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Neil's Morning Update - 12/21/21

Dec. 21, 2021 9:16 AM ET
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Cbus Neil's Blog
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Neil's Morning Update - 12/21/21

Please excuse typos. Mornings are tilted more international, evenings more U.S. Continuing to try to make this more digestible for those who are not as familiar with the markets, lingo, etc. Feel free to leave your thoughts in the comments section, they are appreciated. Also, I don't discuss crypto extensively as I don't consider myself knowledgeable enough to talk intelligently on the subject (and there are plenty of other sources for that). As are reminder, this is a free blog I put out to try to help people get information, so no editors, etc.

A small glossary.

SPX = S&P 500

Naz = Nasdaq Composite

NDX = Nasdaq 100 (100 largest stocks in the Naz)

RUT = Russell 2000 (smaller stocks)

DMA = Daily Moving Average (the moving average over the given time period (20, 50, 100, 200 days normally)).

MACD = Moving Average Convergence Divergence (basically a trend indicator)

RSI = 14-day Relative Strength Index (basically what it sounds like)

Also, on my charts, the lines are 20-DMA (green), 21-DEMA (red), 50-DMA (purple), 100-DMA (BLUE), 200-DMA (brown)

Source abbreviations: BBG = Bloomberg; WSJ = Wall Street Journal; RTRS = Reuters; SA = Seeking Alpha; HR = Heisenberg Report


I noted last night things were a little washed out, and markets seem to be bouncing on glimmers of hope on key risk factors from Covid to the BBB. Asian stocks had nice gains overnight, and Europe is up led by mining stocks. In the US, the SPX, NDX and RUT are indicated up around +0.9, +1.1, and +1.15% respectively. Commodities generally trading in the green as are bond yields.

As a reminder markets will be closed on Friday because Christmas falls on a Saturday (and the bond market closes early on Thursday).

Here's the SPX futures this morning. Has pushed up to under the 50-DMA. Daily technicals negative.

In U.S. corporate news (Argus):

Nike (NKE 162.50, +5.52): +3.5% after beating top and bottom-line estimates. Micron (MU 88.98, +6.95): +8.5% after beating EPS estimates and guiding the mid-points for Q2 EPS and revenue above consensus. MU has subsequently received Buy upgrades at BofA Securities and Summit Insights. General Mills (GIS 66.50, -1.29): -1.9 % after missing EPS estimates on above-consensus revenue. FactSet (FDS 468.80, -2.17): -0.5% despite beating top and bottom-line estimates.

And remember when we were a "lock" to break the record of ATH's? I miss those times.

As traders were buying the dip last week, particularly in tech stocks.


Major equity indices in the Asia-Pacific region ended Tuesday on a higher note. Japanese stocks led gains on the back of a large fiscal package, and shares of Chinese property developers jumped the most in a month on no particular news. Japan's Nikkei: +2.1% Hong Kong's Hang Seng: +1.0% China's Shanghai Composite: +0.9% India's Sensex: +0.9% South Korea's Kospi: +0.4% Australia's ASX All Ordinaries: +0.9%.

In news, Japan's Cabinet office raised the country's overall economic assessment for the first time in 17 months. Nikkei reported that the Japanese government will implement a JPY36 trln supplementary budget and increase its growth outlook for 2022. The latest policy minutes from the Reserve Bank of Australia showed that asset purchases could be reduced in mid-February with a full wind-down by May 2022. The People's Bank of China is expected to make additional loan prime rate and reserve requirement ratio cuts in 2022.

In economic data, South Korea's exports through the first 20 days of December were up 20.0% yr/yr with chip exports growing 27.5%.

South Korea's November PPI 0.5% m/m (last 1.0%); 9.6% yr/yr (last 9.1%). South Korea Imports 20-Days (Y/Y) Dec 42.1% (prev 41.9%). South Korea Exports 20-Days (Y/Y) Dec 20.0% (prev 27.6%)

Hong Kong's November CPI 1.8% yr/yr (expected 1.9%; last 1.7%)

New Zealand's November Credit Card Spending -0.1% yr/yr (expected -2.1%; last -5.2%)

As India suspends futures trading on ag products to make sure speculation is not pushing up prices.


As of 8 am Eastern, Miners led the rebound in European shares as commodities gained. Major European indices trade higher across the board. STOXX Europe 600: +1.1% Germany's DAX: +1.1% U.K.'s FTSE 100: +1.0% France's CAC 40: +1.0% Italy's FTSE MIB: +1.2% Spain's IBEX 35: +1.3%.

In news, British Prime Minister Johnson will reportedly not announce any more new restrictions before Christmas (although expectations are for a "circuit breaker" post-Christmas). European Central Bank policymaker Kazimir said that there is a risk of elevated inflation persisting for longer and that the governing council will act if the inflation outlook for 2023/24 is increased. Greece's debt agency will look to raise EUR12 bln in 2022.

In economic data, German consumer sentiment softened, UK public spending in November was higher than expected and the CBI trades survey for December came in weaker than expected.

Germany's January GfK Consumer Climate -6.8 (expected -2.7; last -1.8)

U.K.'s November Public Sector Net Borrowing GBP18.62 bln (expected GBP15.40 bln; last GBP11.63 bln). December CBI Distributive Trades Survey 8 (expected 24; last 39)

Italy's October Industrial Sales 2.8% m/m (last 0.2%); 16.9% yr/yr (last 15.1%). November PPI 1.2% m/m (last 7.1%); 22.1% yr/yr (last 20.4%)

Swiss November trade surplus CHF6.161 bln (last surplus of CHF5.505 bln)

As RTRS reports that there was some differences of opinion regarding the ECB's last meeting on inflation - ECB Policymakers Wanted Explicit Acknowledgement Of Upside Risks To Inflation In Policy Meeting But Were Rebuffed By Chief Economist Lane - RTRS Sources

As Europe seems to be getting the worst case scenario of a cold winter without adequate supplies secured. BBG.

Europe is bracing for energy shortages as freezing weather sets in, boosting demand and sending prices surging with no relief in sight.

Temperatures are forecast to fall below zero degrees Celsius in several European capitals this week, straining electricity grids already coping with low wind speeds and severe nuclear outages in France. To make matters worse, Russia is limiting natural gas flows through a major transit route to Germany Monday after capping supplies over the weekend. The route is set to be only partially used in January.

Energy prices have spiraled this year, with European gas surging some 600%. The region’s benchmark gas contract climbed as much as 8.8% Monday, while German year-ahead power, a benchmark in Europe, rose as much as 3.1% to a new record of 250 euros ($282) a megawatt-hour. The French contract jumped as much as 9% to a an all-time high.

Short-term electricity also jumped, along with the cost of using dirtier energy sources in Europe. In France, day-ahead power rallied to 442.88 euros per megawatt-hour, the highest since 2009, in an auction Monday. The German contract also soared to the highest on record. Carbon permits jumped 6.2% to 77.84 euros a ton.

As the surge continues this morning.

Prices surged on Tuesday after Russia curbed gas flows to Europe and France, usually a power exporter, was forced to boost electricity imports and burn oil to keep the lights on. Higher costs have forced some companies to shut down or curb output, while inflation in the euro-zone climbed to an all-time high last month.

Futures surged as much as 19% as Russian gas flows into Germany via a key route dropped to zero, and were instead moving eastward to Poland, according to network operator Gascade. German and French power prices surged more than 10% as nuclear outages bite, forcing six oil-fired units to be turned on in France on Tuesday morning, according to filing with Entsoe.

The power shortages means Europe needs to burn more gas just as Russia has signaled its supply will remain capped next month. Lower supplies into Germany will force Europe to keep withdrawing gas at high rates from its already depleted storages, risking a prolonged deficit of the fuel well into next winter.

The energy crunch is so severe that Trafigura’s Nyrstar will pause production at its zinc smelter in France in the first week of January because of rising electricity prices. Norwegian fertilizer producer Yara International, which curbed output earlier this year, said it would continue to monitor the situation closely and curtail production where necessary.

And I just don't know what to say anymore about Turkey. This is frankly like nothing I've seen before in modern times. It has skyrocketing inflation, a falling currency, and a President who wants to do nothing but cut rates (due to the tension between interest and Muslim teachings), the opposite of the EM "playbook". Turkish stocks hit their circuit breakers. If Erdogan was to be removed, Turkey would probably be a screaming buy. BBG.

Turkey’s lira posted its biggest gain in decades Monday, rebounding from a record low in the same day after President Recep Tayyip Erdogan’s government announced extraordinary measures to bolster a currency rocked by repeated cuts to central bank interest rates in the face of accelerating inflation.

The lira at one point fell as much as 11% from Friday’s close to touch 18.36 per dollar, its weakest level ever, following weekend comments from the president indicating that he wants to see rates go even lower.

But new measures announced by the government on Monday helped put a floor under the currency, which proceeded to rally close to 47% from its intraday low to touch 12.28 per greenback. The currency ended the day around 24% stronger than Friday’s closing level, its biggest one day gain since 1983, according to Bloomberg data.

The latest major shift came after the government announced steps including the introduction of a new program to protect savings from fluctuations in the local currency. The government will make up for losses incurred by holders of lira deposits should the lira’s declines against hard currencies exceed interest rates promised by banks, Erdogan said after chairing a cabinet meeting in Ankara.

The measures are intended to mitigate retail investors’ demand for dollars and bring to an end to three months of turmoil for the nation’s currency. But just how local investors react -- and whether the new policies are sustainable -- remains to be seen.

“We are lowering interest rates. Don’t expect anything else from me,” Erdogan said Sunday. “As a Muslim, I’ll continue to do what is required by nas,” he said, using an Arabic word used in Turkish to refer to Islamic teachings. “We’re cutting interest rates. And we will all see how inflation will start falling within months.


Bonds - Yields moving higher this morning in a bear steepener. 2-year bond yield up two basis points to 0.65%, while the 10-year is up five at 1.47%.

Dollar (DXY) - Remains just above the rising 20-DMA (although that's starting to flatten out) and the uptrend line that stretches back around 7 weeks. Currently at $96.43. Remains in intermediate-term uptrend. Daily technicals negative.

As BBG notes a "rectangle pattern". These are normally called "bull flags" (when it's going up).

VIX - Down a bit to 21.93. I think this will continue lower this week.

Crude (/CL) - After yesterday's volatile day, trading up a bit this morning but remains under heavy resistance below 200-DMA and downtrend line. Currently at $69.41 WTI. Daily technicals continue to tilt positive but are turning.

Nat Gas (/NG) - Back to riding up the rising the 200-DMA. Currently at $3.87. Daily technicals tilt positive.

Gold (/GC) - Up a little this morning remaining just above that cluster of resistance it made it through last week. Currently at $1798. Needs to avoid further softening. Daily technicals positive.

Copper (/HG) - Up a bit this morning as it tries to push through the heavy resistance that has kept it capped last couple of weeks. Has edged just over an important downtrend line and some MA's. Daily technicals neutral.

US Data

Current Account data out this morning showing a larger than expected deficit in the third quarter.

US Current Account Q3: -214.8Bln (est -205Bln, prevR -198.3Bln)

Also Philly Fed services out showing a pullback in activity but remaining in expansion territory.

- Philadelphia Fed Non-Manufacturing Regional Biz Activity Index Dec: 28.3 VS 46.1 In Nov

- Firm-Level Business Activity Index: 30.6 VS 47.0 Nov

- New Orders Index: 21 VS 19.2 Nov

- Full-Time Employment Index: 14.4 VS 15.2 Nov

- Wage And Benefit Cost Index: 59.5 VS 60.0 Nov


Random stuff:

And, globally, value has never been cheaper relative to growth according to AQR.

As Omicron is now 73% of cases sequenced in the US.

As the WH will send 500M Covid test kits to American homes. BBG.

President Joe Biden will send 500 million free coronavirus tests to Americans’ homes beginning next month and dispatch the military to shore up overwhelmed hospitals as the U.S. confronts a resurgent pandemic.

Biden will announce new measures to try to curb the virus on Tuesday, the day after the CDC said the omicron variant first identified in southern Africa now accounts for most new U.S. cases. He aims to boost testing, hospital care and vaccinations without any new lockdowns or closings.

He’ll also deliver a stark warning to the unvaccinated, a senior administration official said, telling them that they risk serious disease or death while assuring Americans who’ve gotten their shots that they can safely gather with their families over the holidays.

In the speech, the president will again seek to reassure Americans that his administration can combat yet another resurgence of the virus, the second of his presidency. But he confronts a perception that the government was caught flat-footed as cases began to mount earlier this month and Americans began complaining that test kits, crucial to control transmission, had become scarce.

As the pressure on Manchin makes me more optimistic about a deal. The latest from what one would think would carry a lot of weight with him. Heisenberg Report.

As it turns out, some coal miners want Joe Manchin to reconsider Biden’s social spending plan. In a statement, United Mine Workers of America International President Cecil Roberts “urged” Manchin to “revisit” the legislation which, Roberts gently noted, “includes several items that we believe are important for our members and their communities.”

Specifically, the bill would extend payments to victims of Black Lung. Absent passage, those payments will be “cut in half,” Roberts said. Additionally, he reminded Manchin that Biden’s plan “includes language that will provide tax incentives to encourage manufacturers to build facilities in the coalfields that would employ thousands of coal miners who have lost their jobs [and] language that would, for the first time, financially penalize outlaw employers that deny workers their rights to form a union on the job.”

Roberts was careful to express gratitude to Manchin for his support, and noted that the union has “a long and friendly relationship” with the senator. Still, he said, the union is “disappointed that [Build Back Better] will not pass.” He also “strongly” encouraged Manchin to support Democrats’ voting rights legislation. He scolded “anti-democracy” lawmakers who are “working every day to roll back the right to vote in America.” If Manchin and the Senate fail to act in the face of that threat, they’d be “derelict of their duty to the Constitution,” the union said.

Meanwhile, Manchin and Biden reportedly spoke over the phone on Sunday night, hours after Manchin blindsided Democrats by announcing his opposition to the bill on Fox News. Apparently, Manchin wanted to write his own version of the legislation which didn’t include an extension of the expanded child tax credit. That’s a non-starter for many Democrats, including Biden. Manchin already succeeded in stripping the plan of key initiatives including ambitious climate proposals.

As Chile elects a new leftist leaning president. Chilean miners were down big yesterday on the news.

And wrote about lumber last night. This is a great chart. Did nothing for 5 years then came 2020.

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to Cbus Neil's Blog Posts for more recent or Sethi Associates for the full history.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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