Daily Morning Report

Tuesday, May 26–Jim Wyckoff’s Morning Markets Report

Global stock markets were mostly higher in overnight trading. U.S. stock indexes are pointed toward solidly higher openings when the New York day session begins. Traders and investors are upbeat early this week, following a long U.S. holiday weekend that saw more social interaction amid the unofficial start of summer. Such suggests quarantined people are gearing up to do more spending as businesses continue to reopen. Also, there is more hope following news of another Covid-19 vaccine that looks promising. Several drug companies are working at a fever pitch to develop a successful vaccine.

Still overshadowing the global marketplace is eroding U.S.-China relations. Barbs by both sides appear to have inflicted wounds too deep to just mask over. Some market watchers are predicting the U.S. and China will be the next major “cold war”—comparing the situation to the U.S.-Soviet Union stare-down that lasted decades.

China’s central bank this week has fixed its currency (the yuan) at a rate of 7.1293 to the U.S. dollar—the weakest in 12 years. Such is another move by Chinese officials that will not likely make the Trump administration happy.

The important outside markets see the U.S. dollar index solidly down early today. Nymex crude oil prices are higher and trading around $34.00 a barrel. The big rebound in crude oil prices has surprised many oil analysts and is a big positive for stock, commodity and financial markets. The yield on the benchmark U.S. Treasury 10-year note is currently around 0.7%.

U.S. economic data due for release Tuesday includes the Chicago Fed national activity index, the quarterly and monthly U.S. house price indexes, the S&P/Case-Shiller home price index, the consumer confidence index, new residential sales and the Texas manufacturing survey.

–Jim
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The U.S. stock market is powering higher on notions the worst of the Covid-19 is over and that U.S. businesses will continue to reopen amid robust consumer spending. The September e-mini S&P stock index futures are trending solidly higher, to suggest more upside in the near term. Bulls are in command.–Stay tuned! Jim

Friday, May 22–Jim Wyckoff’s Morning Markets Report

Global stock markets were also mostly lower in overnight trading. U.S. stock indexes are pointed toward lower openings when the New York day session begins. Traders and investors are more risk averse on this last trading day of the week and heading into a three-day U.S. holiday weekend. The Covid-19 pandemic is seeing an alarming rise of cases in some countries, while North America and Europe appear to be “flattening the curve” of the rate of infections. U.S.-China tensions remain high. A new geopolitical element thrown into the mix is China’s threat to impose new national security laws in Hong Kong to thwart protesters there. Hong Kong’s main stock index, the Hang Seng, saw its worst day in nearly five years Friday—down over 5%.

China began its most important political event of the year late this week, the National People’s Congress. At the meetings Friday, Chinese officials said they won’t issue guidance on 2020 economic growth, acknowledging the severe economic damage inflicted on the world’s second-largest economy. Chinese authorities also implied that any more monetary policy stimulus may not be in the works, suggesting more pain for Chinese consumers. This news spooked the global marketplace and helped to sink stock markets and the crude oil markets.

The important outside markets see the U.S. dollar index solidly up early today on safe-haven demand. Nymex crude oil prices are sharply lower and trading around $32.00 a barrel. The yield on the benchmark U.S. Treasury 10-year note is currently around 0.67%.

There is no major U.S. economic data due for release Friday.

–Jim
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The monthly continuation chart for nearby Comex gold futures shows prices trending solidly up, on a longer-term basis, to suggest still more upside in the coming months. The trend-line price projection from the monthly chart, at present, suggest prices will hit a new all-time record high in September of 2022.–Stay tuned! Jim

Thursday, May 21–Jim Wyckoff’s Morning Markets Report

Global stock markets were mostly lower in overnight trading. U.S. stock indexes are pointed toward lower openings when the New York day session begins, on a corrective pullback from Wednesday’s good gains. Attitudes are more upbeat late this week as governments continue to reopen businesses that had been shuttered for weeks. Some sporting events have been scheduled to resume in the coming weeks and there are rising hopes autumn sports can be played.

Also supporting more positive trader and investor sentiment is the surprising rally in crude oil prices that sees Nymex crude oil trading above $34.00 a barrel Thursday morning. The strong rally in the oil market has caught most oil market watchers by surprise, given significantly reduced demand and still-burdensome global supplies. Just a few weeks ago Nymex May crude oil futures traded as low as -$40 a barrel just before the contract expired.

Global economic data for May is starting to improve from the dire numbers seen in April. The IHS Markit composite purchasing managers index (PMI) for May in the Euro zone rose to 30.5 in May from 13.6 in April. A reading below 50.0 suggests contraction. The U.K.’s PMI for the same period came in at 28.9 from 13.8. Japan’s PMI for the same period was 27.4 versus 25.8. Australia’s composite May PMI was 36.4 versus 21.7 in April.

China has begun its most important political event of the year, the National People’s Congress, after a delay because of the Covid-19 pandemic. The meetings signal what the government is calling its victory over the outbreak that began late last year, and will outline key economic and social goals for the year. U.S.-China relations have soured the past several weeks, amid the pandemic that the U.S. is blaming on China. President Trump tweeted late Wednesday that China’s “disinformation and propaganda attack on the United States and Europe is a disgrace.” The U.S. Senate on Wednesday moved to ban Chinese companies from trading on U.S. stock exchanges.

The other important outside markets see the U.S. dollar index firmer early today. The yield on the benchmark U.S. Treasury 10-year note is currently around 0.67%. Gold prices are lower on a normal downside correction from recent good gains.

U.S. economic data due for release Thursday includes the weekly jobless claims report, expected to show claims of 2.4 million, which is a decline from recent weeks. Also due out is the Philadelphia Fed business survey, PMI indexes, existing home sales, and leading economic indicators.

–Jim
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Wednesday, May 20–Jim Wyckoff’s Morning Markets Report

Global stock markets were mixed in overnight trading. U.S. stock indexes are pointed toward solidly higher openings when the New York day session begins. Trader and investor enthusiasm is just a bit muted at mid-week after the initial optimism regarding a successful phase-one Covid-19 vaccine test performed very well. The majority of medical experts still believe any proven vaccine is at least one-year away.

Despite continued dour economic data being released from the major world economies, and reports that the pandemic in Brazil is careening out of control, world stock markets are performing well. It’s likely a case of traders/investors having “pandemic-fatigue” and are in denial of what is occurring and will continue to occur in the coming months, or they were hit with the Covid-19 shock so hard that within a period of just a few weeks they factored into market prices a worst-case scenario, and now the markets are recovering because such a scenario is not playing out—at least not yet. Maybe some of both.

The German government on Wednesday auctioned its 10-year bond (bund) and it fetched an average yield of -0.47%. So, for the next 10 years investors that bought the bunds were willing to accept negative returns. Their logic must be that economic times will get even worse in the coming years and that price deflation will become problematic. The bund investors’ logic comes at a time when the world’s central banks have flooded their financial systems with record amounts of liquidity in an attempt to rescue their floundering economies. Veteran market participants have heard the saying that bond traders are the smartest traders in the world. However, this veteran market watcher will take the other side of the deflation trade that bund buyers are presently making. Economics 101 has historically taught that increased money supply and velocity create price inflation, not deflation.

The important outside markets see Nymex crude oil futures higher early today and trading around $32.15 a barrel. The U.S. dollar index is weaker again early today. The yield on the benchmark U.S. Treasury 10-year note is currently around 0.69%.

U.S. economic data due for release Wednesday includes the weekly MBA mortgage applications survey, the weekly DOE liquid energy stocks report and the FOMC minutes from the last meeting.

–Jim
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