Daily Morning Report

Tuesday, March 17–Jim Wyckoff’s Morning Markets Report

Global stock markets were mixed in overnight trading. U.S. stock indexes are pointed toward higher openings when the New York day session begins, following the record-setting losses scored on Monday and which drove the U.S. stock market deeper into bear market territory. Look for another volatile trading session in the U.S. markets.

The U.S. stock market hit its daily lows on Monday during President Trump’s afternoon news conference, in which he painted a bleaker picture of the coronavirus pandemic and its impact on the U.S. economy. He said it could be August or later before things in the U.S. start to return to normal. “Social distancing” has dramatically increased and Trump recommended no public gatherings larger than 10 people for at least the next few weeks. Trump acknowledged the U.S. economy will likely slip into recession for at least a short while this year. Traders took note of Trump’s more somber demeanor at his press conference, as he seemed more conciliatory and less fiery when asked pointed and even nit-picking “gotcha” questions by some reporters.

It’s very likely many small retail businesses in the U.S., which do not have deep financial pockets, will not survive the social distancing safety measures that appear likely to remain in place for weeks to come, or longer. The U.S. government has promised aid to local main street merchants, but the likely cumbersome and slow process of receiving the federal government aid will be too late for many small businesses to stay afloat.

The gold market in less than two weeks’ time has lost over $200 an ounce from its multi-year high above $1,700. The sharp sell off in gold highlights the “sell what you can” trader/investor mentality that continues to grip the global marketplace. Silver prices have careened to an 11-year low this week, with platinum and palladium also suffering sharp losses.
The steep price losses across the raw commodity spectrum, led by crude oil, are raising fears of price deflation setting in for the global economy, including some even mentioning a global economic depression as being possible.

In overnight news, the closely watched German ZEW economic expectations index for March came in at -43.1 versus -15.7 in February and market expectations for a March reading of -30.0.

One positive note in this dire scenario laid out above is that North Americans appear to be taking the coronavirus outbreak much more seriously than many had initially reckoned. Pundits a couple weeks ago were saying North Americans could not be shut in like the Chinese were forced to do by their government. The dramatic shift in the psychology of North American citizens in just a week’s time is a testament to their resolve. China’s economy and commerce are reported to be starting to recover after its citizens were shut in for a few weeks.

One more potential positive on this matter could be that a vaccine for the virus could come much sooner than health experts are now forecasting. This long-time market watcher/reporter covered the energy markets during the 1991 first Gulf War. When Iraqi leader Saddam Hussein and his army were driven out of Kuwait by coalition forces, Saddam set fire to most of the hundreds of Kuwaiti oil wells. The massive fires showed up as big black spots on satellite photos of the entire Middle East. Oil experts said it would be many months or even a couple years before all those fires could be extinguished. Coalition firefighters had all those fires put out in about a month’s time. Sometimes even experts can be well off the mark on their forecasting.

The benchmark 10-year U.S. Treasury note sees its yield around 0.8% Monday, which is about the same as later Monday. The U.S. dollar index is solidly higher in early U.S. trading. Nymex crude oil prices are slightly up and trading around $29.00 a barrel.

U.S. economic data due for release Tuesday includes the weekly Goldman Sachs and Johnson Redbook retail sales reports, retail sales, industrial production and capacity utilization, the NAHB housing market index, manufacturing and trade inventories, and the Federal Reserve’s FOMC meeting begins.

–Jim

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The Nymex crude oil futures market early this week is under pressure again and is not far above the recent four-year low. Bears are in solid near-term technical control and more downside price pressure looks likely in the near term, as the markets panic and global demand shock continue to play out, amid no signs of markets stabilization.

Monday, March 16–Jim Wyckoff’s Morning Markets Report

Global stock markets were solidly lower in overnight trading. U.S. stock markets are pointed to sharply lower to limit-down trade ahead of the New York day session opening. Trader and investor confidence appears to be going from bad do worse to start the trading week, as over the weekend U.S. non-essential commerce began to shut down amid the coronavirus pandemic. Major stores are closing, public schools are closing, Colorado shut down all of its ski slopes and some states have ordered the closing of bars and restaurants. U.S. airlines are in financial peril as passenger traffic plummets. This follows the moves last week to effectively shut down most major sporting events in the U.S. The U.S. Center for Disease control has warned most Americans to stay home and recommended gatherings of 50 or more people be cancelled for at least the next two months.

The U.S. Federal Reserve on Sunday afternoon again cut its key interest rate, by 1.0% this time, to a range of zero to 0.25%. The Fed also will pump an additional $700 billion into the U.S. financial system (quantitative easing) and has opened up swap lines with other major central banks, in an effort to keep liquidity in the financial markets. President Trump and Congress over the weekend agreed on an aid bill for businesses and consumers negatively impacted by the virus outbreak. Speculation is that it will take at least two months for this situation to get under control from a U.S. public health perspective.

Other world central banks over the weekend announced further actions to thwart the negative economic impact of the virus outbreak that has created a demand shock worldwide.

Following is an edited portion of one email dispatch from a market analyst Monday morning: “It’s becoming evident that the major central banks across the globe are using all their available tools to prevent a crisis, but it seems the fear of the pandemic is taking control of investors. Markets will continue going through this phase of extreme volatility until they are able to assess the scale of damage caused by the virus outbreak. The longer the outbreak persists and countries stay in emergency status, the harder the global economy will be hit. A recession seems almost impossible to prevent at this stage, but the question remains, how bad is it going to be? Equity strategists will not be able to provide meaningful targets for stock prices. That’s because even companies themselves cannot project revenue targets in such situations.”

Economic data released by China Monday showed industrial production in the world’s second-largest economy plunged 13.5% in the first two months of 2020. Retail sales dropped 20.5% in the period as consumers were locked at home. Traders are wondering if the same dour economic numbers will start to come out of Europe and the U.S.

The benchmark 10-year U.S. Treasury note sees its yield around 0.8% Monday. The U.S. dollar index is solidly lower in early U.S. trading. Nymex crude oil prices are solidly down and trading around $30.00 a barrel.

U.S. economic data due for release Monday includes the Empire State manufacturing survey.

–Jim

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Friday, March 13–Jim Wyckoff’s Morning Markets Report

Most global stock markets rebounded Friday. U.S. stock indexes are pointed toward solidly higher openings when the New York day session begins, following Thursday rout that saw the biggest daily losses in the Dow Jones Industrial Average since the 1987 stock market crash. U.S. stock indexes are still firmly in bearish territory—down more than 20% from their record highs scored in February.

Here’s the key question on veteran traders’ and investors’ minds: At what point will general capitulation occur in markets that have been pounded lower? That means traders/investors already under pressure to get rid of their rapidly depreciating assets just throw up their hands and succumb to the financial pressures on them, and sell—suggesting selling has finally become exhausted and market bottoms are in place. It can be argued that Thursday’s price action showed some signs of capitulation. There was “blood on the Street.” Safe-haven gold and U.S. Treasury bond and note futures prices were hammered Thursday as traders sold what assets they could after U.S. stock index futures trading was halted in morning dealings after prices locked down their daily trading limits. Said one trader of Thursday’s price action: “There was nowhere to hide.”

Psychologically, the cancellation Thursday of most major U.S. sporting and major public events for at least the next several weeks dealt the general trading/investing public a surprising blow that arguably won’t be topped during this crisis. If the U.S. stock indexes post good closing gains on this Friday the 13th, (right now that’s a big if), then there will be more than a few long-time market watchers, including this one, who will think this major global market shock has hit its climax, from a markets perspective. If so, markets next week would begin to stabilize and stock indexes likely will have put in their market-crisis bottoms.

Major central banks of the world on Friday continued to take actions to thwart the economic damage caused by the coronavirus outbreak that continues to spread, including in the U.S. Norway’s central bank lowered interest rates while the European Central Bank Friday worked to assuage European traders disappointed by the ECB’s stimulatory actions announced Thursday. The ECB said Friday that more actions by the bank are possible in the near term. Meantime, China’s central bank lowered its reserve requirement ratio for its banks, to free up more cash for consumer loans. These moves follow Thursday’s massive injection of short-term liquidity into the U.S. financial system by the Federal Reserve around midday.

The benchmark 10-year U.S. Treasury note sees its yield around 0.9% Friday, which is well up from Thursday’s reading and also suggestive of a stabilizing global marketplace. The U.S. dollar index is trading a bit weaker in early U.S. trading, but it appears the greenback is finally getting a safe-haven bid as marketplace anxiety levels rise. The Euro currency is slumping this week, as well as the “commodity currencies”—the Canadian dollar and the Australian dollar. The crypto currency market has been hammered this week, as Bitcoin prices late this week hit a nearly one-year low.

Nymex crude oil prices are solidly up Friday morning and trading around $33.00 a barrel.

U.S. economic data due for release Friday includes import and export prices and the University of Michigan consumer sentiment survey

–Jim

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Thursday, March 12–Jim Wyckoff’s Morning Markets Report

Global stock markets were sharply lower overnight and U.S. stock index futures are pointed toward sharply lower to limit-down openings when the New York day session begins. U.S. stock indexes are now in bear market territory—down more than 20% from their peaks that occurred just last month.

The Covid-19 pandemic has the global marketplace in panic. President Trump’s Oval Office speech to the American citizens Wednesday night seemed to cause further unease in the markets when he announced no major economic stimulus measures, saying that’s up to the U.S. Congress. On Wednesday evening the NBA basketball league suspended its season after a player contracted coronavirus. The CME Group has closed its trading floors; however, most futures markets have been trading electronically for years. Movie stars Tom Hanks and his wife announced on Twitter they have tested positive for the illness. There are scattered reports the U.S. Treasury markets are becoming stressed.

Following is an edited version of Thursday morning email dispatch from a market analyst: “Markets are in complete crisis mode; past economic data has zero influence on investors’ decisions; central bank emergency easing policies are not being effective and politicians’ actions are only adding more confusion. The one thing that investors are monitoring is how fast the coronavirus is spreading. President Trump’s address to the nation last night was underwhelming. It shows that the U.S., like many other countries, is unable to provide the right action in response to the virus spread. A global recession seems impossible to escape and a massive decline in corporate earnings is inevitable. What is even more worrying is the risks that come with such a recession. Corporates across the globe are over-leveraged after more than a decade of low interest rates, and companies with weak balance sheets are extremely vulnerable to such economic shocks.“

The European Central Bank at its meeting Thursday is expected to announce monetary policy stimulus measures to battle the negative economic effects of the Covid-19 outbreak. With ECB interest rates already below zero, the central bank has limited options on stimulus. At this point, some economists are saying the Euro zone gross domestic product will decline 1.2% in 2020.

The benchmark 10-year U.S. Treasury note sees its yield around 0.68% Wednesday, which is well down from Wednesday’s reading. The U.S. dollar index is trading solidly up in early U.S. trading, as it appears the greenback is getting a safe-haven bid as marketplace anxiety levels rise. Nymex crude oil prices are sharply down and trading around $31.25 a barrel.

U.S. economic data due for release Thursday includes the weekly jobless claims report and the producer price index. Traders and investors are paying little attention to economic reports, at present.

–Jim

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The U.S. stock indexes are presently trapped in the technical grip of a big bear. See the steep price downtrend in place on the daily bar chart for the e-mini S&P futures. Importantly, the general public and traders and investors’ perceptions of the human and economic tolls of the Covid-19 near-pandemic are darkening by the day. Traders hate uncertainty, and the marketplace still does not have any grasp of how the coronavirus situation will ultimately play out from a markets perspective. Such fully favors the bearish equities camp.