The Van Trump Report

Morning Summary 02-12-20

Stock bulls are extremely happy to see the 10th record close for the S&P 500 and the 12th record close for the Nasdaq already in this new year. Bears continue to question how much higher the bulls can run amid the large degree of global economic uncertainty being generated by China’s coronavirus outbreak. There does seem to be some growing optimism surrounding China’s ability to keep the virus contained and there are also signs that the daily increase in confirmed cases may be slowing. As of midnight on Tuesday China’s health commission says there were 2,015 new cases that reported that day, compared with 2,478 reported on Monday – a fall of -18.6%. From what I understand, the number of new cases in China is now over +45,000. Still, reports indicate businesses in China may be much slower in resuming normal operations than most had been hoping, which could have negative impacts on both China and the rest of the global economy i.e. General Motors announcing they will suspend production at its factory in South Korea because of supply problems due to the coronavirus outbreak in China. Hyundai said last week that it had suspended operations at its huge manufacturing complex in the coastal city of Ulsan while in Japan Nissan said it was suspending operations at its Kyushu plant from 14-17 February 14-17 because of supply shortages from China. In his semi-annual appearance before Congress yesterday, Fed Chair Jerome Powell avoided speculation as to what the full impact could be on the U.S. outside of saying there would “likely be some effects.” He said the Fed‘s biggest questions about the Chinese fallout is, “Will they be persistent? Will they be material?” For now, the Fed seems more concerned about the U.S. manufacturing sector, which Powell said weakened over the last year due to trade friction and slow global growth. In its monetary policy report, released before Powell’s appearance, the Fed said weakness in manufacturing has likely hurt other parts of the economy, but its effect has not been strong enough to cause a recession. Economic data yesterday raised a few eyebrows as the December Job Openings and Labor Turnover Survey (JOLTS) showed a sharp drop in the number of available jobs, falling to 6.423 million from a previous 6.80 million. That marks two back-to-back months of declines and has led some to debate if the red hot U.S. labor market may be start to cool off. However, it’s important to note that there are still more jobs available than there are people looking for them, so I’m not necessarily in the same camp as the bears. There is no significant economic data on the calendar for today but Fed Chair Powell will be back for his second day of testimony, this time in front of the Senate Banking Committee. It’s unlikely he will reveal anything new and different from his testimony in the House yesterday. Earnings highlights today include Adidas, Applied Materials, Cisco, CME Group, CVS, Dish Network, Equifax, Marathon Oil, Moody’s, Noble Energy, and Tallgrass Energy. Investors are also keeping a closer eye on commodities markets, as the virus outbreak continues to challenge global trade. Markets for essentials like natural gas, oil, and copper have all fallen amid weakening demand worries, with prices for some natural resources facing multi-year lows. According to analysis from the Wall Street Journal, since January 17, when China first reported the severity of the outbreak, the price of Brent crude has dropped about -16% and the price of copper is down around -9%. Iron ore has fallen about -11% and a major benchmark in natural gas is trading at its lowest point since August 2009, after losing -20%. China consumes over half the world’s metal production, including 75% of its iron ore, the key ingredient in steel making, and 15% of oil. Commodities are also suffering under the strength of the U.S. Dollar. I’ve provided some additional insight into that below.

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