Interesting morning

On the Hong Kong legislation news in the US Senate, most of Asia was red and which is leading the rest of the world. In particular the Hang Seng was lower by .75% while the Shanghai comp and the H share index was down by a similar amount. Who knows now what this means for the trade discussions. Obviously getting to the finish line is the big challenge here. Global bond yields are falling across the board.

This is what Hu Xijin, the editor of the Global Times, tweeted 4 hours ago: “Few Chinese believe that China and the US can reach a deal soon. Given current poor China policy of the US, people tend to believe the significance of a trade deal, if reached, will be limited. China wants a deal but is prepared for the worst-case scenario, a prolonged trade war.” Many believe he speaks for the CCP.

So Home Depot did their best in their conference call to say their comp miss relative to expectations was not a consumer spending issue and was more an internal one in terms of a delay in the payoff with some of their recent investments. They said “the macro and housing environments have played out right in line with our expectations, and the description we would use is housing is healthy and stable.” Lowe’s missed Q3 comp estimates and tweaked its guidance while beating eps and missing on revenue. In its release they said “We were pleased with the performance of our US home improvement stores, which reflects a solid macroeconomic backdrop and continued progress in our transformation driven by investments in customer experience…”

Target’s numbers were impressive vs estimates and while they didn’t say anything about the consumer in their press release, the CEO’s interview on CNBC reflected an optimistic view on the consumer on the quarter ended. We’ll see to what extent in the holiday season over the next month.

Urban Outfitters stock is a mess after numbers after both top and bottom line missed estimates. What is company specific and what is not, I don’t know but I assume it’s more the former.

I mention these retail results for the obvious reason that the US consumer is what is keeping the US economy afloat in terms of growth.

The Bull/Bear spread in the weekly Investors Intelligence number is back above 40 at 40.1 which matches the last peak on July 31st. Bulls did slip by .4 pts to a still elevated 57.2 but Bears fell by .8 pts to just 17.1, a 5 week low. Those expecting a Correction got the 1.2 pts and rose off the lowest level since October 2018. We’ve seen a variety of data points that reflect a very optimistic market crowd and this is one of them. There is a glaring bifurcation between the economic earnings trajectories and the hopes for a trade deal, Fed engineered soft landing and the psychological impact of the Fed’s QE or not QE program going on right now.

With a slight drop in the average 30 yr mortgage rate to 3.99% for the week ended November 15th, mortgage applications fell 2.2% w/o/w. Purchase apps were the bright spot, rising by 6.7% w/o/w but the y/o/y increase was a similar amount, up by 7.3%. Keep in mind, seasonally speaking buyers and sellers try their best to get things done before Thanksgiving because things slow down a lot thru year end. Refi’s fell by 7.7% but after jumping by 13% last week and are still up by 152% y/o/y with the sharp y/o/y drop in rates.

There will be a lot of focus on today’s FOMC minutes from their meeting 3 weeks ago but Jay Powell told us everything he thinks about the state of policy and the world last week in his Congressional coffee talk so it should be a non event.

Japan’s exports in October fell 9.2% y/o/y, below the estimate of down 7.5% and which is the 11th straight month of y/o/y declines. A fall in auto, steel and semi exports led the way and exports to China were down by 10.3% and to the US by 11.4%. Imports dropped by 14.8% y/o/y, slightly better than the estimate of -15.2%. Bottom line, there is still no stabilization in the fall in global trade. The JGB yield fell 2.6 bps to -.11%, a 2 week high. Just a week ago we were oh so close to zero. The Nikkei fell by 2/3 of a percent while the yen is flat.

Following the modest 5 bp cut in short rates a few days ago in China, the 1 yr and 5 yr loan prime rate today also fell by 5 bps. Call this tweaking as the Chinese know they have an excessive debt and bad loan problem so they are trying to thread a needle here in hoping to help cushion the growth decline at the same time not trying to encourage too much debt accumulation.