Weekly Memorandum 2/17/2020
U.S. markets are closed on Monday, February 17 in observation of President's Day. Markets overseas are up so far on Monday, in spite of the increasing impact of the coronavirus in Asia. Aside from the apparent under-reporting on the virus from China, the biggest news out of Asia over the weekend was Japan's GDP shrinking by over 6% in Q4 2019. That is absolutely huge coming out of the world's third largest economy; not a good sign.
But Japan's stock market took the news in stride, and managed to close barely down on the day. In the short-term, our work still suggests we are set for a pullback in equities in the U.S. The long-term trend, however, remains solidly up, and it would take quite the sell off to alter this position.
The U.S. Dollar continues to catch a bid, and last week, it closed out at the highest level since early-2017. This is a very bullish development, and something we would be wise not to ignore. We elaborated about the deflationary ramifications behind this trend in the latest publication of the Mercator Letter, which came out yesterday. By the way, we are running a great special right now, where for just $22, you can obtain yesterday's publication, and the next one set to come out on March 8.
Precious metals are also coming off a decent week, and continue their general positive correlation with interest rates. Crude Oil recovered some of its losses as well, but it's still too early to tell if that was the final bottom in its decline. Structural problems remain in the energy market, and the strength of the U.S. Dollar continues to be a headwind. This is something to continue monitoring closely, as it is yet another signal that deflationary trends are popping up in the market.