levels typically provide resistance so a pullback from this level would not be unexpected.
- Currencies: The US Dollar is consolidating and could find support if bond rates continue to rise. Although the Euro is resuming its upward movement, it is premature to call the move a continuation pattern. Yen consolidation is still in play.
- Commodities: Gold is undergoing a correction and overextended, but its bullish channel has not been violated. Crude Oil is consolidating and maintaining support near its 8-day moving average.
- Real Estate: The DJ Real Estate Index and Home Construction Index both remain in bullish trends, with momentum favoring the latter.
*Check back periodically as this page is sometimes updated at the discretion of the editor.
Potential Market Moving Events
- Healthcare: Moderna (MRNA) reached an agreement worth $1.5bn to sell 100 million doses of its COVID19 vaccine to the US government as reported by MarketWatch.
- Energy: API Weekly Crude Oil Stocks @ -4.400mm bbl vs estimates @ -3.200mm and prior @ -8.587mm.
Positive Earnings Surprises
- Information & Technology: Cisco Systems (CSCO) actual EPS @ 0.80 vs estimates @ 0.74 and previous @ 0.79.
Negative Earnings Surprises
Earnings In-Line with Estimates
- FT Alphaville: China Treads Cautiously in Face of US Sanctions
- AP News: Hong Kongers Seek to Emigrate, Some Simply Can’t Leave
- Of Two Minds: Could Wall Street Lose the Election?
- NYTimes: Your Ancestors Knew Death In Ways You Never Will
- Naked Capitalism: Wolf Richter: No, Americans Aren’t Suddenly Flying Again, Despite What the Media Said Today to Boost Stocks of Airlines and Boeing
- Bloomberg: RobinHood Blows Past Rivals in Record Retail Trading Year
- Global Trends: Security Risks of 5G (see video below)