As we move toward the final week of trading in January, big worries are developing overseas.
January 23 (King World News) – Peter Boockvar: Here is another market sentiment gauge that has reached extreme levels, the AAII measure of individual investors. Bulls rose 3.8 pts to 45.6 and that happens to be the most since October 4th, 2018 and February 2018 before then.
Bears fell 2.7 pts to 24.8, 4 pts off the lowest since April 2019. Bottom line, the bull boat is standing room only.
Worries In Asia
After a one day respite, Asian stock markets fell sharply again on the corona virus fears and its economic impact. The Shanghai comp fell 2.8% to the lowest level since two days before Christmas and 3.7% below its January 15th US/China trade deal signing close. The H share index closed down 2% and gave back its year to date gains. Copper now is at the lowest level since early December. Oil too, falling almost another 2% and the US 10 yr yield is down to 1.75%, also the lowest since early December. These are not signs of an expected acceleration in global trade now that the US and China have a signed trade deal as virus fears now dominate. Soybeans you ask which the Chinese have promised to ramp up its purchases? They are down .5% today to a 6 week low…
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Japan’s exports in December fell 6.3% y/o/y, more than the forecast of a 4.3% decline. This is the 13th straight month that is down y/o/y. There was a green shoot and that was a pick up in semi equipment shipments, mostly to China as they build out further their semi industry in order to be less reliant on US suppliers. As for other semi supplies, China is buying as much as they can from everyone, particularly US suppliers, ahead of any further restrictions, particularly on Huawei. Weakness was seen in auto exports as they fell by 12% y/o/y and auto parts were down by 11%. Imports also were weaker than expected y/o/y. On the data and also the general virus driven weakness, the 10 yr JGB yield fell 2 bps to back below zero. The Nikkei was down by 1%.
European Monetary Policy
We will hear from Christine Lagarde at 8:30am est in her 2nd press conference as head of the ECB. I’m most interested in hearing whether they plan on altering their inflation goal from something around 2% to maybe a range like 1-2%. If they do, it would imply acceptance of the current inflation rate and I’d be selling European bonds because they wouldn’t be able to substantiate current monetary policy. For now though this is unlikely but even some in Japan are realizing the elusiveness of a 2% inflation rate, thus why have it as a goal. And why would a central banker think they can hit a target with monetary policy like shooting an asteroid in a video game? Because their econometric models told them they can.
Also of importance…
Art Cashin: Overnight And Overseas – Chinese equity markets came under heavy pressure later in their session as government authorities moved to virtually lock down the city of Wuhan, which is larger than New York City. That move was seen as rather drastic and may have hinted that the government was more concerned about the outbreak than they had indicated.
Since this was the last day of trading in Shanghai before the multi-day closing for Lunar New Year, the selling there was rather intense, and Shanghai closed down the equivalent of 800 Dow points. Selling was half as intense in Hong Kong, which will be open one more day before the holiday closing.
Japan saw moderate selling, while India held a modest gain.
Stocks in Europe are currently showing small changes in somewhat nervous trading. London and Frankfurt are trading with fractional losses, while Paris is holding tiny gains.
Among other assets, Bitcoin is a shade lower, trading just above $8400. Gold is very slightly lower, while crude is under pressure with WTI trading below $56. The euro is flat against the dollar and yields are down a tick.
Consensus – Next week’s focus may shift to Brexit as bill now awaits the Queen’s signature.
Wuhan shutdown will be closely watched. Will fear of epidemic slow a global economy? Macau has canceled all
New Year’s festivities.
Stick with the drill – stay wary, alert and very, very nimble.
Gold, Silver, Surprise
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