After yesterday’s confusing trading, world markets are tumbling once again.
Into The History Books
May 9 (King World News) – Here is today’s note from legend Art Cashin: On this day in 1864, General U.S. Grant’s forces were trying to dislodge Lee’s defending army at a small, out of the way place called Spotsylvania Courthouse. Grant was driving toward the Confederate capital of Richmond, Virginia. Grant’s plan was to sweep past the Rebs and capture Richmond, thus possibly ending the war.
But Lee’s unique sense of deployment and a punishing artillery barrage by the battery of Gen. Porter Alexander kept the Union forces bogged down. Grant pinned his hopes on the 6th Corps, under the command of Gen. John Sedgwick. But Sedgwick’s men were terrified of Confederate snipers whose Minie balls seemed to fly through the air. Sedgwick was much loved by his troops and he thought a personal appeal would win the day. He rode to a trench of new recruits and uttered one of my top five favorite “last words.” “Men”, he shouted, “stand up!” “They couldn’t hit an elephant at this dist….” He never finished the sentence as a Minie ball blew him off his horse and into history books.
(Another of my favorite “last words” is attributed to Oscar Wilde who on his deathbed looked about the room and reportedly said – “Either that wallpaper goes or I do.”)
It was the last words on trade negotiations that stocks hung on for the last several days.
Recall that in the closing minutes of trading on Tuesday, there was frenzied buying that lifted the Dow well over 100 points above the lows. We suggested it likely was bears closing out some shorts to reduce their risk exposure, fearing a surprise Presidential tweet. If that was true, it turned out to be a smart choice.
Very early Wednesday morning, U.S. stock futures hinted that the Dow might open down about 150 points. Then along came a Trump tweet claiming that the Chinese vice-premier would be arriving soon to cut a deal. That moved the futures, and the opening was far more mixed and neutral.
Traders seemed to hang on the somewhat optimistic tweet for much of the day, showing modest gains through mid-afternoon.
In the closing minutes, there was some frenzied selling. On the face of it, you could claim that it was due to the “market on close” imbalances since there were over $1.1 billion for sale, on balance.
I would counter that it was likely another case of reducing risk exposure in front of possible overnight surprises.
If so, again it was logical since remarks in a campaign speech that China had “broken the deal” seemed to rattle markets overnight. An ounce of prevention.
Another Pair of Eyes – My friend Peter Boockvar of Bleakley Advisory wrote about the Chinese economy and markets. Here’s a bit of what Peter wrote:
China reported its key monthly loan data for April and it came in less than expected. Aggregate financing totaled 1.36T yuan, about 300b below the forecast of which 1.02t were bank loans vs the estimate of 1.2T. Versus the same month last year bank loans are down by 13.5% while total loan growth is lower by 23% y/o/y. This said, the leveraging up this year has been pretty amazing as aggregate loan growth is up 25% year to date y/o/y. The Chinese claim this is more targeted and thus hopefully more productive but we’ll see. The hamster wheel of wanting to delever but still generate 6% growth isn’t stopping. Money supply growth of 8.5% was as expected.
China also released its monthly inflation stats and the 2.5% CPI rise was as expected with another big boost in food prices due to the swine fever that has goosed pork prices. Prices ex food and energy have been very stable, rising by 1.7% y/o/y. PPI came in a bit hotter than expected and many associate its movements with the direction of the Chinese economy. I think its just where commodity prices go which of course are correlated to growth but sometimes more influenced by supply issues. Asia stock markets were again almost all red with the Shanghai comp down by 1.5%, the H share index lower by 2.3% and the worst performer was the South Korean Kospi weaker by 3% with the Won falling to its lowest level against the dollar since January 2017. Tech stocks were the main culprit in South Korea while Chinese stocks were weighed down by Trump’s comments of course last night.
Overnight And Overseas – Asian equity markets are down across the board. Japan and India closed with moderate selloffs. Shanghai sold down the equivalent of nearly 400 Dow points, while Hong Kong was down the equivalent of 625 Dow points.
The weakness in the China markets was not solely about the trade talks, a large part of it was reaction to weaker economic data. In Europe, London is modestly lower, while markets on the continent are seeing more marked selling.
Among other assets, Bitcoin has rallied again and is now trading around $6250. Gold is a shade higher, while crude is basically unchanged. The euro is flat against the dollar and yields are a tick, or two, lower.
Consensus – Trade talks very much center stage. Vice Premier arrives in Washington. Some talk that his powers may have been restricted a bit. We’ll follow-up.
Iran tensions continue with risk of a military accident.
A key technical is the need not to violate Tuesday’s lows (Dow 25790 and S&P 2862).
Stay wary, alert and very, very nimble.
***Also just released: Kiss It Goodbye CLICK HERE TO READ.
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