Weekly Market Analysis – 19 November 2018 BMO

WEEK IN REVIEW – 12 to 16 NOVEMBER 2018 :
Stocks Lose Ground Over Continuing Growth Concerns

Wall Street tumbled this week, with consumer discretionary and information technology stocks leading the retreat.

Concerns over peak earnings growth continued to linger, and a further breakdown in oil prices also weighed on investor sentiment. Brexit reentered the mix this week, and, as always, U.S.-China trade headlines were plentiful. The S&P 500 lost 1.6%, the Dow lost 2.2%, the Nasdaq lost 2.2%, and the Russell 200 lost 1.4%.

Within the tech space (-2.5%), Apple (AAPL) got off to a rough start after two more suppliers, Lumentum (LITE) and Qorvo (QRVO), cut their guidance. Disappointing guidance from chipmakers NVIDIA (NVDA) and Applied Materials (AMAT) also weighed on the sector, with NVIDIA plunging nearly 20% on Friday.

Meanwhile, a host of retailers reported earnings this week, including Walmart (WMT), Macy’s (M), Home Depot (HD), and Nordstrom (JWN) to name a few. The reports generally showed better-than-expected profits, but shares sold off in response nonetheless. The SPDR S&P Retail ETF (XRT) lost 4.5%, while the consumer discretionary sector lost 3.8%.

The oil-sensitive energy space (-2.1%) fell in tandem with WTI crude, which dropped 6.1% to $56.52/bbl and extended its losing streak to 12 sessions before bouncing back.

Saudi Arabia announced it would reduce its oil exports in December by 500,000 barrels a day due to a seasonal slowdown in demand, but President Trump rebuked that decision on Twitter. There were also reports that OPEC and non-OPEC allies could be entertaining a plan to cut production by 1.4 million barrels per day in 2019. However, OPEC cut its 2019 oil demand forecast for the fourth consecutive month.

In Washington, Congresswoman Maxine Waters, who is set to take over the House Financial Services Committee this January, vowed that the days of weakening bank regulations will be coming to an end. Ms. Waters’ comments should not have been seen as a surprise as it was understood this would likely be the case following the midterm election results. However, a knee-jerk sell off in the financial space, which finished the week lower by 1.3%, suggested otherwise.

Conversely, outperforming the broader market were the lightly-weighted real estate (+0.8%), materials (+0.4%), and the heavily-weighted health care (-1.1%) spaces.

Elsewhere, U.S. Treasuries saw heightened demand amid market turbulence and a softer-sounding perspective from Fed Vice Chair Richard Clarida. Mr. Clarida conceded on Friday that he thinks the Fed is getting closer to a neutral rate, which is a dovish stance compared to Fed Chair Jerome Powell’s “long way from neutral” comments from last month. The 2-yr yield lost 13 basis points to close at 2.80%, and the 10-yr yield lost 12 basis points to close at 3.07%.

This week saw the market bounce on any U.S.-China trade development no matter if the news was new or repetitive.

A Financial Times report suggested China and the U.S. are trying to reach a trade truce ahead of the G-20 meeting at the end of the month, but clarification from the U.S. Trade Representative’s office said that the next round of tariffs for China are not on hold. President Donald Trump chimed in that China is open to a trade deal, though a list of concessions reportedly presented from China before did not mention structural reforms that have been demanded by President Donald Trump.

At the very least, National Economic Council Director Larry Kudlow did confirm that the U.S. and China have resumed trade discussions.

Overseas, UK Prime Minister Theresa May received cabinet approval for her draft withdrawal statement for Brexit. However, Brexit secretary Dominic Raab, and several other ministers, resigned after the approval, and reports indicate that the 1922 Committee received 48 letters needed to trigger a vote of no-confidence in Prime Minister Theresa May. The vote could take place next week.

(Economic Excerpts from Briefing.com)


Tuesday 13 November:

Fiscal Year Begins with October Treasury Budget Deficit

The Treasury Budget for October showed a deficit of $100.5 billion versus a deficit of $63.2 billion for the same period a year ago. The Treasury Budget data is not seasonally adjusted, so the October deficit cannot be compared to the $119.1 billion surplus for September.

Wednesday 14 November:

October CPI In-Line with Expectations

The all items index for consumer prices increased 0.3% month-over-month in October while the all items index, excluding food and energy, increased 0.2%. Both were in-line with the consensus estimate.

The key takeaway from the report is that it points to a firming in consumer inflation, which fits the Federal Reserve’s inclination to raise rates again in December.

Thursday 15 November:

Retail Sales Bounce Back in October 

Total retail sales increased 0.8% (consensus +0.5%) following a downwardly revised 0.1% decline (from +0.1%) in September. Excluding autos, retail sales jumped 0.7% (consensus +0.5%) following an unrevised 0.1% decline in September.

The key takeaway from the report is that it reflects healthy consumer spending activity that will provide a positive input for Q4 GDP forecasts. Core retail sales, which exclude auto, gas station, building equipment and materials, and food services sales, jumped 0.3%.

Initial and Continuing Claims Increase in Latest Week, but Healthy Low Claims Trend Intact

Initial claims for the week ending November 10 increased by 2,000 to 216,000 (consensus 214,000). Continuing claims for the week ending November 3 increased by 46,00 to 1.676 million.

The key takeaway from the report is that the weekly increases did very little to alter trends in the four-week moving average for both series, which remain near historic lows and indicative of a tight labor market.

Import and Export Prices Push Up in October 

Import prices increased 0.5% in October. Excluding fuel, they were up 0.2%. Export prices increased 0.4%. Excluding agricultural exports, they were up 0.5%.

The key takeaway from the report is that nonfuel import prices remain tame, up just 0.7% year-over-year, versus 1.4% for the 12-months ending October 2017.

Empire Manufacturing Survey Reflects Pickup in Activity in November 

The Empire Manufacturing Survey for November increased to 23.3 (consensus 20.0) from 21.1 in October, bolstered by an increase in the index for shipments, inventories, the number of employees, and prices paid.

The key takeaway from the report, which uses 0.0 as the dividing line between expansion and contraction, is that manufacturing activity in the New York Fed region continues to run at a good pace.

Philadelphia Fed Index Points to Slower Activity in November 

The Philadelphia Fed Index for November fell to 12.9 (consensus 20.5) from 22.2 in October, as most component indexes fell back from stronger levels.

The key takeaway from the report is that manufacturing growth slowed in the Philadelphia Fed region in November, yet it still remains in an expansion mode with a reading above 0.0.

Business Inventories Match September Expectations 

Total business inventories increased 0.3% in September, in-line with the consensus estimate, after increasing 0.5% in August. Total business sales increased 0.4% after increasing 0.5% in August.

The key takeaway from the report is that business sales continued to outpace inventory growth year-over-year, which is a favorable trend that carries the potential to lead to a better pricing environment for businesses.

Friday 16 November:

Manufacturing Output Props Up Industrial Production in October 

Industrial production increased 0.1% in October (consensus +0.3%) following a downwardly revised 0.2% increase (from +0.3%) in September.  The capacity utilization rate dipped to 78.4% from an upwardly revised 78.5% (from 78.1%) in September, which was the highest rate since January 2015.

The key takeaway from the report is that manufacturing output increased for the fifth straight month despite a big drop in motor vehicle assemblies, which underscores solid activity otherwise for the manufacturing base.

Other International Events of Interest

EARNINGS – S&P 500 Aggregate Estimates and Revisions; 2018 Q3


Friday 16 November
Broader Market Gets Lift from More Trade Chatter; Chip Stocks Weigh

The S&P 500 chipped in a 0.2% gain on Friday after President Donald Trump again signaled China’s desire to make a deal on trade. Disappointing guidance from chipmakers, however, kept gains in check. The Dow Jones Industrial Average gained 0.5%, the Nasdaq Composite lost 0.2%, and the Russell 2000 gained 0.2%. For the week, the S&P 500 declined 1.6%.

Speaking from the White House, President Trump reiterated his claim that China wants to make a trade deal. He said that China sent a “large” list of things they’re willing to do, but the list is not yet in-line with the President’s standards. Nevertheless, the market, desperate for a positive solution on trade, reacted positively to the comments.

Also, a dovish perspective from Fed Vice Chair Richard Clarida on Friday helped ease some early angst.

Mr. Clarida thinks the Fed is getting closer to a neutral rate, which is a somewhat contrasting view from Fed Chair Jerome Powell in October who said the Fed is still a “long way from neutral.” The Fed-sensitive 2-yr yield subsequently dropped six basis points to 2.80%, and the benchmark 10-yr yield lost four basis points to 3.07%. The U.S. Dollar lost 0.5% to 96.46.

Proving strong support for the broader market were the real estate (+1.4%), utilities (+1.3%), energy (+1.1%), materials (+1.0%), and health care (+1.0%) sectors, which combine for roughly 30% of the S&P 500’s market capitalization.

Conversely, the top-weighted information technology sector shed 0.1%, though recouped most of its losses largely due to resiliency from Apple (AAPL). Discouraging guidance from NVIDIA (NVDA) and Applied Materials (AMAT) weighed on the sector early. Weaker-than-expected chip demand, which left NVIDIA with excess inventory, led to fourth quarter revenue and EPS guidance that was well below current consensus estimates. Applied Materials also lowered its top and bottom line guidance below consensus but was able to add some gains. The Philadelphia Semiconductor Index lost 1.2%.

Facebook (FB) weighed on the communication services sector (-0.4%) with a loss of 3.0%. On-going negative publicity surrounding the company has helped pull the stock back to its lowest level since April 2017. Also, Amazon (AMZN) and retail companies dragged on the lagging consumer discretionary sector (-0.5%).

Retail companies continued to struggle after Nordstrom (JWN) and Williams-Sonoma (WSM) released mixed earnings reports. Nordstrom reported a significant one-time charge that knocked EPS lower by $0.28, and its revenue and its full-price comparable sales figures were on the softer side. Williams-Sonoma guided its revenue to the low end of Wall Street estimates. Both companies beat earnings expectations, though. The SPDR S&P Retail ETF (XRT) lost 1.4% today and 4.5% this week.

Separately, WTI crude added 0.1% to $56.52/bbl, extending its rebound effort to its third straight session after snapping a 12-session losing streak.

Overseas, reports from the United Kingdom indicated that the 1922 Committee received 48 letters needed to trigger a vote of no-confidence in Prime Minister Theresa May. UK’s FTSE shed 0.4%, and the British pound rose 0.4% to 1.2830 against the dollar, which is far from a frantic move in the market that should be most impacted by Brexit fears.

Market Internals – Friday 16 November 2018

Dollar: Index Turns Negative for Week

The U.S. Dollar Index closed down 0.5% at 96.43, slipping to levels from last Thursday. The greenback spent the overnight session inside a narrow range, but it slid to lows after Fed Vice Chair Richard Clarida said that policymakers are seeing some evidence of a slowdown in the global economy with a potential impact on the United States. Mr. Clarida also said he believes the Fed is close to a neutral rate range, which was received as a signal that future rate hikes might be limited in number. With Friday’s selling, the Dollar Index is down 0.5% since last Friday, booking its first weekly decline in five weeks.

Bonds: Streak Extended

U.S. Treasuries ended the week on Friday with gains across the curve but lower for the week. The 5-yr note and the 10-yr note outperformed from the start, but the 2-yr note caught up shortly after the open, as the market responded to comments from Fed Vice Chair Richard Clarida, who was interviewed by CNBC. Participants paid particular attention to comments that could be categorized as dovish, but the Fed vice chair did not signal big shifts in policy. Instead, he acknowledged that some evidence of a slowdown in the global economy with a potential impact on the United States is becoming visible. Mr. Clarida added that the central bank should be data-dependent and that the neutral rate is not far away. Separately, Chicago Fed President Charles Evans said that hiking the fed funds rate to “about 3.25%” is reasonable, given the economic outlook. This view implies four more rate hikes. Treasuries continued their advance into the afternoon, finishing near their best levels of the day. Today’s rally helped Treasuries finish the session at or above their closing highs from October with all tenors recording their fifth consecutive advance on a cash basis. Futures on 2s, 5s, 10s, and 30s logged their sixth advance in a row.

The belly of the yield curve fell to steepen the curve. The spread between the 5s10s widened to 18bps from 15bps the previous week while the 10s30s widened to 26bps from 20bps the previous week. The 2-30 spread has widened to 53bps from 46bps a week ago.


The Bloomberg Commodity Index settled at 83.91, higher than 82.89 the previous week even as Crude fell because Nat Gas, Metals and Grains gained.

WTI oil fell off a cliff, settling the week at $56.46. The spread between WTI and Brent widened to $10.30 from $9.99 the previous week as Brent settled at $66.76 p/b.

EIA petroleum data for the week ended November 09

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 10.3 mln barrels from the previous week. At 442.1 mln barrels, U.S. crude oil inventories are about 5% above the five year average for this time of year. Total motor gasoline inventories decreased by 1.4 mln barrels last week and are about 7% above the five year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 3.6 mln barrels last week and are about 8% below the five year average for this time of year. Propane/propylene inventories decreased by 0.8 mln barrels last week and are at the five year average for this time of year. Total commercial petroleum inventories decreased last week by 1.4 mln barrels last week.

Natural gas inventory showed a build of 39 bcf vs a build of 65 bcf in the prior week. Working gas in storage was 3,247 Bcf as of Friday, November 9, 2018, according to EIA estimates. This represents a net increase of 39 Bcf from the previous week. Stocks were 528 Bcf less than last year at this time and 601 Bcf below the five-year average of 3,848 Bcf. At 3,247 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count increased by +1 to 1082 following last week’s increase of +14.




Week 47 (November 19 to 23)

This is the week that starts the Christmas Sales phenomenon known as Black Friday (23 November) and Cyber Monday Sales (26 November).

According to our 5, 10 and 15 year seasonal models;

Benchmarks Indices (21 year average) for wk47:

Week 47 Key Economic Dates

In the coming week the US will publish building permits and housing starts, existing home sales, durable goods orders and flash Markit PMIs. Other important releases include: ECB and RBA meeting minutes; UK CBI factory orders; Eurozone flash Markit PMIs; and Japan inflation and trade balance.

Mon 19 November

Tue 20 November

Wed 21 November

Thu 22 November

Fri 23 November



I am expecting to see some semblance of normalcy returning to the market. If it does this week, I am back to the usual seasonal trades starting with the retail sector as earnings season winds down.

Looks like I’m waiting till after Black Friday then. The past two weeks have been nuts. Nuts because I have had to entertain countless (and I mean I really lost count) number of eMails, private (FB) messages, Tweets, WhatsApps, phone calls and everything else in between with regard to margin calls, assignments and troubled accounts. It’s simple: break the rules and you’ll be punished – and its not like I’ve not said it before. Here’s the banner from 2012.

The level of complacency has been phenomenal. Amongst the bunker traders and energy trading desks, the number of margin calls have been higher than that of 2014 (when oil fell from $105 to $45) and 2015 (when oil fell to $27). Within the equity space, assignments went through the roof amongst Options Traders as some got caught in the Bull Trap over the last two weeks and in the Bear Trap at the end of October.

Me? I stopped trading after crude broke down from $76 to failed to find support at $65. Thank goodness for old habits (of not trading between October and Black Friday) because I would have been on the wrong side of the trade if I did.

Sometimes, not trading is the best way to not lose money.

To lose graciously and walk away with your life is better than winning without your life to savour the victory.


Now comes the slow bleed to the downside that will have even the most hardcore Crypto believers running. Just like in the Tulip Mania, the few remaining sellers hung on to the belief that the mania would return and hung on to their precious-but-worthless bulbs while their net worth dwindled. So watch for those reports that tout ‘buy’ signals now – they always crawl out of the woodwork when shit happens.

One more leg up, man, one more leg up!

The only thing that will revive this form of currency is a major shift to regulated valuation, liquidity and capital controls that are pegged to some form of capitalisation that will give it a proper and legitimate demand-supply purpose, something that can be monetised for commercial reasons and most of all, a real NEED for such a currency.

But that would defeat the current purpose of this currency, wouldn’t it?

Game over, man, game over.

Happy Hunting!


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