With so much chaos taking place, look at what is happening in the US and around the world.

Market Doesn’t Think It Lasts Long
June 3 (King World News) – Peter Boockvar:
  The most common question over the past few days is how can the markets continue to rally in the face of everything, especially with wide spread protesting getting violent and destructive. My answer is completely dispassionate strictly with respect to the protests and that is the market doesn’t think it lasts long and thus won’t have any notable impact on S&P 500 earnings…

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As for the rally in the face of other challenges, I still believe in my hall pass theory that as long as businesses are reopening and the virus spread remains contained, that will be the main focus rather than the pace of economic growth. The analysis on economic activity will come in July/August after most things have reopened. Also, valuations don’t matter until they do.

Real Estate Purchases
According to the MBA, purchase applications continue to power on, rising 5.3% m/o/m and now has it higher by 17.5% y/o/y. Whether its families leaving cities or just people taking advantage of record low mortgage rates, it’s an area of the economy that has hung in real well in the face of still high unemployment. Refi’s in contrast fell by 8.6% m/o/m but still remain up by 137%. The forbearance issue is more impacting refi’s and the availability of them.

Fed Bond Buying
When I saw a few months ago the news that the Fed was going to start buying corporate bonds, while disgusted by its prospect on the belief that nationalizing private assets is not a good thing, along with my understanding that the Volcker rule froze markets in March, I was at least hopeful that it would be more symbolic than substantive in terms of size. So far, luckily, it’s been more symbolic. As of May 26th, the Fed has only bought about $3b of IG corporate bond ETF’s, LQD and VCIT. 

Stock Market Euphoria
I still haven’t seen the Investor’s Intelligence data (send to me if you have) but the CNN Fear/Greed index is now close to 60 at 58, now in ‘Greed’ territory, but certainly well off its near 100 print as the 2019 page turned to 2020. Here was the updated Citi Panic/Euphoria index:

Ahead of the US services PMI at 10am for May we saw some more service PMI’s from overseas and it was a mixed bag. As more of China has reopened, its private sector weighted Caixin services PMI rose to 55 from 44.4 and that was well better than the estimate of 47.3. Caixin said: 

“…both business activity and new orders expanded at the quickest rates since late 2010. However, the pandemic continued to have a detrimental impact on new export work, which fell sharply…Confidence regarding the year ahead remained strong overall, despite weakening since April.”

Asian markets rose again with the H share index higher by almost 1% but the Shanghai comp was little changed. 

Japan’s May services PMI rose 5 pts m/o/m but still only to 26.5, about have its pace in January. Australia’s services PMI jumped 7.4 pts but only after falling by 29.5 pts in the past two months. Hong Kong’s PMI was up 7 pts to 43.9, helped by China’s reopening. Singapore’s PMI remained depressed at 27.1, down 1 pt m/o/m. India’s services PMI more than doubled m/o/m but to only 12.6. Bottom line, this recovery will take time but again, wait until after things are reopened for a more fair analysis. 

The Eurozone services PMI was revised to 30.5 from the initial print of 28.7 and up from an extraordinarily depressed 12 in April. I believe Markit’s bottom line applies everywhere: 

“Providing there is no resurgence of infection numbers, the planned lifting of lockdowns will inevitably help boost business activity and sentiment further in coming months. However, the outlook is scarred by the prospect of demand remaining weak due to household spending being hit by high levels of unemployment and corporate spending being subdued as companies repair balance sheets.”

The euro is up for the 7th straight day as the dollar again is weaker across the board.

QE Again Trumps Sickening Looting
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***To listen to the timely and powerful KWN audio interview with Egon von Greyerz click here or on the image below.

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