Protrader – February 2019 Market Wrap

//Protrader – February 2019 Market Wrap

XJO
Momentum building on confidence. UP 297

 

However, there are still clouds on the horizon, specifically related to the banking/ housing sector. This was evident by both bank reports with BEN (Bendigo & Adelaide Bank) reporting Net Impaired Assets had increased 26%, combined with Macroeconomic housing data, such as lending rates down 6.9%, and Melbourne housing prices falling at their fastest quarterly rate in history.

It is important to understand, as can be seen by the chart below, although there are some serious concerns regarding the housing industry, and therefore by proxy the banking sector, these issues are very much institutional sins of the past, and as long as the unemployment rate remains low, and underlying employment strong, the economy should still remain robust.

 

KEY ECONOMIC DATA

  • Unemployment Rate Steady @ 5%
  • Fulltime employment edged up.
  • RBA held cash rate steady @ 1.50%
  • RBA suggested next rate move more likely down than up.
  • EU lowered GDP growth forecast

   DOW JONES IND AVG 25,025 – 25,910 : UP 885 Points

 

DJI 12 MONTH CHART

The DOW continued from where it left off in January, rising to 26,238  before succumbing to resistance, dropping below the 26,000 and settling at 25,918, rising another 885 points for the month of February.

The strength of the DOW has been underpinned by consistently strong jobs data. The month started with yet another better than expected jobs report, achieving 100 straight months of job growth, being the longest period of jobs growth in US history. In addition better than expected GDP figures was also supported by a narrower than expected US trade deficit.

This economic data was also supported by geopolitical issues with the US-China trade talks taking a positive turn by both parties, resulting in Trump extending the next round of sanctions, initially expected on March the 1st.

From a corporate earnings perspective, the market continued to beat expectations, with Walmart’s earnings exemplifying the consistently defiant corporate earnings, and underlying the strong economy.

These elements combined to see the S&P closing at the highest level since Nov 8th, and in turn breaking above the 200 day moving avg for the first time since early December.

However, the market hit headwinds in the last week dropping around 330 points over the last four trading days of the month.

Key Developments in the Month of February.

  • Real 4th QTR GDP -2.6%  Beating Market Expectations/ 2.0% for the year.
  • New Home sales soared 16.9% to 657,000
  • US trade deficit narrowed to $49.3 b. Beating market expectations.
  • US jobs data blows away expectations: 304,000 v 165,000 expected.

 China Employment data: Why a trade deal will soon be done.

Last month we analysed some of the factors surrounding the US employment situation, and why it benefited the US as a whole, but also the stock market.

This month we will look at the employment situation in China, and why ironically the exact opposite situation has developed, and how it is creating and having a diametrically opposite effect on both the economic landscape, but also forcing China to resolve the US-China trade dispute, from a position of weakness.

History

Before we go into the present conundrum facing China, a foundation of historical context is imperative in order to comprehend the present socio-political environment.

In an attempt to manage population control, ostensibly to ensure that everyone was fed and educated, the Chinese authorities implemented a one-child policy in 1979. One of the unforeseen consequences of this policy that now impacts China 40 yrs later is the phenomenon know as Shengnan, or “leftover men”.

Shengnan: Leftover men

Due to the cultural desire and preference of boys over girls within Chinese society, we have now had 40 yrs or 2 generations of population growth/birth skewed towards boys rather than girls, this has resulted with approximately 30 million more men than women.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PRESENT DAY
When one combines this unique Chinese population phenomenon with the economic ramifications of both the US tariffs, but also more importantly actually societal implications, one can see why China is so motivated to get the dispute resolved.
Manufacturing and economic growth have dropped, and the unemployment rate has consequently risen. When you overlap this, against the 30 million Shengnan men, you are left with around 9 million unemployed, unhappy, and unsatisfied men: and That’s how an army starts.

As the US’s strong employment situation shore’s up, both the economic and political landscape, the social circumstance unique to China inversely exacerbates, weakens and undermines the political and economic situation.

Further to our previous report several months ago, every month of poor economic and unemployment data that comes from China hastens the likelihood of a resolution. Don’t be surprised of a major announcement around the 27th of March.

OIL STOCK UPDATES: Oil Prices continued to find support.

 

 

 

 

 

 

 

 

 

 

 

 

WTI Crude – Gained $ 3.38: $53.83 – $57.21

As outlined the previous month the general direction of international supply is tilting towards a tightening and thus provided oil with support. With continued political and military issues impacting upon supply, Oil managed to rally to its highest price in 2019 on the 25th.

Unfortunately, on the 26th President Trump out of nowhere tweeted that Oil prices were too high, demanding OPEC do more to reduce the price, consequently sending oil down 3% in one trading session and from $57.44 to $55.30 over two days. However, the underlying strength saw the price rebound for the remainder of the month.

WATCH THIS SPACE: IRAN Prediction

Part of the recent Oil price support is related to the behind -the- scenes political maneuvering that is going on by the US. Slowly but surely the US is starting to turn the screws on Iran, and their customers. We put to you, that as soon as the US-China trade dispute is resolved, the US will turn their full attention to Iran.
Expect the remainder of the year to be heavily impacted by the International Oil Chessboard maneuvers, played between Iran and US.

With the recent technological advances allowing the US to access and extract previously untappable Shale Oil, anticipate the US to offer their cheap oil to existing Iranian clients, and a virtual complete physical embargo upon Iranian Oil being implemented. This should be an interesting year.

Venezuela
The situation appears to be deteriorating dramatically, with President Maduro now blocking even aid from land border countries of Brazil and Columbia, this is in conjunction with the existing sea embargo already in place.

Apart from the horrific ramifications inflicted upon, the by in large innocent people of Venezuela, Oil exports have virtually been reduced to a trickle of the occasional illegal shipment.

It is impossible to even guesstimate any likely return of Oil exports from Venezuela at this stage, and nor will it, until a concrete resolution one way or the other of the present political impasse.

Key Oil Price Influences

  • OPEC announced 800 k bpd production drop to 30 mbpd.
  • Saudi Arabia announced further production cuts by another half million barrels.
  • OPEC + Russia agreed to cut production by 1.2 mbpd.
  • Continued Libyan fighting near Oil Fields.
  • US imports dropped to the lowest level in history.
  • US Oil production rose to record 12 mbpd – Now worlds top crude Oil producer.
  • US Oil Exports surged 1.2 mbpd to a record 3.6 mbpd.