Things you need to know:

• Oil falls then rallies as the Saudis and Russians come “close to a deal”
• Global markets in RISK ON mode – as virus cases and deaths fall in Europe
• This is a KEY week for the US – What will we see?
• Gold rallies $16 – Do gold traders know something we don’t?
• Try the Swordfish

KENNY POLCARI, Editor
Chief Market Strategist, and Consultant

Circuit breaker limits today

• Level 1 – S&P must fall 7% – 174.21 pts
• Level 2 – S&P must fall 13% – 323.52 pts
• Level 3 – S&P must fall 20% –497.73 pts.

• Stocks skidded to close lower on Friday as bond yields also fell. Bond prices rose – (think safety trade) capping just one more week of volatility and angst after Friday’s NFP report “began” to detail the economic devastation that lies ahead. The Non- Farm Payroll report showed a decline of 700k jobs (well short of what we know them to be – but that is because of the data set calendar parameters. You see – the data set is really the last two weeks of February and the first two weeks of March. It is NOT all of March – and that is the issue. When we get the last two weeks of March and the first two weeks of April – next month – then the number will look VERY different. It will reflect what we already know to be true.  Devastation across the spectrum – I mean in the last two weeks more than 10 million people have filed for unemployment and the NFP report did not reflect that. This week – Thursday’s Initial Jobless Claims report is expected to show another 5 million people filed claims. But again – this should not come as a surprise at all. As of Friday – 25% of the US economy is idle due to the unprecedented shutdown demanded by the government as we try to control the spread of the virus.
• It has been 10 years since we saw a negative number for the monthly job statistic – and while (700k) is a big number – the truth is – the number is already much bigger than that. Couple that with the data that was showing the number of cases and death spiking and you have the recipe for further downside, and that is what we got. Add in the ongoing oil price destruction and it becomes clear why the algos go into SELL mode. In addition, it was Friday – and the trader types tried to go home flat – as no one knew what the weekend would bring. By the end of the day – the Dow lost 360 pts or 1.7%, the S&P gave up 38 pts or 1.5%, the Nasdaq fell by 114 pts or 1.5% and the Russell gave back 34 pts or 3.1%. Again the “biggest loser.”
• Well – the weekend brought some news, and not all of it negative (causing a wide spread rally around the world). Word that deaths are slowing in Europe – Spain, Italy and France all reporting lower numbers. Germany is reporting a slowdown in new cases, helping to ignite the flames of an advance all while the US braces for what some describe as “challenging” in the week ahead. NY, Detroit, New Orleans and parts of Florida are expected to see a peak in infections (although NY is already seeing a slowdown in infections). Infections is Washington DC, Pennsylvania and Colorado are on the rise, as detailed by the latest model. CA and Washington state also adding to the excitement as they appear to be “flattening the curve.” Surgeon General Jerome Adams telling us that “the next week (meaning this week) will be the hardest and saddest week of most American lives,” as he drew comparisons to Pearl Harbor and 9/11. 1.2 million people around the world have now been diagnosed with the virus – 68,000 people have died – 9400 of those here at home.

Next – oil is once again in the news – falling 9% in early overnight trading Sunday. Word was that today’s “virtual ZOOM meeting” had been cancelled and moved to Thursday – sending the message that the Saudis (OPEC) and the Russians were having trouble making a deal (or so it was thought). Recall that oil surged by nearly 35% last week on hopes of a deal to cut production and halt the price declines that have devastated the industry. Trump held an emergency meeting at the WH on Friday – inviting the CEOs of all of the major oil companies to try to understand the role that the US is playing in this drama and how we as a nation can help to stabilize the price of oil. OPEC and the Russians have made it very clear that the US must play a role in production cuts if they are going to proceed with talks. US oil companies are – as you can imagine – are divided over this issue. XOM, CVX are opposed to any plan while some of the shale producers are trying to find a way to play nice in the sandbox. Understand also – that in this country we do NOT have just one state-controlled oil producer – like they do – so it is more challenging to bring cooperation to the table.

And then during the night – that tone changed dramatically as word spread that the CEO of the Russian Sovereign Wealth Fund – RDIF (Russian Direct Investment Fund) – told CNBC that Moscow (Russia) and Riyadh (Saudi Arabia) are “very close to an oil deal.” (Unclear if the US has joined in). This caused oil to halt the slide and retake most of the losses, leaving oil down only 3% as the sun rises over the Atlantic.  In his statement – Kirill Dmitriev had this to say:

“I think the whole market understands that this deal is important and it will bring lots of stability, so much important stability to the market, and we are very close.”

And so – the week begins. Markets around the world are all in RISK ON mode, as the news permeates the tape. Asian markets all ended the day higher.

Japan +4.2%, Hong Kong +2.2%, ASX up 4.3%, South Korea +3.8% and Taiwan up 1.6%.   (China markets closed for a holiday).

In Europe – markets there are on a tear as well, cheered by a slowdown in coronavirus deaths (and diagnoses) as well as the latest oil news. In the meantime – UK Prime Minister BoJo has been admitted into the hospital even after quarantining for 10 days in what they are describing a “precautionary step” since he is not really improving. He is not getting worse – but he is not improving either. Currently all market centers are higher.

FTSE +2.09%, CAC 40 +3.54%, DAX +4.34%, EUROSTOXX +3.83%, SPAIN +3.1% AND ITALY +3.11%.

US Futures are in RALLY MODE, with the Dow up 835 pts or 3.98%, the S&Ps are up 99 pts or 3.98%, The Nasdaq up 320 pts or 4.2% and the Russell ahead by 47 pts or 4.47%. Corona and oil are the driving forces behind the gains – as they are for the gains around the world. Trump telling us that virus cases appear to be slowing here at home – but the models continue to tell a different story. So we shall see. There is no eco data today so the focus will be on OIL and the slowing virus. Later this week we will get the FOMC minutes – not sure we will learn anything new at all. PPI (Producer Price Index) exp of -0.4% while PPI ex food and energy are expected to be flat. On Thursday – Initial Jobless Claims are expected to be 5 million new claims – but that is a wild card for sure. Continuing Claims expected to hit nearly 10 million.

The S&P closed at 2488 – after testing the 2450 level – a level I identified in Friday’s note. With this morning’s rally – we can expect to see the index once again attempt to test 2600! Leaving us in the 2450/2600 range for now. Today’s excitement is all about the slowing of the virus in Europe. but we have been told that we (the US) are in for a rough couple of weeks. So I do not think the volatility is over by any stretch. Stay focused, talk to your advisor and stick to the plan. In this crisis – as in any crisis – there are long term opportunities.

Gold which rallied 4% strongly last week is up another $16 this morning – which is a bit of a conundrum. Because if stocks are this strong – gold SHOULD be a bit weaker. But these aren’t normal times, so it is not completely clear why this is happening. Last week’s bounce off of $1600 appears to be taking us to $1700 – where it should find resistance and sellers IF in fact the virus appears to be slowing. Any change to forecast will cause gold to continue to rally – are gold traders suggesting that they don’t believe the headlines? Just askin’…

Take good care

Kenneth Polcari
Chief Market Strategist, Consultant
kpolcari@slatestone.com

Swordfish Steaks in Lemon, Basil & Mint

This is an easy and delicious spring/summer dish… swordfish steaks are great on the grill and when you present it on a bed of arugula and tomatoes – it is just beautiful.

For this you need: Swordfish, olive oil, fresh lemon juice, chopped basil, chopped mint, chopped garlic (like 2 cloves), s&p, and beefsteak tomatoes

Mix together all of the ingredients (except the swordfish) and taste to make sure you got it right… now pour half of the mixture over the steaks and let marinate for 30 mins.

Heat the grill – Now place the steaks on the grill and cook for about 3 mins and then flip (clearly if the steaks are thick – then grill a bit longer).

While the steaks are cooking – prepare the plates with a bed of arugula and sliced – beefsteak tomatoes.  Season with s&p, and a squirt of fresh lemon juice. (You can add a splash of balsamic if you like). Now place the grilled swordfish steak on the arugula and serve with your favorite chilled white wine.

Buon Appetito.