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Thursday, July 20, 2017


The dollar index is improving, if feebly, after a big two-day drop. A small improvement in the 10-year yield may deserve the credit, a rise to 2.274% from 2.263% at the close yesterday. Meanwhile, the Bund yield continues to flop downward ahead of the ECB policy meeting, results tomorrow.

In other markets, oil is up and at the highest in about two weeks, although not likely to surpass the $50 mark, despite yesterday’s API estimate of crude inventories at a build of 1.628 million barrels (when a 3 million draw was forecast). Gasoline inventories did drop. We get the Energy Dept version this morning and it could contradict the API. Also, oilprice.com reports Saudi Arabia is rumored to be considering a 1 million bpd cut to speed up the global inventory draw down.

Separately and weirdly, just as the US starts trade talks with China featuring a ban on dumped steel, iron ore prices in China are rallying like crazy. Either they need the iron/steel themselves or they feel sure they can sell the stuff elsewhere. Reuters reports steel beats oil in Asian commodity markets “because of cuts in low-grade steel production capacity that have reduced supply as demand has remained surprisingly strong…. Since the start of the year, prices for Chinese steel rebar, used mainly in construction, have surged by almost a third this year to more than 3,800 yuan ($562.42) per tonne.” Iron ore itself has jumped 17% since July 1 on demand for housing and infrastructure.

The euro is starting to recover from the usual post-rally pullback that took it from yesterday’s high at 1.1583 to a low overnight at 1.1513 just after Asian passed the baton to Europe. The 2-hour chart here shows red support at around 1.1514 this morning, the linear regression at around 1.1511 and the midpoint of the breakout bar (green) at 1.1503. Without any fancy theories, we can deduce true support near 1.1505-1.1510.

The Reuters 10-year yield index closed at 2.264% from 2.309% but is quoted a little firmer at 2.274% this morning.

The Bund yield is quoted at 0.551% from 0.563% yesterday and 0.582% last Friday morning.

Market Outlook: Fresh data today in the US consists only of housing starts, not normally a change agent but possibly important this time. In May, starts disappointed on the downside, only 1.092 million when 1.215 was forecast. The 5.5% drop in May followed -2.7% in April and -7.7% in March. A fourth month of decline could be a loud whistle that something is amiss when the economy is supposedly enjoying full employment. May permits fell 4.9% to 1.17 million, suggesting June starts could be awful.

Institutional factors always beat economic data. The key institutional factor is always the central bank. We get both the BoJ and ECB today and tomorrow. The BoJ policy meeting tomorrow will see some members retiring and new ones coming in. Little change is expected, although analysts keep expecting a change in the inflation target rate to make the actuals look less bad.

The more-watched central bank is the ECB, which has to walk a tightrope between admitting lower inflation and inflation expectations and robust conditions that warrant tapering. Some tapering, any tapering. We all know it’s going to be a long drawn-out affair but traders are getting impatient to see it acknowledged and started. We continue to guess that Draghi will repeat inflation is not sustainable and everyone will be disappointed again. Reuters reports some insiders want to keep the buying program open-ended. Well, gee. Of course any central bank worth its salt is going to say that purchases can be ramped back up if conditions warrant. Bloomberg reports the ECB staff is working on a “stimulus plan,” which seems to be a misuse of language when what they are really designing is a measured retreat from QE with a reduced pace of asset purchases.

And everyone still expects Draghi to offer some hints and clues at the Kansas City Fed’s shindig in Jackson Hole on August 24-26. We always expect more from Jackson Hole than we end up getting.

In the US, of new institutional importance since Trump is the ability of the US government to get anything done. We had “Infrastructure Week” but no infrastructure plans. We are having “Made in America Week” this week but absolutely nothing on how the US is supposed to replace imports. It’s showmanship and PR rather than governance.

Congress is now considering yet another unviable approach—repeal Obamacare but delay the actual date for two years to give Congress time to devise another plan. The Plubs blame the Dems for their own failure (the pot calling the kettle black) but no informed person sees anything except disarray and incompetence. Usually it’s the Dems who are an incoherent mess so this is kind of fun.

But the problem remains that the Trump administration has achieved nothing in its first six months except a little immigration policy change. Doubts are growing by leaps and bounds that tax reform is going to go the same way as the healthcare bill. For one thing, it’s being designed in secret by a small group of only six persons. If ever you need transparency, disclosure, expert testimony and hard data from statisticians and economists, it’s on tax reform. The suspicion is not unfounded that the reform designers will seek what Plubs always seek—lower taxes for the rich.

Then there’s trade. Most people have their eyes glaze over when the word comes up. But the Trumpies are counting on the public and even the commentariat to wish trade would just go away. But trade is not all that complicated and it formed a solid leg on which the Trump electoral victory rested. We are stuck with it.

Today the US and China meet for something named a “Comprehensive Dialogue,” meaning stuff other than trade will be allowed. The US wants China to stop dumping cheap steel into the US (a product Trump himself buys for his buildings) and also to step up its work in reining in N. Korea. A few facts—the US now imports hardly any steel from China, and China has already said (more or less) it can’t do anything with N. Korea. The US trade deficit with China is $347 billion, the biggest two country deficit of all time.

The FT reports “The problem is that the United States already blocks most Chinese steel imports. So any tariffs or limits on imports would instead hurt other countries, including such staunch allies as Canada and South Korea.” One analyst suggests “the United States could try to coordinate sanctions against China by countries that do import Chinese steel.”

But wait, there’s a bomb coming. Commerce Sec Ross will be releasing a paper on the role of steel in national security. Think airplanes and tanks. If the president chooses, he can use a 1962 law that allows him to ban imports or set a catastrophic tariff on goods deemed central to national security. This would play well in those places where voted chose Trump. Therefore we expect it.

At the same time, China has a trump card, the purchase of US Treasuries. The latest TICS report shows China increased its holdings for the 5th month in a row to $1.10 trillion. (Japan has a little more, $1.11 trillion). The FT reports China’s holdings rose by $10 billion in the May month and is the highest since last Oct. China has yet to threaten to stop buying US paper but it’s one hell of an ace.

In other international relations, the US is falling far short of the threats it made on NAFTA, so far, and the peso and CAD remain firm. But just wait. If and when Trump needs a shocker to distract attention from his son taking a meeting with a Russian agent or the next scandal, NAFTA will come back up. Separately, the Trump administration says it may take strong action against Venezuela if the country re -writes the constitution, including sanctions against Us imports of oil. As we showed yesterday, the US imports the most from Saudi Arabia and Canada, but Venezuela is the third biggest oil exporter to the US. Trump, projecting again, said Maduro is “a bad leader who dreams of becoming a dictator.”

The pinkos and “deep state” aficionados will love it.

Finally, trade permeates other matters, too, especially Brexit. Moody’s warns that the probability is high the UK cannot make a trade deal with the EC and such a failure would trigger a recession. Some players are not waiting for things to fall apart. Citigroup picked Frankfurt as the post-Brexit location for European sales and trading. It will also move activities to Dublin, alongside Bank of America. Think tank Bruegel says 10,000 banking jobs could go in London, along with some €1.8 trillion of assets. “Standard Chartered, as well as Japan's Nomura and Daiwa Securities, have already picked the German city as their EU headquarters, while Goldman Sachs, JP Morgan, Morgan Stanley and Deutsche Bank have all said they would increase staffing in Frankfurt.” Yikes

Stock Market Update

Helped by some of the mega-cap, FANG tech stocks, the Nasdaq is touching more all-time highs and is up more than 0.5% at midday. The rest of the majors are also higher at midday, and we even received some help from some strong housing data. Housing starts for June came in at a 1.215 million rate, which topped estimates of 1.163 and May's 1.122 million, so having housing still looking solid adds to the renewed optimism we are seeing in the broader stock market.

As for the political picture, the mess in Washington DC continues. The strange thing is that despite the division and the failure of the health care vote, the stock market has moved to new highs. It used to sound very cynical and unpatriotic to say "division in government was great for the stock market." But here we are, seeing parties divided internally as well as big divisions between both national parties. And yet despite these issues, stocks are somehow rallying. So stay tuned, as bulls hope we can build on today's early gains!



Stocks Trading Idea For Today ($RCL)

Royal Caribbean Cruises Ltd. (RCL): ABOVE $112.60, with a $121 first target, a $135 second target, and a $103.50 stop loss. Confirmation Volume Area= 1M, Risk Rating= 3, Industry= Resorts & Casinos
RCL TRADING TIP: Watch this choppy formation as it sets up for another stage higher, while the market posts gains. When reviewing new trading ideas for purchase, consider buying in pieces by following strength (DCA UP). NOTE: the use of the “Confirmation Day” concept drastically reduces trade risk.

Royal Caribbean Cruises Ltd. (LRC) rose $0.71, to $112.56 on good volume today! RCL operates as a cruise company. RCL operates cruises under the Royal Caribbean International, Celebrity Cruises, and Azamara Club Cruises brand names. The Royal Caribbean International brand provides a range of itineraries ranging from 2 to 24 nights with options for onboard dining, entertainment, and other onboard activities to various destinations. The Celebrity Cruises brand offers itineraries ranging from 2 to 18 nights to various destinations; and operates onboard upscale ships that offer accommodations, fine dining, personalized services, and spa facilities. The Azamara Club Cruises brand offers cruise itineraries ranging from 3 to 21 nights that serve the up-market segment of the North American, the United Kingdom, and Australian markets. RCL also operates ships under the partner brands, such as TUI Cruises, Pullmantur, and SkySea Cruises. RCL operates 49 ships with itineraries ranging from 2 to 24 nights on approximately 535 destinations worldwide.

Trades Option Idea: Transaction Closed For +50% Profit

The following weekly Trades option idea should have been closed today for a 50% profit, as the underlying stock in the recommendation, Raytheon (RTN), achieved its $169.24 price target. The reason that the return was not as high as the 99.35% anticipated return is because RTN achieved its target a month prior to expiration, and much of the time premium was left in the options.

Ideas presented on 5/30/17
Call (Bull) Debit Spread on Raytheon (RTN)

Buy 10 - August 2017, $160 strike calls for $6.40
Sell 10- August 2017, $170 strike calls for $1.78

Based upon MonetradeplanTrades' projected share price of $169.24 at (or before) expiration on 8/18/17, Return on Investment (ROI) would be 99.35% (including reasonable commission) if RTN rises 3.93% in the next 11 1/2 weeks. Options are suitable for only very aggressive investors.
CLOSED ON 7/19/17 for approximately a 50% profit

Previous ideas can be seen here: HERE

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