No Surprises Here

In yesterday’s Humphrey Hawkins testimony, Fed Chair Jay Powell told the House Financial Services committee that the Fed:

“…is closely monitoring the coronavirus situation for a potential hit to China and the global economy.”

Telling those same members of Congress that:

“…too early to say how the coronavirus will ultimately impact the US economy.”

That is and was the prudent thing to say. No one is sure yet what this is going to look like in the weeks/months ahead. Will it come under control or will it spin out of control? That my friends, is the question. As a result, Papa Jay (Powell) left the door to lower rates wide open, something that should NOT be a surprise given the current chatter. So investors/traders and algos took the market higher with the Dow rising triple digits before backing off, leaving Trump to tweet the blame on Papa Jay’s testimony and his unwillingness to move to NEGATIVE RATES in this country, but that was a farce. Honestly, the country is tiring of hearing Trump attempt to force the FED into negative rates. It makes ZERO sense. So he should just back off. You see, mid-day the Federal Trade Commission (FTC) took a huge swipe at the tech sector. This is what caused the markets to retreat. The Nasdaq, which had been up 86 pts, fell into negative territory for a brief while, finally closing up 10 pts. The Dow which had gained 138 pts early in the day, fell 205 pts after that news hit the tape before closing unchanged while the S&P was up 23 pts before falling back to unchanged as the news was digested adding only 5 pts by end of day. The Russell mostly unaffected by that move added 8 pts to close out the group.

In an unprecedented move, the FTC (Federal Trade Commission) ordered the 5 largest tech companies (FB, AMZN, MSFT, GOOG, APPL) to “provide data on all of their acquisitions over the last 10 years that weren’t previously reported to the FTC under the Hart-Scott-Rodino Act.” Which means that the administration wants “all information on deals that were considered too small to be subjected to any kind of a review” as they attempt to discover whether or not the “giants” harmed the competition by taking them out before the government would scrutinize the deal. This sent the tech sector plunging, and THAT is what stole the momentum.

Let’s be clear. Jay Powell did exactly as expected. He did not surprise anyone, nor did he give up any secrets. In the end, he expressed concern over COVID19. He left the door open for a cut in the event it is needed. He expressed concern over cybersecurity issues in the banking space, he discussed the idea of cryptocurrencies, helping to send bitcoin up and thru $10k (again). In fact, it was boring and today he gets to do it all over again as he appears in front of the Senate Banking and Finance Committee. Do not expect to hear anything different at all. But either way, the market (50%) is still expecting a JUNE rate cut. No matter what he says, while some also expect another rate cut towards year end. And what should concern everyone is that Jay was very clear. A rate cut is NOT written in stone, it is NOT a given, it is NOT any kind of a guarantee. So, tread lightly. Because we all know what happens when the market gets disappointed!

This morning, we wake up to find that Bernie Sanders won NH (no surprise) and that South Bend’s Petey Buttigieg and Minnesota’s Amy Klobuchar came in a close second and third in the race, leaving Massachusetts’ Lizzy Warren and former VP Joey Biden trailing badly, throwing the field into disarray. Already the talk is of a Sanders/Klobuchar ticket, as the party has to put a woman on the ballot and Amy appears to check that box. Besides, she is from the Mid-west, she is doing better in the polls, is fairly likeable and balances off the far left mindset of Sanders (which will prove to be his undoing in the end (just sayin’). Already some very successful Democrats (GS’s Lloyd Blankfein to name just one) are ready to bail on the party if Bernie is the nominee. Markets would be expected to crash on a Sanders win, socialist policies will be the next big thing, penalizing success will be the new rally cry while rewarding mediocrity will be the new norm. But let’s not get our panties in a bunch. The race has only just begun. Next week is Nevada and then South Carolina. On March 3rd, it’s Super Tuesday and then the race for the WH will become much clearer. And the focus sharper…

In any event, markets around the world are all higher yet again. (This sounds like a broken record, no?).  Today it is about how China’s Xi Xi has committed to fulfilling all of his trade agreements as well as committing to finding a cure to the virus. While total cases are now more than 45k, the rate of increase IS slowing and anyone in the know is now suggesting that we have hit the peak cycle and should expect it to slow into month end. That is helping traders/investors and algos hit the BUY button as the sellers continue to tease the action higher. Overnight New Zealand’s central bank said they saw NO NEED for a rate cut over the virus as their analysis expects it to be “short lived” and not nearly as disruptive as the broader media is making it out to be. Yesterday’s commentary out of the FED echoes that sentiment or maybe they echoed the FED’s sentiment. (I mean which came first – the chicken or the egg?).

Asian markets surged with China being the biggest winner while Softbank was the biggest mover after a US judge approved the T-Mobile/Sprint merger, sending Softbank Group up 12% (Softbank is the majority shareholder in Sprint – so this was good news for Masayoshi Son after his failed WeWork investment!). South Korea’s Kospi and Taiwan’s Taiex also surged as talk of the virus subsides, which would allow them to get back to work to supply the much needed technology to some of the tech names that have gotten beaten up.

By the end of the day we saw Japan +0.74%, Hong Kong +0.87%, China +0.81% and ASX +0.47%, Kospi +0.69% and Taiex +0.94%.

European markets advance as the good news circles the globe. EU macro data – Industrial Production is due out at any time and the expectation is for improvement. Away from that better than expected earnings continue to drive the fundamentals. Yesterday’s FED testimony helping to calm the mood as our central bank did not sound the alarm bells while leaving the door open in case he needs to.

FTSE +0.27%, CAC 40 +0.43%, DAX +0.78%, EUROSTOXX +0.50%, SPAIN +0.52% and ITALY +0.70%. 

US futures are heading up. Dow +128 pts, S&Ps up 13 pts, the Nasdaq +50 pts and the Russell adding another 8 pts. There is no eco data today, but tomorrow brings a slew of data – CPI, Average Hourly Earnings, Init claims, Continuing Claims. Focus again on capitol hill as Jay takes center stage again. Today the questions will come from Senators. But expect the answers to be the same.

Breaking news at 7 am: OPEC cuts 2020 demand outlook due to COVID19. This is NO surprise at all. They voted last week to CUT production as they expect the virus to cool demand (again I think overdone). Oil which traded below $50 yesterday is up 50 cents at $50.45/barrel. The cut in demand only serves to justify why OPEC may potentially cut production even more in the weeks ahead as they try to support the price of oil and push it closer to $60/barrel versus the current $50/barrel.

The S&P closed last night at 3357 and appears to want to trade higher to test the trend line that suggests 3390-ish before we hit real resistance. And if COVID19 is really abating, then we could see that happen before week’s end. Listen to Jay Powell today, listen to what he says about rates and the rates schedule. Because I am sure that they will try to pin him down.

Take good care.

Kp


Cacio e Pepe

Cacio e Pepe – (Cheese and Pepper)

This is a classic dish – that dates back to Ancient Rome –  which you will now find on menus around the city… and beyond… It’s simple to make and if done right will produce a creamy yet flavorful “comfort dish.”

Follow these simple steps and you’ll create a delicious bowl of pasta that will rival even the finest Italian restaurants.

For this you need everything that you already have in your cabinet… 1/2 lb of thin spaghetti – (you should really use Pici Pasta – but you’ll have trouble finding it) – fresh grated Pecorino Romano cheese and black pepper.

Once you perfect this creation – it will become clear how this simple peasant dish became a true Italian staple.

Bring a pot of salted water to a rolling boil – add the pasta.

Now in a separate frying pan – add the cheese – maybe 1 cup and a tbsp. of black pepper.  Add half of a ladle of the pasta water – and simmer on med low heat. Using a whisk – mix the cheese, pepper and water to a nice creamy consistency… (No Lumps). If you need more water – add now BUT be careful not to make it watery…you want a creamy consistency… capisce? Using a set of tongs – take the pasta out of the water and add directly to the frying pan with the cheese/pepper sauce. Mix well -making sure to coat the pasta – Serve immediately.

This dish works well with toasted garlic bread and a tossed simple green salad of arugula, & spinach.  Dressed in a simple lemon and olive oil dressing seasoned with s&p and oregano. Complement with a glass of your favorite chilled white wine.

Buon Appetito.

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Again - So many questions… and not sure we’ve got many answers… Yes, Donny was released from the Walter Reed Medical Center last evening – the team making sure to show him leaving the hospital – unassisted, walking down the stairs – waving to the crowd (and the camera) as he marched across the lawn to board Marine 1 which took him back to the WH… where he exited the helicopter – again unassisted – marching across the south lawn as he made his way up the stairs and onto the balcony – where he promptly removed his mask for a photo opp – telling Americans ‘Be not afraid’

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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