When we look at how many markets are trading well below last year’s levels, there is no question the world was a much different place then.

The World Was A Much Different Place Then
May 5 (
King World News) – 
Peter Boockvar:
  It gets debated every day and I certainly get questioned as to why the stock market is where it is in light of the state of the economy. I mean with the S&P 500 at around the same level of last October, wasn’t the world a much different place then. For sure but what we have here, for now, is a hall pass for stocks in a sense for the next month because bad economic data is seen as old news as we look to broader reopenings in May when the economic data will obviously change. Of course some things won’t reopen until next year but hopefully much will in the coming 4-6 weeks…

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I believe this market view is the case every where as other economies reopen as well. As I said last week, the stock market I believe is focused on the direction of the economy off the bottom which is up while Treasuries seem more worried about the degree of the rebound which will be slow with the 10 yr yield still yielding well below 1%. I expect though sometime in June or July or maybe not until September for this situation to get reconciled and since I’m not expecting much with respect to the economy, remain of the belief that we are still at the upper end of an establishing wide trading range. This said, we get some good therapeutics and progress on a vaccine in coming months, we’ll reevaluate and that is when bonds could be under pressure and inflation starts to be a topic. 

A good measure of this reopening at least in the US will be the price of oil as more people start driving again. This at the same time that more production globally gets shut in. The June WTI contract is up for a 5th straight day. I still like the big oil companies as my contrarian blood runs deep, for better or for worse.

Ahead of the US ISM services index at 10am, we saw some more April PMI’s overseas. Australia’s services PMI was slightly revised lower to 19.5 from the initial print and that is down from 38.5 in March. Thailand’s manufacturing PMI fell to 36.8 from 46.7. The UK services PMI was revised to 13.4 from the 1st April print of 12.3 but that is down from 34.5 in March and 53.2 in February. That’s an unprecedented collapse but self inflicted and what happens when things stop. 

The euro is weaker this morning after a German constitutional court basically said that the Bundesbank has to stop buying German bunds under the ECB’s QE program unless the ECB can prove that it is necessary. It was essentially the German court’s opportunity to say that EU treaties don’t legally back QE. The ECB has 3 months to respond and we know the Germans have been against this policy.

I don’t expect much to come of this and the German 10 yr yield is little changed but we are seeing again selling in Italian, Spanish and Portuguese bonds. I believe this is because the ECB’s QE program is being called into question and you can only imagine where Italian yields would be if it wasn’t for the ECB and that would be much higher.

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