Dow soared almost 300 points early Friday on the upbeat report card from JPM, better Chinese data, and lower USD. Disney also helped on the launch of new video streaming services, lower than Netflix (NASDAQ:NFLX) price. The US dollar index (DXY) slumped almost -0.45% and made a low of 96.75 as EURUSD and GBPUSD surged on better than expected Eurozone economic data (industrial production) and talk of 2nd Brexit referendum by the British FM Hammond.
The risk-on sentiment was boosted by better than expected Chinese export data, jumped +14.2% in March from a slump of -20.8% sequentially, higher than the expectations of +7.3%. Although, Chinese import in March slumped -7.6%, indicating slowing domestic economy, the jump in export may be undermining the present story of global gloom & doom, although it may be a function of Chinese New Year distortion. Also, the Chinese money supply and new loans growth were upbeat.
The US market was also boosted by upbeat report card from JPM amid higher NIM and solid fixed-income revenue, boosting the overall banks & financial sector, but Wells Fargo (NYSE:WFC) faded on subdued guidance despite an earnings beat. Anadarko surged on Chevron (NYSE:CVX)'s $33B deal, helping the overall oil & gas sector/energies, while Disney jumped after pricing its new streaming service lower than Netflix. The communication services were upbeat despite Netflix slumped on Disney disruption.
But Dow fades almost 100 points from the session high on subdued US economic data (Michigan consumer sentiment) and the concern of the US-EU trade war. As per the report, the EU Commission has drawn up a provisional list of around EUR 20B of U.S. imports for retaliatory tariffs on the Airbus-Boeing subsidy dispute.
Dow ticked down Thursday on higher USD amid less dovish Fed talks and FOMC minutes, upbeat PPI data and lingering suspense of the US-China trade talks
The US stock market closed almost unchanged Thursday on higher USD amid less dovish Fed talks and FOMC minutes, upbeat US economic data (PPI, Jobless claims) and lingering suspense of the US-China trade talks. The US market is also cautious about earnings season, set to start by a deluge of bank report cards on Friday. But banks and financials helped on hopes of an earnings beat and higher US bond yields (less dovish Fed talks). Dow ticked down -0.05%, while S&P 500 was unchanged, but Nasdaq Composite slumped -0.21% as Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA) dragged.
On Thursday, after the US Treasury Secretary Mnuchin’s optimistic yet guarded China trade comments (late Wednesday), the White House CEA Kudlow added more suspense on China deal: “We have made good progress, but I can't say the deal is done”. Mnuchin also clarified on Thursday: “While the timing of U.S.-China trade agreement remains unclear, the two countries have pretty much agreed on an enforcement mechanism”.
Meanwhile, the US VP Pence also joined the bandwagon of China trade daily ritual (as a part of the Trump strategy to keep Dow elevated). Pence said: “U.S-China trade talks going well and Trump is working hard on U.S-China trade deal”. Elsewhere, the U.S. Chamber of Commerce's EVP Brilliant warned: "The devil is in the details. The U.S. and China have had robust discussions on enforcement but nothing is final until a comprehensive packaged is agreed to”.
China MOFCOM said talks are now going on with the US regarding legacy trade (structural) issues. On early Thursday, Dow made the session high on a report that China agreed to open its cloud-computing sector to foreign companies in an attempt to sweeten a trade deal with the US.
The market is also concerned about consistent Fed criticism by Trump & Co:
On Thursday, Kudlow once again urged the Fed to cut despite he is quite bullish about the US economic prospect. Kudlow said: “The Fed is an independent central bank and we aim to keep it that way, but that doesn’t mean we can’t express our opinions periodically. I wouldn't mind seeing a 50 basis point cut. I don’t see why the economy can’t continue to grow at our 3% baseline and I don’t see any recession this year, next year. Powell is doing a good job but rate cuts are needed”.
The 71-years old Kudlow said in an interview: “As I say, we wish they hadn't raised (rates). I notice from the various reports and so forth that they've changed their view. I don't think rates will rise in the foreseeable future, maybe never again in my lifetime”.
Assuring that he is not attempting to undermine the independence of Fed, Kudlow clarified: “Whether they will fall, I don't mind them falling. I'm not storming the ramparts. Again, the Fed is independent. But that doesn’t mean we can’t express our opinions periodically”.
Kudlow also downplayed the story that the Fed chair Powell is under Trump’s ire amid a looming economic slowdown that could affect Trump’s 2020 election prospect. Powell said: “Speaking personally, he (Powell) has my confidence that he turns out to be a good chairman and a brilliant, brilliant man”.
Kudlow also denied that there is a huge difference in economic policy (global economic view) between the Fed and the White House. Kudlow said: “I’m not sure the differences between the Fed’s worldview and our worldview are as big as they are sometimes portrayed”.
Meanwhile, joining the growing chorus of Fed cut, the US VP Pence echoed Trump and Kudlow on early Thursday and urged the Fed to lower interest rates, citing low consumer inflation. Pence have a bullish view on the state of the US economy, but despite that, he is batting for rate cuts.
Pence asked in an interview: “If things are so great, (I don’t understand) ... at this point, people say we don’t have dry powder for the next slowdown. Why would we cut rates again?”
Pence answered: “Well, you saw the consumer numbers that came out yesterday-- I mean, there’s no evidence of inflation in this economy. I have also no concern about a recession”.
By the way, the March headline CPI jumped to +1.9% from +1.5% in February, just under Fed’s 2% target. As the Fed is now apparently following the headline CPI instead of core CPI/PCE, the Fed may bound to hike again instead of a cut, if the headline CPI jumps above 2% again (as in 2018, thanks to boiling oil).
The market is not only worried about the autonomy of Fed amid consistent pressure by Trump admin to cut rates, but also by the fact that why Trump admin is now so desperate to cut rates despite public optimism about the US economic prospect. Is Trump admin is really very worried about an impending US recession just ahead of the 2020 Presidential election and is now trying to force the Fed to launch QE-4?
The risk-on sentiment was also affected by an early Thursday tweet from Trump regarding the EU-US trade deal and Brexit: “Too bad that the European Union is being so tough on the United Kingdom and Brexit. The E.U. is likewise a brutal trading partner with the United States, which will change. Sometimes in life, you have to let people breathe before it all comes back to bite you!”
As per a report, the EU has agreed to negotiate mandates to start formal trade talks with the US after the bellicose tweet from Trump. But France is objecting the EU to have any trade deal with the US (Trump), as it’s not a signatory of the Paris Climate Agreement.
On Thursday, the blue-chip Dow Jones Industrial Average (DJ-30) ticked down -0.05% to close around 26143.05, almost at mid-levels of session low-high of 26062.59-26229.88 in a day of moderate volatility. The broader S&P 500 (SPX-500) was unchanged (0.00%) AT 2888.32, almost at the mid-point of session low-high 2881.99-2893.42 in a day of range bound trade. The tech-heavy Nasdaq Composite (IXIC) slumped -0.21% to close around 7947.36, near the mid-level of session low-high of 7933.41-7975.20 in a day of moderate volatility.
Chipotle Mexican Grill (NYSE:CMG) slips on analysts’ downgrade as it achieved the fair valuation amid saturation in SSSG and operating margin. Tesla tumbled on a report that its JV with Panasonic (Gigafactory expansion) is on hold amid the concern of slowing e-car sales of Tesla. U.S. Steel slid on analysts’ downgrade, dragging its peers like AK Steel and Steel Dynamics. Home furnishings retailer Bed Bath & Beyond (NASDAQ:BBBY) plunged on the subdued Q1 report card.
Overall, the US market was dragged by healthcare after the US Senator Sanders introduced a “Medicare for All” plan to Congress, and the Senate Finance Committee concluded a hearing to discuss the role pharmacy benefit managers play in drug pricing. Subsequently, United Health plunged. Energies dragged as oil tumbled, while banks & financials helped. Out of 11-major SPX-500 sectors, 7-were in green.
Technical Outlook: SPX-500, DJ-30, NQ-100
Technically, whatever may be the narrative, SPX-500 has to sustain over 2915 for a further rally to 2945*/2965-2975/2990 and 3010/3050-3080/3135 in the near term (under bullish case scenario).
On the flip side, sustaining below 2905, SPX-500 may fall to 2885/2865*-2845/2825 and 2795/2785*-2755/2725 and further 2715-2690 in the near term (under bear case scenario).
Technically, whatever may be the narrative, DJ-30 has to sustain over 26600 for a further rally to 26850/26955*-27050*/27400 and 27750/28100-28375/28650 in the near term (under bullish case scenario).
On the flip side, sustaining below 26550, DJ-30 may fall to 26225/26150*-25950/25850* and 25500/25350-25200/25000 and 24800 in the near term (under bear case scenario).
Technically, whatever may be the narrative, NQ-100 has to sustain above 7650 for a further rally to 7695/7730*-7790/7850 and 7905/7955-8040/8120 in the near term (under bullish case scenario).
On the flip side, sustaining below 7630, NQ-100 may fall to 7560/7520-7500/7440 and 7350/7275-7230/7200 in the near term (under bear case scenario).