It’s All About Trade. Period.

Stocks marched in place, doing nothing once again… and I mean nothing. As investors continued to worry about the mixed economic data and a stalled trade deal, treasuries rallied a bit. Gold rose by $8 an oz to $1,473/oz, after having found that support at $1,450/oz that we discussed last week. Word that China wants the elimination of tariffs prior to any deal in order to move ahead appears to be the rumor today, which is interesting. If that was the case and if Trump has no intention of removing them, then the market would have sold off hard. And it didn’t, which suggests that it is more of a “story” than reality. China is well aware that if they make a deal, then Trump would consider some relief, but with no deal, he won’t consider it. Period.

At 4 pm, the Dow lost 1 point, the S&P was ahead by 2 points, the Nasdaq lost 3 points (did you see that? 1,2, and 3!). The Russell gave up less than 1 point. So overall, it was a yawner. The economic data was a bit stronger. PPI came in at +0.4% vs. the expected 0.3%, which is actually bearish. Rising PPIs only means that there is underlying pressure on prices at the producer level and that makes sense because Tuesday’s economic data also showed that CPI (consumer price index) was also a bit higher (again bearish) at +0.4%. Expectations were for +0.3%. That means that producers are raising prices to the consumers, so consumers are bearing the brunt of higher prices. Think inflation. Now don’t go running crazy. It is nothing to get all worked up about just yet. It has to be a trend before you can draw any conclusions and it is NOT a trend just yet…

Cisco (CSCO) considered a “tech bellwether” disappointed on earnings. So analysts around the street suddenly raise the white flag, saying that this miss means that companies are holding off on technology purchases in the face of this trade war. Ok, it’s the same way you hold off on buying a new computer if you’re concerned about your job.

Concerns over trade all year have hit this name hard. When it looked like we had a deal back in the late winter/early spring, investors took the stock up 38%. When trade fell apart, they hit the stock hard. After yesterday’s news they took another 7% out of this name, leaving this stock up only 5% on the year, at a time when the Nasdaq is up more than 25%. So, the analysts suggesting that next quarter is not going to be pretty, then suggest that it’s the end of the world because it is a proxy for “corporate high tech hardware demand.” If CSCO reports a negative number, then it must mean things are bad. This runs counter to what the indexes are telling us, as they all make new highs on what seems like a daily basis!  To me, it appears that problems at CSCO are just that, problems at CSCO. What it says is companies are postponing the purchase of hardware due to global political and economic uncertainty. Once that clears up, then it’s back to normal.

It might just clear up today. Last night, Larry Kudlow spoke to the Council of Economic Advisors, saying: “We are short strokes now, we are in contact with China every single day.” He then went on to say:

“The mood music is pretty good, Trump likes what he sees, he’s not ready to make a commitment, we have no agreement just yet for phase one, but there has been very good progress and it’s also been very constructive…”

Wow, that’s great…  So this morning we see that global markets are embracing this news. Asian markets for the most part ended higher; China the outlier, losing 0.74%. While Japan and the ASX rose 0.7% and 0.87% respectively. Hong Kong officially goes into recession mode after months and months of protests and ends the day +0.1%. But beware, Kudlow did say that while there is movement towards finalization “it’s not done yet.”

European markets are all in rally mode on the back of this news. The only economic data to speak of is in the UK. Consumer spending disappoints suggesting that the UK economy is losing momentum ahead of the coming election on Dec 12. But, no one seems to be paying attention. Right now, it’s all about trade.

FTSE -flat, CAC 40 +0.2%, DAX +0.63%, EUROSTOXX +0.50%, SPAIN +0.52%, AND ITALY +0.43%.

Here at home, US futures are UP. (Go figure! Think trade) As expected, AMZN is challenging the Pentagon’s decision last month to award the JEDI contract to MSFT (recall that this contract is worth $10 billion and Jeffrey Bezos is not happy about not landing it). In a video released yesterday from company headquarters, AWS (Amazon Web Services) CEO Andy Jassy says:

“We’re going to protest the decision and push the government to shine a light on what really happened.  Numerous aspects of the JEDI evaluation process contained clear deficiencies, errors, and unmistakable bias and it’s important that these matters be examined and rectified.”

The clear implication here (unmistakable bias) is the Donny forced the decision away from AMZN because he and Jeff Bezos have an ongoing “trade war” of their own that just won’t quit. When does it stop? AMZN, by the way, already does business with 5,000 government agencies and those contracts are worth billions. Doesn’t it make sense to diversify the risk away from AMZN?

This morning, the Dow is up 67 points, the S&P is ahead by 7 points, the Nasdaq is up 26 points, and the Russell is adding 4 points. And it’s all about trade. Period.

Economic data today includes Empire State Manufacturing – exp of 6, Retail Sales Advanced reports – exp of +0.2% Ex autos and gas of +0.3%, Industrial Production of -0.4% and Manufacturing Production of -0.7%.

The S&P remains stuck at 3100 but if we are closer to a deal than not, then look for the algos to try and push it higher and break this logjam. As noted a month ago, if you draw a trend line, resistance should be at 3125. So a push higher to that level is not out of the question. But until we clarity, 3100 just feels like a wall.

Oil is down 21 cents at $56.55/barrel. OPEC estimates that oil demand for their product next year will be lower which only reinforces the next discussion. How much more is OPEC going to cut production to keep oil from falling any further, especially when Saudi Aramco is about to launch the biggest IPO in history. At the moment, oil is stuck in the $55/$58 range.

Take good care,

Kp


soup

Stracciatella Soup

Here is another good idea for a Thanksgiving starter – or for a cold winter night. Stracciatella soup is simple. You start with the homemade chicken broth – straining any of the veggies that you cooked with it – leaving only the broth. Now if you don’t have any homemade chicken soup – then go out and buy a large can of College Inn – low sodium – chicken broth.

Now you need – the broth- enough for 6 bowls, 2 eggs, fresh grated parmigiana cheese, raw spinach, a couple of fresh basil leaves rough chopped and some Italian parsley.

Heat up the broth – while that is happening – crack the two eggs and whisk. Now add in two handfuls of cheese, the basil and some parsley. Turn the heat down to low – wait for the broth to stop boiling… now stir the broth with a FORK and at the same time – slowly add in the egg and cheese mixture… continue stirring so that you form “strands” of eggs – no more than 1 min… now toss in two handfuls of the spinach – check for seasoning – adjust if necessary and then serve immediately. Always have more cheese on the table for your guests. Mmmmm – so good.

Buon Appetito.

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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