Daily Morning Report

Monday, March 9–Jim Wyckoff’s Morning Markets Report

Global stock, commodity and financial markets were rocked overnight following the weekend news that Saudi Arabia said it would drastically lower its crude oil prices and pump more crude oil following a failed OPEC meeting in which Russia refused to lower its crude production. Nymex crude oil prices fell to a four-year low of $27.34 a barrel overnight before coming off those lows but still trading down nearly $9.00 a barrel at around $32.50. The one-day loss in crude oil prices is the biggest in almost 30 years, dating back to the 1991 first gulf war.

Global stock markets sold off sharply overnight and the U.S. stock index futures are pointed toward sharply lower to limit-down price moves when the New York day session opens.

The benchmark 10-year U.S. Treasury note saw its yield dive to a record low of 0.387% overnight, and its currently trading around 0.5%. The U.S. 30-year Treasury bond’s yield dropped below 1.0% overnight. U.S. Treasury bond futures overnight at one point saw prices trade over 13 points higher. For perspective, a one-point move in T-Bond prices (32/32) is normally consider a big move.

Gold prices soared above $1,700.00 an ounce and hit a seven-year high overnight before falling back to trade modestly down on the day, at around $1,666.00. Gold is likely being pressure by the old trading adage, “When you can’t sell what you want, you sell what you can,” as the e-mini S&P stock index futures were locked limit down overnight and the U.S. stock market has yet to open, as of this writing.

The U.S. dollar index is trading lower and hit a 13-month low overnight. The Japanese yen has soared on the foreign exchange market, while the Australian dollar plunged in value.

The Saudi-Russia oil-price war is the second shock to hit the global marketplace this year, as traders and investors are still dealing with the high anxiety of the coronavirus, or Covid-19 outbreak that continues to spread. Reports over the weekend said half of Italy is on lockdown, while more cases and deaths have been reported in the U.S. The state of New York has declared a state of emergency because of the outbreak. Business events in the U.S. are now being cancelled and some companies have banned employee travel on airlines.

More and more, it appears the global economy is spiraling into recession and a bear market in equities. Young investors have never experienced a bear market in stocks, which will especially unnerve them. Look for the major central banks to take more action—possibly as soon as Monday—to try to mitigate the collapsing stock markets and assuage very shaky consumer confidence.

U.S. economic data due for release Monday is light and includes the employment trends index.

–Jim

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Friday, March 6–Jim Wyckoff’s Morning Markets Report

Global stock markets were solidly lower overnight, following the big losses in the U.S. stock market on Thursday. U.S. stock indexes are again pointed toward sharply lower openings when the New York day session begins. Look for another very active day in U.S. markets. It’s hard to conceive the U.S. stock indexes recovering today, heading into another uncertain weekend and what next Monday may bring on the coronavirus front.

Here’s the latest on the Covid-19, or coronavirus, outbreak that continues to wreak havoc in world markets. Some U.K. factories have moved to a four-day work week. The impact on German and Euro zone automotive manufacturers is expected to be severe in the short term. Supply chain issues are creating the notion of companies securing greater supplies of critical parts and materials—also called hoarding.

Here are some selected comments from one of Friday’s market commentaries emailed to me: “Disinflationary risks mount and recession looks an increasingly safe bet (it’s simply a question of where, how deep and how long). Even Gold, normally an inflation hedge, is soaring on the basis of naked fear. Despite calming words about how this is just the flu and all will be well in a few months when the summer comes, nobody knows where we are heading with Covid-19. One thing seems pretty clear, if the market has presently priced Coronavirus in correctly, it is by sheer blind luck; probably it has not.”

Standard and Poors has forecast GDP growth in China at 4.8% in 2020 before rebounding to 6.6% in 2021.

The benchmark U.S. 10-year Treasury note yield overnight fell below 0.8% to another record low, and remains below that level. How low can the U.S. 10-year note yield go? Well, for perspective Germany’s 10-year bund is presently trading at a yield of -0.73%. There is dire concern among long-term market watchers that a U.S. and /or global economic recession looms, including the prospect of debilitating consumer and commercial price deflation.

From my 35-year markets-watching perspective: I can think of a few big market shocks that rival what is occurring now, including the Chernobyl nuclear accident in the Soviet Union in 1986, the Sept. 11 terror attacks in 2001, the 2008 global financial crisis, and the 1987 stock market meltdown. For me, only the 1987 stock market crash and the 9-11 attacks were bigger than what markets are exhibiting now. This coronavirus matter is a big deal that appears to be getting bigger.

The key outside markets today see Nymex crude oil prices sharply lower, hitting a 14-month low and trading around $44.00 a barrel in early trading. OPEC and Russia are presently wrangling regarding how much oil production the cartel should further restrict amid the falling prices. Meantime, the U.S. dollar index is trading sharply down today and hit a nine-month low.

The coronavirus scare has overshadowed today’s release of the U.S. employment situation report for February, from the Labor Department—arguably the most important U.S. data point of the month. The key non-farm payrolls number is forecast to come in up around 175,000.

Other U.S. economic data due for release Friday includes international trade in goods and services, monthly wholesale trade, and consumer credit.

–Jim
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The benchmark U.S. 10-year Treasury note yield earlier this week fell below 1.0% to a record low, and remains below that level. This has prompted keen concern among long-term market watchers that a U.S. and /or global economic recession looms, including the prospect of debilitating consumer and commercial price deflation. That prospect is bearish for stocks and most commodities, and bullish for safe-haven assets like gold, the U.S. dollar and U.S. Treasuries. An examination of the weekly chart of the Goldman Sachs Commodity index paints a dour picture for the prospects for the raw commodity sector. The GSCI last week hit a nearly three-year low.

Thursday, March 5–Jim Wyckoff’s Morning Markets Report

Global stock markets were mostly firmer overnight, following the big gains in the U.S. stock market on Wednesday. However, U.S. stock indexes are pointed toward sharply lower openings when the New York day session begins. Look for another active day in U.S. markets.

The U.S. stock market euphoria over Democratic U.S. presidential candidate Joe Biden’s solid performance at the “Super Tuesday” primaries has quickly faded Thursday as focus again turns to the uncertainty regarding the Covid-19, or coronavirus, outbreak that continues to spread worldwide and especially outside of China. This week, major corporations have suspended air travel for their employees and cancelled some conventions and conferences. There are reports of some U.S. stores running out of basic consumer goods. On the economic front several major central banks this week have eased their monetary policies to combat the negative economic consequences of the Covid-19 outbreak. More central banks are likely to take action soon, including the European Central Bank.

Recent history shows that some days traders and investors are less concerned about the coronavirus outbreak, and then the next day they are more concerned. Look for continued vacillating markets as the Covid-19 situation plays out. It’s now looking more likely that the event will not be a short-term situation, but instead one that will play out over several months, or longer.

The benchmark U.S. 10-year Treasury note yield earlier this week fell below 1.0% to a record low, and remains below that level. This has prompted keen concern among long-term market watchers that a U.S. and /or global economic recession looms, including the prospect of debilitating consumer and commercial price deflation.

All of the above are bearish for stocks and most commodities, and bullish for safe-haven assets like gold, the U.S. dollar and U.S. Treasuries. An examination of a chart of the Goldman Sachs Commodity index paints a dour picture for the prospects for the raw commodity sector.

The key outside markets today see Nymex crude oil prices firmer and trading around $47.00 a barrel in early trading. Reports said the OPEC oil cartel is close to agreement on a collective oil-production cut to try to stem the slide in oil prices. The U.S. dollar index is trading down today.

U.S. economic data due for release Thursday includes the weekly jobless claims report, the Challenger job-cuts report, revised productivity and costs, manufacturers’ shipments and inventories, and monthly retail chain store sales.

–Jim

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Wednesday, March 4–Jim Wyckoff’s Morning Markets Report

Global stock markets were mixed to firmer overnight, following the big sell off in the U.S. stock market Tuesday. U.S. stock indexes are pointed toward solidly higher openings when the New York day session begins. Look for another very active day in U.S. markets.

The global marketplace on Wednesday is still digesting the surprise 0.5% interest rate cut delivered by the U.S. Federal Reserve on Tuesday morning. That move, at least initially, roiled the U.S. stock market and, importantly, sent the yield on the benchmark 10-year U.S. Treasury note plummeting to a record low, below 1.0%. Wednesday morning the yield on the 10-year note was around 9.85%. Veteran market watchers are taking a very dim view of the drop in U.S. Treasury yields, as it is a signal of impending U.S. and/or global economic recession. It’s also suggestive of potential consumer and commercial price deflation. Deflation is the archenemy of many markets, including raw commodities.

Part of the rebound in the U.S. stock market overnight is likely due to former U.S. Vice President Joe Biden’s strong performance in the “Super Tuesday” Democratic presidential primaries. Biden’s solid showing dented socialist-leaning candidate Senator Bernie Sanders’ momentum. Most agree the U.S. stock market would not like a Sanders presidency.

Meantime, the Covid-19, or coronavirus, outbreak continues to spread worldwide and especially outside of China. There are anecdotal reports of consumer hoarding of basic goods in the U.S. The outbreak is being perceived by analysts and economists as seriously denting world economic growth, at least for a short period of time, or maybe not so short. More central banks are expected to soon announce they are easing their monetary policies to help thwart the negative economic impacts of the outbreak, following the U.S. and Australian moves earlier this week.

In overnight news, China’s private Caixin purchasing managers index (PMI) February showed a manufacturing reading of 40.3 versus 51.1 in January and 46.0 forecast. The Caixin services PMI was 26.5 versus 51.8 in January and 48.0 forecast. The Caixin composite PMI was 27.5 compared to 51.9 in January. Hong Kong’s Markit PMI came in at 33.1 in February, down from 46.8 in January and marked the steepest drop since at least 1998, when the survey began. The Euro zone February composite PMI was reported at a better-than-expected 52.6 versus 51.3 in January. A reading below 50.0 suggests contraction in the sector.

The key outside markets today see Nymex crude oil prices higher and trading around $47.75 a barrel in early trading. The U.S. dollar index is trading up today following recent strong selling pressure.

U.S. economic data due for release Wednesday includes the weekly MBA mortgage applications survey, the ADP national employment report, the U.S. services PMI, the ISM non-manufacturing report on business, the global services PMI and the weekly DOE liquid energy stocks report.

–Jim

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Tuesday, March 3–Jim Wyckoff’s Morning Markets Report

Global stock markets were mixed to firmer overnight, following the strong rebound in the U.S. stock market Monday. While the Covid-19, or coronavirus, outbreak appears to have slowed its rate of spread in China, the illness rate is growing outside of China, including South Korea, Italy and other countries. The marketplace is becoming more focused on what the major economies of the world are doing to prevent economic damage. Australia’s central bank cut its main interest rate overnight, while the Group of Seven finance ministers are holding a conference call today to discuss what to do about the outbreak’s impact on world economies. A statement from the G-7 will likely come following the phone call. President Trump again brow-beat the Federal Reserve in a tweet overnight, urging the U.S. central bank to lower interest rates. Many analysts are now saying the outbreak’s impact on global economies will be serious but the duration of the impact will be short. U.S. stock indexes are pointed toward firmer openings when the New York day session begins.

Many are wondering if Monday’s big gains in the U.S. stock indexes point to market bottoms being in place. Maybe. A more solid clue that near-term market bottoms are in place in the stock indexes (or any other market that has been beaten down the past few weeks) would be two very strong up-days in a row, or a bullish weekly high close on a Friday. Also, it’s very likely that higher market volatility will resurface, and probably soon. The Covid-19 outbreak has moved on and off the front burner of the marketplace many times over the past couple months, and such will likely continue for the near term.

The yield on the benchmark U.S. Treasury 10-year note rose to 1.150% Tuesday after hitting a record low of 1.031% Monday. Gold and silver prices are higher early Tuesday, following good gains Monday.

The key outside markets today see Nymex crude oil prices higher and trading around $48.35 a barrel in early trading. The U.S. dollar index is trading up today following recent strong selling pressure.

U.S. economic data due for release Tuesday includes the weekly Goldman Sachs and Johnson Redbook retail sales reports, the ISM New York report on business, the IBD/TIPP economic optimism index, and domestic auto sales.

–Jim

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