Things you need to know
- Global markets digesting yesterday’s surge higher – no surprise
- China now has two issues – Evergrande and Crypto
- Bitcoin and Ethereum under pressure
- There is no eco data to drive the move, so its all about the continued interpretation of the FED
- Try the Pan Roasted Chicken in a Dijon/White Wine Sauce
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And stocks ROCKED it yesterday…. soaring back to near all-time highs…. after Jay Powell did it again…. telling investors that ‘it’s ok, now…. it’s time to move on….’ and investors loved it – growing more confident that the economy can withstand the removal of stimulus in the months ahead. Stocks rose sharply but not nearly as sharply as JETS (Airline ETF) which rose 2.7% as the world reopens. The Dow gaining 506 pts or 1.5%, the S&P’s up 54 pts or 1.2%, the Nasdaq up 156 pts or 1%, the Russell gaining 41 pts or 1.8% and the Transports up 233 pts or 1.7%.
Energy (XLE) leading the pack – gaining 3.5% while GUSH – which is the Direxion S&P Oil & Gas Exploration and Production 2X’s levered Bullish ETF gained even more rising 9%…. Financials (XLF) + 2.5%, Industrials (XLI) rose 1.5%, Basic Materials (XLB) rose 1.4%, Tech (XLK) +1.35%, Consumer Discretionary (XLY) + 1%…. the loser? Utilities (XLU) gave up 0.5%. The value trade – SPYV rose 1.5% while the growth trade – SPYG rose 1%.
The 10 yr. treasury yield ended the day yielding 1.40% – a big move as money poured out of treasuries and into stocks. Remember – yield move opposite to price – so as money moves out treasuries – then yields rise and yesterday money moved out treasuries and into stocks. Gold fell 2% to end the day at $1,742, which again makes sense as angst and fear subside. The VIX – which measures just that – angst and fear – also fell 10% ending the day at $18.63.
Oil rose 1.4% to end the day at $73.24. US Inventories fell to the lowest level in almost 3 yrs. while capacity utilization rates at the east coast refineries hit 93%. OPEC + also struggling to raise output as maintenance delays hampered their efforts to raise output. In the end – demand is alive and well.
Evergrande – the Chinese company that caused all kinds of havoc on Monday is no longer relevant to global investors….No matter what – no one seems to care – unless of course you are a bondholder that didn’t get your bond payment – which you didn’t get last night….they missed the $83 billion payment which was due at noon yesterday, (but we knew that – so that is not a surprise to the markets) under the rules – they have 30 days to cure this miss before anyone accuses them of defaulting on their obligation….The stock which rallied by 18% on Thursday, sold off 12% on Friday….China as you know by now – has told its citizens to prepare for a ‘possible storm’ as they predict the demise of the company…..and while it may be an issue in China – the rest of the world is no longer paying attention.
This morning US futures are a bit lower – and if that surprises you – then you should go back to bed…. After the week we’ve had – the ricochet action makes perfect sense as investors try to assess what the new outlook is. Dow futures are down 114 pts, the S&Ps off 20, the Nasdaq down 85 and the Russell down 13. The media is trying to tie today’s weakness to the Evergrande bond payment miss…. pay no attention to the man behind the curtain…. that may be a reason for the weakness across Asia – but it is not the reason for today weakness in Europe and the US.
Remember – the markets got whacked on Monday – falling and thru trendline supports swiftly and decisively….so the boomerang type action that we saw is not unexpected as investors price in the latest data from the FED and then what that means for the economy. Right now – everyone thinks it’s all a bed of roses – which I think is a bit of an overreaction. But let’s see what happens in the months ahead…I for one do not think that the taper begins in 2021- they may announce the start of the taper in late 2021, but I would not expect that the FED will begin the pullback in December and risk a swift tantrum that is most likely possible when investors realize exactly how much support the FED has been responsible for. Recall what happened back in December 2018 – the market lost a quick 20% over the course of 4 weeks after Benny told us that policy was about to change.
Now I understand that – that was then, and this is now – but I am not convinced that there won’t be a repricing of assets – not a crash, not disaster, but a repricing based on a slowing economy and the loss of stimulus and so I don’t think Jay Powell wants to create that narrative at this point. He has already told us that it’s coming, so we know that, I just think he kept it unclear as to when exactly its coming and that is on purpose. Because if Jay Powell really thought it was all systems go – then he missed the opportunity to initiate now before year end. So now you think he is going to launch it in the final 4 weeks of the year? Doubtful…. but let’s see.
Stocks in Europe are lower as well after their strong rally yesterday. ECB (European Central Bank) President Christine Lagarde telling the world that Europe’s direct exposure to the Evergrande debacle is ‘limited’. The BoE (Bank of England) announced that there is a possibility that they move on rates by November of this year to try and slow the rising pace of inflation that is now wreaking havoc across the kingdom. Now if that is the truth – then the BoE would have first mover advantage. As a result of this news UK 2 yr. debt is now yielding 16 bps more than US 2 yr. notes – ending a 6 yr. stretch where the US notes exceeded their British counterparts. In economic news – The IFO Institute in Germany is reporting that business sentiment fell for a 3rd consecutive month in September. As of 6:30 am markets across the region are down between 0.3% – 0.9%.
Eco data today includes New Home Sales of +1% m/m.
And in a blow to the crypto currency world (or maybe not) China announced this morning that ALL CRYPTOCURRENCY RELATED ACTIVITIES ARE ILLEGAL AND VOWS A HARSH CRACKDOWN. PBoC (Peoples Bank of China) has made it clear that ‘cryptos are not LEGAL tender’ and all services offering trading, order matching, token issuance and derivatives of virtual currencies is now strictly prohibited. Bitcoin and Ethereum taking a hit. COIN is already quoted down $10 or 4%.
Bitcoin is down 5% trading at $42,000 and Ethereum is down 9% at $2,800 –
The S&P ended the day at 4448 – bringing us within 100 pts of the 2021 highs…. and now once again on the north side of the trendline…. Next week could be interesting as it is quarter end and so there will be a lot of jockeying as PM’s re-arrange and re-allocate holdings to reflect month end pricing. October can also offer some uncertainty for the markets so stick to the plan.
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Take Good Care
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Pan Roasted Chicken Parts in a Dijon, White Wine Sauce
For this you need: 1- 2 ½ lb. chicken, washed, cleaned, dried, cut into parts, Olive oil, Salt & pepper, White wine, Shallots, minced, Fresh rosemary, chopped, 1 tbsp Dijon mustard
Use shears and chop the breasts in half to make them easier to cook. Wash and pat dry, sprinkle with salt and pepper and rub with fresh rosemary.
Preheat oven to 450 degrees. – The oven needs to be fully heated when you are making this.
In a heavy-bottomed skillet heat olive oil on high heat until it shimmers, right around when it starts to smoke. Turn burner down to medium-high and cook chicken in batches, being careful not to overcrowd the pan, six minutes on each side until chicken is browned all over. Once every piece has been cooked, put it all back in the pan and put in the hot oven for 12 – 15 minutes.
Remove and reserve chicken. Put skillet back on stove on medium heat. Add shallots, additional rosemary, and white wine for a sauce. Let mixture come to a boil, and whisk in Dijon mustard.
Add chicken back to pan and let it heat through with the sauce on it for 5 –7 mins. Once heated, serve with sautéed spinach and roasted potatoes.
Buon Appetito.
