Whipsaw!!

Whipsaw!!  There is no better way to describe yesterday’s equity markets than to use the old Wall Street description.  Traders awoke yesterday to see the last hopes of a post G-20 rally fade away as news of Huawei CFO Meng Wanzhou’s arrest in Canada hit the tapes.  As reported here yesterday morning, the news caused stock futures to tumble overseas.  The arrest is sure to add more uncertainty to an already uncertain outcome to the ongoing “discussions” between the US and China.  At the top of the list of things Wall Street doesn’t like is uncertainty.  Equity markets began to tumble as soon as the opening bell sounded.  The Dow Jones at one point in the early part of the session was down over 700 points.  As the session progressed a series of reports and industry heavyweight interviews began to calm traders nerves enabling markets to claw back losses and post a mixed close.  Specifically, a Wall Street Journal report surfaced that the Fed was considering adding some dovish text to the next policy statement due out later this month.  The report described the Fed declaring a “measured approach” going forward, which can be interpreted as a dovish policy shift.  Linguistics again.  It kind-of means the same thing as data dependent.  I think, though it is safe to assume that Fed policy is implicitly data dependent.  Regardless, the report was enough to allay some of the fear that dominated the first half of the session.  Ultimately the S&P 500 finished the day down only -0.15% with a close just below a key point of resistance at 2700. The index will get support from its 2645 Fibonacci line below and will continue to experience resistance at 2700 (see chart 4 in my attached daily chartbook).  The Dow Jones, as aforementioned, experienced a broad range of trade yesterday and was heavily impacted by a decline in member Boeing (BA).  The Dow also closed below a key resistance level at 25000, which will continue to provide resistance above.  The closest support for the index will be at 24899 with more support from its 24722 Fibonacci line (see chart 6 in my attached daily chartbook).  The small cap Russell 2000 experienced two very difficult sessions with yesterday’s lows falling just short of making new year to date intraday lows.  Though the index experienced a bounce yesterday, it has virtually given up all the gains attained in recent weeks (see chart 7 in my attached daily chartbook).  The NASDAQ 100 was the only major index that managed to post a gain in yesterday’s session because when excited, traders push the buy button on large cap techs first (and vice versa when they are panicky).  All of the S&P, Dow, R2K, and NASDAQ remain risk off.  In fixed income, bonds continued to rally yesterday in response to the negative economic sentiment.  Ten year yields got as low as 2.82% intraday but ultimately ended the session just shy of 2.9%, which is still quite low considering that yields were around 3.25% just a few weeks back.  Ten year yields will start todays session at 2.88% and the 2/10 yield curve is +12.04 basis points.  To get a good feel for how crazy things are in the usually-not-too-crazy treasury market (though bond traders have been known to cause after hours ruckuses at Harry’s At Hanover or Suspenders), take a look at my Fixed Income Cheat Sheet (chart 17 in attached chartbook).  Note the change of the yield curve over the past week.  The heavy black line is the current yield curve and the thinned line is last week’s curve.  The bars on the bottom of the panel show change in each maturity.  The curve moved down and flattened.  All of the real action happened in the front end of the curve, where you should note the inversion between 2 year and 5 year maturities (I have marked it in red ink).  The 2 year 5 year yield curve remains inverted and is currently at -1.9 basis points.  Crude oil remains under pressure as no real positive news came out of yesterday’s OPEC meeting in Vienna.  This morning WHILE YOU BRUSHED YOUR TEETH, Russia stated that they would be amenable to a supply cut giving crude a bit of a bid.  Finally Bitcoin, which started the week above $4000 was under pressure over the last 2 sessions and experienced a significant drop during Asia’s regular session and will start the US session at $3371.  Though its implication on the overall market is questionable, it is worth noting and watching.

Today, we get the Labor Department’s monthly payroll situation.  Non-farm payrolls are coming in at 198k new jobs, which is down from last month’s 250k.  The unemployment rate is expected to have remained constant at 3.7%.  Average Hourly Earnings are expected to have grown at +3.1% year over year flat from last month’s figure.  Later this morning we will get the University of Michigan Sentiment indicator, which is expected to come in at 97 down slightly from last period’s 97.5.  Between the OPEC meeting and the labor numbers, we can expect more volatility today as the futures are pointing to a negative open.  Next week we have more job numbers and some key inflation figures and all eyes will remain on the Fed with their upcoming policy meeting just 12 days away.  Have a great weekend and please call if you have any questions.

daily chartbook 2018-12-07