Sunday, April 7, 2019

This Evening's Log Entry

My entire log entry this evening is too wonky for public consumption, but I do think it's worth offering up the highlights. 

I'm essentially skipping the minutia on the pricing signals of the various markets I track during the evening session.

Sunday 4/7/19 7:34pm
My weekly assessment of macro economic conditions was upbeat relative to recent weeks, although anything but robust.

In terms of financial market signals; credit spreads are tame, sentiment is essentially neutral on balance, breadth is extremely positive and sector performance is notably bullish (cyclical sectors substantially outperforming defensives of late).

However, market signals this evening are very mixed, with a definite negative lean.

As for U.S. equity futures, the Dow is no doubt suffering under the weight of Boeing. After-hours on Friday the company announced a 20% reduction in 737 production. This makes the situation real for markets. Clearly, it looks like it’s going to take longer for any fix to get those planes in the air and get pending orders filled. The marginal declines in SPX, Nasdaq, etc. futures, while seemingly inconsequential, do not support the generally bullish commentary coming from last week’s trade talks. 
As for the weakness in key currency pairs, I have to believe that it reflects currency traders’ greater sensitivity to the reality that a U.S./China trade deal may not include much, if any, elimination of U.S. tariffs on Chinese imports. The Economist, in this week’s issue, sees them remaining. If the publication has that correct, a trade deal, while one may still spark a rally, will ultimately see stocks markedly lower. Bulls can only hope that the U.S. Administration comes to this realization before it tries to ink such a deal, as it is clearly looking for a strong market rally, and it’ll be very hard to walk back tariffs within days of a deal. And I believe that it’ll be indeed be within days, if not hours, if not minutes, of deal-signing that it realizes how bad a tariff-remaining deal is for markets.

As for commodities; oil’s increase is all about an escalation of military conflict in Libya over the weekend, gold is boosted by a weaker dollar and several news items referencing a pickup in purchases by emerging market central banks, copper’s rise must be mostly on dollar weakness (it’s very vulnerable to a poor trade deal outcome).

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