Not so Fast

Not so fast.  Fear of a recession seemed like a thing of the past in yesterday’s session as stocks surged in response to Chinese and US manufacturing data.  Just days after the treasury yield curve inverted, investors pivoted from fear to greed as the economy showed signs of slow but positive movement.

WHAT YOU NEED TO KNOW:

1)  Brexit keeps spinning around and around.  WHILE YOU SLEPT, the British Parliament voted down another slew of alternative Brexit measures in the wake of PM Theresa May’s failed option.  Of all the measures proposed, the customs union came closest to passing with a 276 noes to 273 ayes vote.  A customs union is the softest proposed version of Brexit which would involve Britain remaining in a common tariff union with the EU.  That means that GB would enjoy the same trade treaties with non-EU countries such as the US.  The challenge with the proposal is that Britain would still be restricted to the EU’s negotiated deals and there would be no Irish border solution.  So what is the the deal actually accomplishing?  The answer to that question is still eluding British lawmakers.

2)  China matters.  As reported here yesterday morning, Chinese factory PMI figures broke above the 50 mark which indicates growth.  China is the world’s second largest economy, so good news for China is good news for the world… and the stock market.  Equities cheered the number yesterday.

3) Retail sales slipped in February.  Yesterday’s Census Bureau release of Retail Sales showed a decrease of -0.2% though January’s number was revised upward.  The pullback in sales is most likely linked to the Government shutdown and the fact that tax refunds are smaller than expected this year.

4)  US Manufacturing is expanding… slowly, but still expanding.  Yesterday’s Markit and ISM manufacturing PMI’s both missed expectations slightly but still showed growth over prior periods coming in at 52.4 and 55.3 respectively.

THE MARKETS:

Stocks rallied in response to good economic news on Chinese manufacturing and lukewarm news on the US Economy.  Yesterday’s rally, which brings markets within striking distance of the all time highs achieved last year, shows how influential the Federal Reserve can be on not only the economy, but also the appetites of stock traders.  Stocks rose emphatically yesterday with the S&P 500 climbing by +1.16%, the Dow Jones Industrial Average gaining +1.27%, the Russell 2000 adding +1.06%, and the NASDAQ 100 trading up by +1.35%.  While stocks achieved some impressive closes yesterday, the Russell 2000 still remains below its 200 simple moving average.  A pronounced move by the small cap index above the important trend line is critical for overall equities to achieve a sustainable rally.  Crude Oil surged yesterday, closing right on its 200 day moving average, closing at highs not seen since last November on OPEC inventory declines.  Bonds finally relented yesterday trading off by -0.37% leaving 10 year treasury yields at 2.5%, up +10 basis points from Friday’s close.  The move in 10 year yields pushed the 3 month / 10 year yield curve solidly back into positive territory at +11 basis points.

WHAT TO LOOK FOR TODAY:

This morning the US Census Bureau will release its Durable Goods number which is expected to have receded by -1.8% versus last month’s +0.3% growth.  Excluding transportation, the number is expected to have grown at +0.1% versus last month’s decline of -0.2%.  Walgreens Boots Alliance will report earnings before the bell and Wall Street is expecting earnings of $1.722 / share.

daily chartbook 2019-04-02