Morning Minutes 10/12/2018

Morning Minutes

Gold Breakout, Earnings Season Kickoff and China Trade Surplus Spark a Market Rebound

October 12, 2018
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

US stock markets are on the rebound this morning with traders responding favorably to today’s earnings season kickoff that featured positive results from three big banks.

JP Morgan Chase (JPM) beat the street handily, reporting EPS of $2.34 per share, well above the $2.25 street estimate.
Citigroup ( C ) reported EPS of $1.73, beating the $1.69 street estimate.
Wells Fargo (WFC) reported EPS of $1.13 which was slightly below expecta-tions but revenues of $21.9B exceeded analyst estimates.

After two days of steep declines, it appears some investors are ready to go bargain hunting with S&P futures up 0.8% and NASDAQ futures up 1.25%. How markets close today, however, may be more important in determining whether this is a dead cat bounce or the start of a bigger rebound. Late trading reflecting investors willingness to hold stocks over the weekend heading into a week of more results from a wider variety of companies may provide a stronger reading of sentiment.

Increased volatility in stocks this week in both directions has had some investors look-ing to take money out of risk markets, sparking a swing back into defensive havens. In particular, gold took off and staged a major breakout yesterday, blasting through $1,220/oz for the first time since July. While spikes in the VIX can be brief, the gold breakout suggests that investors are expecting markets to remain volatile for some time to come.

Natural Gas prices have started to climb again following a short rest as it has become clear that recent price gains are being driven by lower inventories heading into the peak demand winter season and not by the short-term storm shut-ins. Yesterday’s EIA Weekly Natural Gas Storage Report showed a total inventory of 2,956 BCF, which is down 17.5% from the same week a year ago and 17.0% below the 5-year average.

WTI crude oil (up 1.25%) and copper (1.60%) are rallying today as fears that US-China trade tensions could impact the world economy have eased a bit. Overnight, China re-ported a $31.7B trade surplus, which was well above the $19.4B surplus investors had been expecting. Export growth of 14.5% was well above the 8.9% street estimate.

Relative Strength and Sector Rotation Report:
Yesterday’s big breakout by Gold sparked a rally in Gold Producers. Precious metal miners had been quite depressed as a group in recent months but yesterday they shot up the SIA Charts Relative Strength Rankings in a big snap-back-to-life surge.
US Banks could be active today in response to today’s initial wave of earnings results with more reports due across the group next week.

SIA Wealth In The Media:
Colin Cieszynski appeared on BNN Bloomberg this morning speaking on this week’s market selloff and earnings season. A replay is available:
Markets to remain volatile for some time: Strategists

Colin Cieszynski was quoted by Kitco News earlier this week on what the stock market sell off could mean for gold.
3% Drop In U.S. Equity Market Could Spark Gold Rally – Analysts

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