Daily Morning Report

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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The Goldman Sachs Commodity Index (GSCI) is a basket of major commodity futures markets rolled into a composite index. It’s a good gauge of the overall health of the raw commodity sector. See on the weekly GSCI chart that prices have moved well off the multi-year low scored in April. In fact, a bullish “island bottom” reversal pattern has formed on the weekly chart to suggest the GSCI has put in a major bottom. The strong recovery in the oil market has helped the GSCI and is also a good sign for the raw commodity sector that has been so hard-hit by the Covid-19 pandemic. Better times lie ahead for commodity markets.–Stay tuned! Jim

Tuesday, May 19–Jim Wyckoff’s Morning Markets Report

Global stock markets were mostly firmer in overnight trading. U.S. stock indexes are pointed toward weaker openings when the New York day session begins. The U.S. stock indexes rallied sharply Monday on positive early results for a Covid-19 vaccine. Many in the marketplace are speculating it’s going to take a proven vaccine to bring the global economy completely back to life and get humans back to mostly normal day-to-day matters. Still, early this week finds trader and investor risk appetite more robust, also due in part to a sharp rally in crude oil prices recently.

Federal Reserve Chairman Jerome Powell and U.S. Treasury Secretary Steven Mnuchin will appear via videoconference before the Senate Banking Committee today, discussing the U.S. emergency lending programs Congress is implementing amid the U.S. economic crisis.

The important outside markets see Nymex crude oil futures higher early today and hitting a two-month high overnight, trading around $32.25 a barrel in the June contract, which expires today. Many were predicting the June futures contract would expire the way the May contract did—in negative territory. The U.S. dollar index is lower again early today. 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 weekly Goldman Sachs and Johnson Redbook retail sales reports, and new residential construction.

–Jim
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Monday, May 18–Jim Wyckoff’s Morning Markets Report

Global stock markets were mostly firmer in overnight trading. U.S. stock indexes are pointed toward higher openings when the New York day session begins. As the world’s major economies have started to reopen, there is some encouraging news on the Covid-19 pandemic front. Reports say the rate of increase of new infections is at the slowest pace in months. Federal Reserve Chairman Jerome Powell said over the weekend the U.S. economy could recover steadily through the second half of the year, under the condition that there is no second wave of Covid-19. Powell said the Fed still has more ammunition to stimulate the U.S. economy, if it’s needed, adding there needs to be a vaccine for the economy to fully recover and that may be more than a year away.

In overnight news, Japan, the world’s third-largest economy, sank into recession in the first quarter, as its gross domestic product contracted by 3.4% in the period.

The important outside markets see Nymex crude oil futures sharply higher early today, at a five-week high, and trading around $31.50 a barrel in the June contract, which expires late this week. Many were predicting the June contract would expire the way the May contract did—in negative territory. The U.S. dollar index is near steady early today. The yield on the benchmark U.S. Treasury 10-year note is currently around 0.64%. Spot (cash) gold hit a seven-year high overnight, with Comex futures getting close to April’s multi-year high.

U.S. economic data due for release Monday is light and includes the NAHB housing market index.

–Jim
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The Nymex crude oil futures market less than a month ago traded down to minus $40 a barrel. Since that time prices have rallied and are closing in on $30 a barrel. That’s impressive and if you do the math it’s the sharpest rally in the shortest timeframe in the history of oil futures market trading. Such are the times in which we are living. The strong recovery in the oil market is a good sign for the raw commodity sector that has been so hard-hit by the Covid-19 pandemic. Still, one has to remember that in January Nymex crude oil futures traded at $60 a barrel.–Stay tuned! Jim

Friday, May 15–Jim Wyckoff’s Morning Markets Report

Global stock markets were mostly firmer in overnight trading. U.S. stock indexes are pointed toward slightly higher openings when the New York day session begins. Many traders and investors are wondering how the U.S. stock market has rebounded so strongly, what with 36 million American workers losing their jobs in just two months’ time and a vast number of businesses and commerce still shuttered. Bigshot investment managers have gone on TV this week to say the U.S. stock market is presently the most over-valued they have ever seen it. However, these guys are likely just “talking their own book.” Still, the general public is taking a dim view of Wall Street recovering smartly, while main street continues to see major suffering. There are growing tensions as workers in the lower halves of nations’ income levels, who have seen the most job losses and who have the least amount of money saved, desperately need to get back to work but many governments won’t let them. This situation cannot go on for an extended period of time without civil unrest, which is already being seen in a few areas. This growing unease has likely helped gold get a better safe-haven bid recently.

In overnight news, the Euro zone first-quarter gross domestic product came in at -3.8% from the fourth quarter and down 3.2%, year-on-year.

Economic data released in China Friday was somewhat upbeat, showing that the world’s second-largest economy is recovering from the first-quarter quarantining of the public. However, a worrisome component of the data was that retail sales fell 7.5% in April, suggesting consumers, while back to work, are still leery about spending.

The important outside markets see Nymex crude oil futures higher early today and trading around $28.00 a barrel. The recent rally in the crude oil market has been a bullish element for the stock markets’ rallies. The U.S. dollar index is lower today. The yield on the benchmark U.S. Treasury 10-year note is currently around 0.62%.

There will be important U.S. economic data out Friday morning that will likely reflect the serious damage being inflicted upon the world’s largest economy. Due out are April retail sales (seen down around 12%), industrial production for April (seen down 11%), the University of Michigan consumer sentiment survey, the Empire State manufacturing survey, manufacturing and trade inventories, and Treasury international capital data.

–Jim
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