Trading with point and figure

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lookin a tad vulnerable

 

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Mornin folks 😷 😷

 

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Dow updated

 

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$13.00-13.20 is a supp area

 

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Dax in support

 

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Good Morning: The Long & the Short of it and The Bigger Picture - 29 April 2020 - ADM ISI

Inbox

x

Ostwald, Marc

08:28 (1 hour ago)

to Marc

- Digesting Korea production surge, UK BRC Non-Food Price slump, awaiting
US Q1 GDP, FOMC meeting, German CPI, Eurozone Confidence surveys, US
Pending Home Sales, further rash of US & European earnings; UK and Italy
to issue debt

- EC Confidence surveys: set to slump to prior or new record lows, mirroring
PMIs and other surveys

- US Q1 GDP: Private Consumption to lead contraction, but Q2 seen much, much
worse

- FOMC meeting: commitment to whatever is necessary and limitless resources
to be stressed, unlikely to offer much guidance on extent

- Charts/Tables: Lean Hogs & Live Cattle Futures; Eurozone & US Consumer
Confidence, US March Goods Exports & Imports, Saudi FX Reserves

..........................................................................

********************
** EVENTS PREVIEW **
********************

While month end (with index rebalancing in fixed income reinstated after suspension in March) and the start of the Golden Week holidays in Japan (Showa day) may dampen volumes, the schedule is busy on all fronts - data, events and earnings - with US centre stage via Q1 Advance GDP, Pending Home Sales, the FOMC meeting and a raft of key corporate names reporting: Anthem, ADM, Boeing, CME, eBay, Facebook, General Electric, Hasbro, Mastercard, Microsoft, Tesla, Valero Energy & Yum! Brands. Elsewhere there are UK BRC Shop Prices, South Korea Industrial Production (much better than expected due to electronics benefitting from China shutdown), Australian Q1 CPI to digest, while ahead lie Eurozone M3 & EC Confidence surveys, German CPI and Belgian Q1 prov. GDP. European earnings include Airbus, AstraZeneca, Barclays, Deutsche Bank, Nordea Bank, SE Banken and Volkswagen. Govt bond supply sees EUR 6.0 Bln of Italian BTPs/CCT, GBP 5.0 Bln 4 & 29-yr of Gilts and EUR 4.0 Bln of 10-yr German Bund. The EC Confidence surveys are expected to mirror what has already been seen in the advance Consumer Confidence, a collapse to historic lows, with the Services measure seen sliding to a fresh all-time low at -27.0 (previous low -25), which is wholly unsurprising given the depths that Services PMIs are plumbing. As with much in the survey arena now, the real question is not the abyss into which they are / have plunged into, but when and how they turn around, and on more than a short-term knee-jerk basis - my current best guess can be seen in the attached PNG, time frame ca. 2-3 years. However, given the sharp redrawing of supply chains and rethinking of the way that we live and work will likely occur at a rapid pace with many unintended consequences (positive and negative), and with enormous divergence across geographies (intra-country, regional and global). The key will be innovation of the variety outlined by Albert Hirschmann. As a reminder "his ‘Hiding Hand’ argues that creativity is the key problem solving tool when we face unexpected situations; and that it is only via the experience of impotence when faced with the unexpected that we develop the innovative knowledge to solve problems, and that ‘rational choice’ often stifles innovation and creativity. ... Hirschman stressed the need to understand local structures and resources prior to any intervention, and to eschew formulaic World Bank criteria, assumptions and models. He also emphasized the need for ‘latitude’ in planning and directing projects, on the basis that rigid project structures and procedures stifle managers’ creativity and indeed their confidence, and more than likely lead to the exclusion of solutions and products, which may perhaps be ‘no less desirable, and far more feasible, than some other’ (Hirschman, ‘Latitudes and Disciplines’ 1967). He also noted that prescribed assumptions about how and when projects are initialized and implemented can in fact foster corruption, though he also advocated applying some latitude in dealing with corruption, in so far as completely eradicating corruption leads to stagnation, instead of encouraging countries to face up to and learn to deal with such problems. Last but not least Hirschman also outlined the concept of “possibilism”, which is an approach to escaping ‘straitjacketing concepts’ such as perceived “absolute obstacles, imaginary dilemmas and one-way sequences”, noting that such “obstacles” can often turn out to be an asset or, at the very least, a spur for change. Hirschman also argued that such “inverted sequences” should not be seen as having primacy over ‘orderly sequences’, but rather as a means to ‘increase the number of ways in which the occurrence of change can be visualized’." (from my article 'Visions of China' in The Ghost in the Machine, June 2015).

** U.S.A. - Q1 advance GDP **
- The consensus looks for a -3.85% SAAR contraction in Q1 GDP, though the forecast range is flat to-10.0%, and much of course depends on projections for Private Consumption, where the median is -3.5% SAAR on a range of +1.7% to -17.3%. Given that the starting point for the exponential spread of the virus was relatively late in Q1, it is fairly likely that Q2 will be considerably worse, so this is little more than a snapshot of Q1, and Q2 will offer more depth of insight into the extent of the damage from Covid-19, though will still not clarify on the strength of the rebound. The much worse than expected Goods Trade data (see table attached) also implies a drag from net exports, in contrast to an assumption of a positive contribution in the consensus. But to be honest, that element is a footnote to this report, in so far as Trade is some 13% of US GDP, while Private Consumption just below 70.0%.

** U.S.A. - FOMC meeting **
- Outside of the Powell press conference, the scheduled FOMC meetings are currently of reduced importance, given that the Fed is announcing new or enhanced policy programmes 'on the hoof' on what seems to be a weekly basis, and in reaction to wherever financial system pressures emerge or increase, or at the behest of the Treasury. The lines between fiscal and monetary policy are more than blurred, they are opaque. To be sure, the co-operation between Powell and Mnuchin is to be welcomed, though as previously emphasized, it is the implementation process of such measures which is mission critical, as has been above all evident in the small business programmes. As suggested in the Week Ahead in respect of the array of BoJ, Fed and ECB meetings this week: 'all will stress their capacity to do 'whatever is necessary' and their 'unlimited capacity', but stress that fiscal and structural policies will be critical in restoring economies to some semblance of health, and that they (central banks) are primarily trying to stave off even bigger economic contractions and financial systemic implosions. In all cases, the simple points about their policy settings are a) however much they deny it, this is' outright monetary financing', b) for most asset classes they are the 'back stop' buyer and per se underpinning asset bubbles; c) any winding back of current, past and future measures will create a shock effect, and therefore this is overall a 'debt trap'. As a reminder, in the 2010-19 decade global GDP rose $20 Trln, while global total debt rose $50 Trln, in other words every $1.0 of growth required $2.5 of new debt, this metric is now considerably worse (say $3.5 to 4.0 of debt for every $1.0 of growth). That is not sustainable, and the metaphor for it is The Picture of Dorian Grey." These points should (but not necessarily will) be the basis for questions at today's press conference, along with two other issues. Firstly, all the fiscal and monetary policy measures do not address the point that there are many companies that are and will remain insolvent. Secondly the current scale of financial repression and the central bank 'backstops' to asset prices have completely eradicated (on a more than temporary or transient basis) all forms of term and risk premia in asset prices, and 'real' returns are consequently negative (and likely to remain so) - how are investors and stakeholders going to generate positive returns on capital or investment, other than by leveraging capital (i.e. by issuing debt) to buy income / revenue streams, which is both exclusive and atavistic, and in principle no different to an oligarchy.

========================== ** THE DAY AHEAD ** ===========================

 

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FTSE

 

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