China announces it will not introduce “flood like” stimulus as stock market bulls increase for 7th straight week.
Stock Market Bulls Increase For 7th Straight Week
February 20 (King World News) – Here is today’s note from Peter Boockvar as the world awaits the next round of monetary madness: According to Investors Intelligence, the Bulls got back above 50 for the first time since October 24th at 51.9 from 49.5 last week. The 7 week streak of higher bullishness is the longest since the post election time period of November/December 2016. Bears fell to 20.7 from 21.5, giving back last week’s increase. Those expecting a Correction is now at a 4 month low at 27.4. Bottom line, an extreme read of Bulls is anything above 60 while something that is worth noting is something above 50. II said simply from a purely contrarian standpoint, “As optimism increases so does the danger.”…
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Rate Hikes Finished, What About QT?
While the minutes are a whitewashed version of what was actually said during the FOMC meeting as a way for the Fed to convey added information, I don’t expect anything new today at 2pm outside of why they pivoted to such an extent. We now know the rate hike cycle is on hold (and most likely done) and thus we are left with what happens next with QT. Will it end cold turkey when they reach their balance sheet comfort level (around $3T?) or will they taper the QT until they get there? As we heard from some key Fed members over the past few weeks, that is currently in discussion with an announcement possible at the coming meeting on March 20th.
More Evidence Of Slowing Global Trade
We got more confirmation of the slowdown in global trade with Japan’s report that exports in January fell 8.4% y/o/y vs the estimate of down 5.7%. That’s the biggest one month decline since October 2016. Specifically, exports to China plunged by 17%. Bottom line, it’s not just the US and China that want a trade deal between the two. Also, we need to get rid of those steel and aluminum tariffs on many of our other trading partners. In response, the 10 yr JGB yield fell further below zero by almost 1 bp to -.033%. The yen is also weaker which in turn helped the Nikkei but the bank stocks were flat as the curve continues to crush their profitability.
Inflation
…On inflation, there seems to be a lot of nonchalance in the US, particularly on the part of the Fed, that inflation is falling or at least not an issue but if anyone listened to company conference calls on Q4 earnings will reveal many companies that are interested in raising prices as transportation costs, labor costs and raw material pricing is squeezing profit margins.
US 10 Year Yields Continue To Fall
While the US 10 yr yield keeps falling, now sitting at just 2.63%, the lowest since January 4th, the 10 yr inflation breakeven is up to 1.88%, the highest since December 10th. That implies that real rates keep falling with the 10 yr REAL rate at the lowest since late August. Again, global bond yields are not expecting an economic rebound when we get that Chinese trade deal like global stock markets are. Something has to give soon between the two markets and the messages they are sending.
U.S. 10 Year Treasuries Signal No Economic Rebound In Sight
China Will Not Introduce “Flood Like” Stimulus
The yuan is higher vs the dollar on the report that the US trade negotiating team is asking the Chinese to keep the yuan stable (thus away from weakening it in response to any deal and/or tariffs). I’m all for keeping currencies stable but it’s quite ironic that our Treasury spends countless time for years and years accusing the Chinese of manipulating their currency and now we are asking them to officially manipulate their currency to keep it stable. Chinese Premier just within the last hour, and likely indirectly addressing this negotiating point, is saying that monetary policy will remain “prudent” and they will not resort to “flood like” stimulus. He doesn’t seem supportive of another RRR cut anytime soon but wants banks to lend money on a medium and long term basis to “the real economy.”
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***Also just released: Art Cashin – Stock Market May Be Showing Signs Of Topping CLICK HERE TO READ.
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