U.S. output Gap

U.S. nominal Output gap from the CBO .Just when the economy finally erased the negative output gap the Virus pushed economic activity below potential again. Horz Line =recession periods ,lets hope this downturn or recession is not as Deep or as long as the GFC because as you can see it took some 8 years to get output GAP positive.

Trade weighted Dollar

Dollar index traded on Ice is basically USD vs Euro due to weighting of the currencies in the basket.The Fed has a trade weighted Dollar index made up of 26 U.S.Trading partners a more Complete view of Dollars impact on trade.

In a sideways pattern but “highs” are lower then prior ones so possibly indicating a downside breakout

Bonus chart Citigroup surprise Economic Index the higher the metric the more beats to economic data and vice -versa.From the chart it looks the Negative surprises have bottomed

Hong Kong Status

Pompeo to Congress *U.S. WON’T CERTIFY HONG KONG AUTONOMY, ENDANGERING TRADE STATUS this added to the Risk Off move

Why this matters ( From Reuters)

A revocation of the special status would cause problems for the more than 1,300 American companies with business operations in Hong Kong, including nearly every major U.S. financial firm. The State Department said 85,000 U.S. citizens lived in Hong Kong in 2018.

Visa-free travel access to Hong Kong could revert to strict Chinese visa rules, impeding business travel and work visa approvals.

As of 2018, the stock of U.S. foreign direct investment in Hong Kong stood at $82.5 billion, an increase of $1.2 billion that year, according to U.S. Commerce Department data. Hong Kong’s investment in the United States rose $3.5 billion in 2018 to $16.9 billion.

Hong Kong’s autonomy, civil liberties, rule of law and access to China make it attractive to international companies, and a change in that status could push some U.S. firms into costly moves elsewhere in the region.

Reason Stocks Lower

Trump threatening social media Companies again FB -4.25% Twitter-4.6% Trump talking again about sanctions on Chinese officials, Yuan a stones throw away from all time lows vs USD , NDX -2%… Semis (SOX) -2.3% rest of FAANG not doing well NFLX -3,6%, AMZN -3.4% apple -.6% European stocks still trading in the green even though there is some push back for the Massive stimulus/ lending facility unveiled today. W hat was risk on is turned to risk Off

Morning 5-27

Risk On, again  

News from Europe the Driving force  “ the European Commission’s proposal for a Covid-19 recovery fund, specifying €750bn total, split between €500bn of grants and €250bn of loans.”(Reuters)  This amount is on the High Side of Expectations but as usual  with deals in Europe more details are needed . ….

…Japan Also Increasing Stimulus  The Nikkei 225 added 148.06 points or 0.7% to 21419.23 on Wednesday as Reuters reported that Japan will roll out another $1.1 trillion stimulus package that includes financing help for struggling companies, subsidies to help firms pay rent and several trillion yen for health care assistance and support for local economies. The stimulus, which will be funded partly by a second extra budget, will be on top of a $1.1 trillion package already launched last month, bringing the total amount of JPY 234 trillion, roughly 40% of Japan’s GDP (Trading economics)

  Dow +1.4%, Spoos +1% Nasdaq +.4% Russel +2% Stoxx 50 +1.8% Spanish Stocks +2.7 and Another country to benefit from rescue package Italy +1.78% A few relevant headlines…        NKY 3 month highs Australian Stocks 11 week highs.. Still issues with Hong Kong, Trump says “he will look very strongly at a separate bill sanctioning Beijing official “(BBG) Dollar sagging a bit for second day….  Bunds yields at 6 week highs  ,but due to news on European recovery fund Spanish and Italian Yields lower. …Treasury  yields higher by ~2bps across the curve, watching .75%  in 10s as a possible breakout  to upside ,30 year yields  already  breaking out to upside … Gold down for second day I’m watching 1666-1676 for possible support…  Oil trading down a bit of surprise  with Spoos higher possibly due to Russia hinting at curbing production cuts starting in July …SPX traded above 200 D MA but did not close above,  I will be watching again today for a close above 3000

 Virus Update: (Pantheon Macroeconomics)

• Confirmed U.S. cases rose by 1.12% yesterday, down from a 1.34% increase on the same day last week.  The number of new cases fell 8.1% to 18.6K, from 20.3K a week ago.

  • The decline in cases, though, probably is overstated by holiday effects.  The number of new tests reported yesterday dropped sharply to 302K, from 397K on the same day last week, and well below the trend.  If testing had matched last week’s pace, with the same proportion of positives, the number of new cases yesterday would have been 21.4K, more than on the same day last week.

• Deaths, which lag cases but are unaffected by the rising trend in test numbers or changes in test criteria, are falling steadily.  Again, lags in reporting over the holiday mean that the 693 deaths reported yesterday—down from 1,574 a week ago—likely overstate the true rate of decline.  We expect a much bigger increase to be reported later today, taking the cumulative total above 100K.  The underlying trend, though, clearly is falling.

 • Case growth in Minnesota, which has had severe outbreak at meat processing plants, has slowed sharply over the past couple of weeks, but we are becoming concerned by the acceleration in new case growth in Alabama and Arkansas, shown in Chart 2.  These outbreaks seem not to be due to specific factors.  Both states have increased testing in recent weeks, but if the recent spikes continue, the states will have to re-impose containment measures.

 • Cases, hospitalizations and deaths continue to fall in NYC.  But daily new cases per capita remain far higher than in most European countries when their lockdowns were first eased

. • The trend in daily new cases in continental Western Europe is likely about flat, and deaths are falling.  The data for Spain and France, however, are very noisy, and subject to revisions.  New cases in the Netherlands have picked up over the past week; meat processing plants again appear to be a big part of the problem.

• New cases and deaths are falling rapidly in the U.K., but the latest case numbers are likely to be revised over the next couple of days in order to correct errors.  The improving big picture won’t change.

• Official data show that the 7-day average number of new cases in Brazil has suddenly dipped.  We doubt this is a true reflection of the picture.  Daily cases in Russia are now reported to be falling steadily too, though a degree of skepticism here probably would be appropriate too.  • A spike in cases in South Korea appears to be centered mostly on a single e-commerce warehouse near Seoul. 

Kudlow on China

In an Interview on Fox News he had some Bearish china Comments

  • “We will See if China implements deal
  • China making a big mistake in Hong Kong
  • Trump is so Miffed at China that Trade deal not as Important to him
  • China must comply with auditing standards

Not all bad news some cheer leading for Economy as well:

  • U.S. now pivoting towards reopening
  • He sees a lot of Greenshoots of Economic Growth

SPX trading above 3000 and the 200D MA, even with negative china Comments and the NDX trading weaker vs her peers was not enough to push SPX much below 3000. CBOE Put/Call ratio Closed Friday at .57 down from the peak of 1.28 in mid March. Intra-day moves saw the ratio dip to .55 a whisker away from multi month lows,currently trading .69. Lower the number= Bullish sentiment prevailing. Today’s Economic Calendar was filled with better then expected data,so another Plus for the Bulls .S&P Hotel index +7%,Airlines +12% Casinos +7%,virus proxy’s all doing well today

Long end of Yield Curve shows yields higher then shorter end 10s +4 Bps,20s +7.5 bps and 30’s s +6.8Bps 2s and 5 year yields + 1 bps Bunds having an ugly day down 90 ticks and trading in a wide range of 115 ticks. 2 year auction went okay Bid to cover lower then last month but still respectable as it is above the last 5 auction averages.