Temporary Relief

Temporary relief.  Stocks rallied yesterday on news that the Commerce Department would give temporary exemptions to some companies impacted by the Huawei ban.  Despite the trade talk standstill, hopeful traders reversed much of Monday’s selloff in technology, which led markets higher.

WHAT YOU NEED TO KNOW:

1)  BREXIT, your favorite topic, is back.  English Prime Minister Theresa May is in trouble again and she is under pressure to resign within days.  WHILE YOU SLEPT, the PM was urged by some in her own party to resign after another failed attempt to get British lawmakers to consider a new version of her thrice-failed BREXIT deal.  Under consideration was another referendum vote which would include the British people voting on her BREXIT deal.  No chance of that now.  The saga continues as well as volatility in the Pound Sterling.

2)  Not all economic news is good.  Yesterday’s National Association of Realtors’ release of Existing Home Sales registered a decline of -0.4% month over month after a -4.9% pullback last month. Economists were hoping for a rebound of +2.7%.  On an annual basis, the index has been declining since February of last year despite mortgage rates being lower.  30-year fixed mortgage rates went from 4.34% to 4.04% over the same period.  Mortgage rates have been falling since peaking at 4.75% last October and analysts expect the fall to prompt increased home buying and the fact that it hasn’t indicates that either buyers are not confident or that housing prices are too high, neither of which is good for the economy.

THE MARKETS:

Yesterday’s market action was about reversing Monday’s selloff after the Commerce Department backed off on some of its restrictions on Huawei.  The two tech-heavy sectors:  Communication Services and Information Technology climbed by +0.96% and +1.2% respectively and the Philadelphia Semiconductor SOX Index increased by +2.13% after falling by -4.02% in the prior session.  The relief sparked broader buying and the S&P500 climbed by +0.85%, the Dow Jones Industrial Average advanced by +0.77%, the Russell 2000 ascended by +1.33%, and the NASDAQ 100 traded up by +1.01%.  The move in stocks came amidst growing trade tensions between the US and China indicating that traders are hopeful that something positive will come out of a meeting between Trump and Xi and next month’s G-20 meeting in Japan.  Meanwhile, the Administration is reportedly considering adding several more Chinese firms to the blacklist.  In a statement yesterday, St Louis Fed President James Bullard stated that the Fed may have “slightly overdone it” by raising rates last December but felt that it was too early to consider any rate cuts.  In another speech, Boston Fed Chief Eric Rosengren underscored Chinese trade as major potential headwind for the economy but he too also thought it was too early to consider cutting rates.  Despite the statements, bonds pulled back slightly for a second session in a row and the 10-year treasury yield climbed by +1 basis point to 2.42%.

WHAT TO LOOK FOR TODAY:

This afternoon, the Fed will release minutes from its last Federal Open Market Committee meeting and it will be very closely scrutinized.  Jerome Powell discussed low inflation in the press conference that followed the meeting and the debate on what the Fed would do in response to low inflation has been raging on ever since.  Some are hoping that the Fed would lower rates to raise inflation to their targets and others expect the Fed to hold steady and let consumers do the work.  The FOMC meeting minutes will give traders a bit more insight into the Fed’s thinking on the matter.  Today we will hear from two Fed speakers New York Fed President John Williams and Atlanta Fed Chief Rafael Bostic.  Before the bell we will get earnings releases from Lowe’s, VF Corp, Williams Sonoma, Advanced Auto Parts, and Target, amongst others.  After the bell earnings include NetApp and L Brands.

daily chartbook 2019-05-22

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