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The Morning Call--Chinese Start Walking Back Trade Deal

|Includes: BlackRock, Inc. (BLK), JNJ

The Morning Call

10/15/19

The Market

Technical

The Averages (26787, 2966) sold off modestly yesterday. However, it was not enough to push either index back below the upper boundary of a developing very short term downtrend thereby negating it in its infancy (a plus for stocks). Due to the holiday, there was not much volume. Breadth weakened. The VIX was down 6 ½%, a surprisingly large decline on such a ho hum trading day (another positive for equities). For the time being, I am sticking with my assumption that the trend is up.

Gold and the dollar were up. Gold remained above the lower boundary of its pennant formation as well as both MA’s and is in very short term and short term uptrends. The dollar’s technical position continues strong.

The bond market was closed yesterday.

Monday in the charts.

Stocks Extend Friday's "Sell The News" Trade 'Deal' Losses

Morgan Stanley thinks Friday was a top.

Morgan Stanley Calls It: Friday Marked The High For Stocks, Now Comes The Selling

More liquidity problems (must read).

"Hard To Obtain Liquidity" - South Korea's Largest Hedge Fund Halts Redemptions

Fundamental

Headlines

No US economic releases yesterday. Overseas, August EU industrial production, the September China trade surplus and September German PPI were better than anticipated while September Chinese vehicle sales were disappointing.

As I am sure you know, investors spent the weekend and yesterday trying to analyze the terms and effects of the US/China trade truce. Added to the mix was a new request by the Chinese to meet again for more discussion on the deal which only adds more confusion.

https://www.bloomberg.com/news/articles/2019-10-13/trump-s-china-handshake-lifts-spirits-but-not-the-sober-outlook?srnd=premium

***overnight, the Chinese begin the walk back from the deal.

Beijing Wants Tariffs Removed Before Commiting To $50BN In Farm-Goods Purchases

Thoughts on the trade truce from:

The Money Illusion

The US is losing the trade war, and that's good - TheMoneyIllusion

The American Institute of Economic Research.

Trump Wins the Trade War. Everyone Else Loses | Jeffrey Tucker

Bloomberg.

https://www.bloomberg.com/news/articles/2019-10-13/trump-s-china-handshake-lifts-spirits-but-not-the-sober-outlook?srnd=premium

Alliance Bernstein.

Trade Negotiations: US Agrees To A Farm Package, Not Trade Deal With China

Bottom line: stay focused on the long term. Right now, stock prices are a short hair off their all-time highs. So, in my opinion, least some portion of a trade deal is priced in. Regrettably, consensus seems to be growing that, assuming an agreement is actually signed, the economic impact on the US/globe will be marginal. Clearly, if subsequent ‘phases’ produce a meaningful change in China’s industrial policy and IP theft, that would be a major positive. But I think that it makes little sense to start marking up valuations based on what we know so far.

More on valuations (must read).

How Far Can The Stock Market Run?

Dividends can lie.

Dividends *Can* Lie

News on Stocks in Our Portfolios

Johnson & Johnson (NYSE:JNJ): Q3 Non-GAAP EPS of $2.12 beats by $0.11; GAAP EPS of $1.81 beats by $0.23.

Revenue of $20.73B (+1.9% Y/Y) beats by $590M.

BlackRock (NYSE:BLK): Q3 Non-GAAP EPS of $7.15 beats by $0.16; GAAP EPS of $7.15 beats by $0.24.

Revenue of $3.69B (+3.1% Y/Y) in-line.

Economics

This Week’s Data

US

Month to date retail chain store sales continued to decline versus the prior week.

International

September Chinese CPI came in at +0.9% versus forecasts of +0.7%; loan growth was up 12.5% versus +12.3%.

August Japanese industrial production fell 1.2%, in line while capacity utilization declined 2.9% versus -0.2%,

July UK employment fell 56,000 versus estimates of +23,000; August average earnings rose 3.8% versus +4.0%.

October EU economic sentiment was reported at -23.5 versus consensus of -33.0; German economic sentiment was -22.5 versus -27.0.

Other

What I am reading today

The 2020 Social Security COLA has been announced.

Social Security's 2020 COLA revealed: Here's what you need to know

A fish that breathes air on land.

Officials Warn: If You See This Fish That Breathes Air On Land, "Kill It Immediately"

Your higher education dollars at work.

Stop Columbus Day? 'Big Ten' Student Govt Demands "Indigenous People's Day"

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Disclosure: I am/we are long blk, JNJ.