Notes From Underground: Strange Days Indeed

April 17, 2018

The market has several themes it is trying to digest, which made Tuesday’s price action interesting. Reported earnings have been as strong as whispered and with the Syrian bombing over the weekend, the markets had time to analyze the outcome (and as usual it was treated as a minimal event with no proliferation).

On Sunday night there was an immediate rally as the SPOOS gained 0.5 percent on the open. Strong earnings kept the rally in gear but what’s interesting that the financials failed to hold their initial rallies. This is important because most analysts were predicting significant growth in bank ROES, especially for the large Wall Street banks. Goldman’s FICC revenue increased by more than 20 percent as trading volatility provided an opportunity for one of the few remaining large prop shops remaining on the Street. The Goldman rallied fizzled and finished 2 percent down on the day.

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Notes From Underground: A Podcast With Futures Radio

April 12, 2018

On Monday, I taped a podcast with Peter Boockvar and Anthony Crudele, the host of Futures Radio. Anthony does a splendid job of getting to the crux of the investing mind. Enjoy the 36 minutes of conversation.

The yield curve continued to flatten and even Rick Santelli was able to question Professor Ken Rogoff about the FED‘s most recent efforts to raise interest rates. There are now voices raising concerns over the continued flattening of the curve, which will remain a theme here at NOTES. As tensions eased in Syria the GOLD gave back all of Wednesday’s gains while holding onto a slight increase for the week. The rise in short-term yields without any new political revelations allowed the U.S. dollar to rally. Enjoy the podcast and your weekend.

Notes From Underground: Flattening Curves — All Action and No Talk

April 11, 2018

In the political realm, the concern about tariffs has been lessened as Chinese President Xi took the high road with some silky conversation. It is not in the Chinese interest to raise the level of shouting/tweeting, nor to allow the YUAN to depreciate. The last blog post weighed the harm China would do to itself if the YUAN were to depreciate for it would then have to face the acrimony of many nations it is trying to placate. From a TECHNICAL perspective, it appears that the YUAN is going to test three-year lows between 6.11/6.20 to the dollar. As the Chinese tensions eased, the world now turns its eyes to Syria.

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Notes From Underground: No Chinese Devaluation or Massive Liquidation of U.S. Treasuries

April 9, 2018

There are many questions swirling around what possible responses President XI can bring forward to counteract the heightened rhetoric from the Trump administration on imposing tariffs on Chinese goods exported to the U.S. Many news agencies have carried stories about the Chinese responding to Trump tariffs by entering into a policy of depreciating the Chinese yuan, which is currently trading at 6.3075 against the DOLLAR.

This is an interesting view but it would force China to act against the G-20 accord of not manipulating one’s currency. The XI-led government is looking for international support in its effort to combat a trade war so alienating the international economic community would be detrimental to the Chinese interest of global support. The narrative some analysts are spinning is to recall China’s 2 percent devaluation of its currency in August 2015, which sent global currency and markets into a frenzy, especially as stocks were reeling from deflationary fears.

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Notes From Underground: Does AnyOne Really Care About Jobs Friday?

April 5, 2018

The first Friday in April brings a key data point: the unemployment report. Of course, what most people are concerned about are THE AVERAGE HOURLY EARNINGS. The consensus is for AHE to increase by 0.3%, which is much better than February’s tepid increase of 0.1% rise. The focus on AHE has rendered the NFP growth a distant concern, especially as the participation rate suggests unemployed are returning to the job market. This calls into question how the FED model measures genuine SLACK in the jobs market. For the U.S., the unemployment rate is expected to be 4.0% with a net gain of 190,000 workers in the nonfarm payrolls.

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Notes From Underground: What Hath ALGOS Wrought?

April 2, 2018

The speed at which markets react to political and economic headlines in an ALGO-driven world can create volatility that preys upon key levels. Today was a classic example as the long revered 200-day moving average in the E-mini S&P futures was violated and momentum moved quickly to the sell side. The S&Ps closed below the frequently tested long-term moving average of 2589.76 on a CQG continuation chart of the e-minis. In the last 30 minutes of trading at the New York Stock Exchange, there was a report that the Trump White House was pushing for a NAFTA overhaul deal within two weeks. The Mexican peso staged a late rally for it had been unable to withstand the intense selloff of the U.S. equity market. Several of the regular haven investments experienced rallies (YEN, GOLD, SILVER), but the U.S. Treasuries closed virtually unchanged as economic data reflected fears about underlying price pressures since ISM manufacturing prices rose.

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Notes From Underground: The Second Quarter Begins (the Resurrection of Volatility)

April 1, 2018

On March 26, me and Rick Santelli Rick Santelli discussed a few key issues on CNBC (the video is posted below).  The final week of the first quarter saw the continuation of increased volatility as the market tried to sort through myriad issues. The influence of budget deficits, peace talks with North Korea, trade issues in the U.S. all creating a sense of uncertainty as global investors are forced to calibrate present positions in regards to regards to potential risk. Chinese growth is meeting expectations even as the XI regime is determined to clamp down on increased debt. The copper market tested the 200-day moving average early in the week but managed to close above it at week’s (even as the metal had a weak quarter).

(Click on the image to watch me and Rick discuss global trade.)

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Notes From Underground: The Week That Was …?

March 26, 2018

What a week last week turned out to be (and that was if you just followed the headlines). Tariffs are taxing the global financial markets as they try to guesstimate the economic impact from the effect of tit-for-tat responses to the initial U.S. measures efforts to gain support for dealing with Chinese trade violations. The FOMC added to market volatility as the suspense over three or four rate hikes still impacts the DOT PLOTS. The Bank of England confused markets as they voted 7-2 to sustain the current interest rate policy, even though consensus assumed a 25 basis point increase. By week’s end the confusion reverberating around the globe did serious damage to equity markets as the S&PS were down almost 6 percent on the week and the European stock indices continued their continued their selloff, making them the weakest of all regions (in contravention to the punditry’s call for the buying of European stocks).

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Notes From Underground: The Ball of Confusion Keeps On Rolling

March 22, 2018

Tonight I am posting a PODCAST I recorded Wednesday with Richard Bonugli just after new Fed Chairman Jerome Powell’s press conference. Richard and I covered a great deal of ground in discussing the most pertinent issues confronting the world of global macro. Pour yourself a libation and enjoy the interview. I look forward to hearing thoughts from the readers of Notes From Underground.

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Notes From Underground: Mr. Powell, the Spotlight Was On You

March 21, 2018

Dear Jerome, You handled Wednesday’s press conference with great alacrity as most of the media tossed ridiculous softball inquiries, following the road map of the dot plots. The summary of economic projections needs to be tossed on the trash heap of academic pabulum. You almost got to that point as the non-financial media kept questioning the decision about three or four rate hikes. You correctly stated that the only decision that the FOMC made today was to RAISE the fed funds range to 1.5%-1.75 % and that the DOT PLOTS were only forecasts and not decisions. Chairman Powell actually got miffed when a reporter began citing the 2020 projections.

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