Recap – A Bloomberg story about China bolstering sales of cars and autos – combined with another big rally for Qualcomm – actually saw the Nasdaq-100 close at a new all-time high after gaining 0.34%, while the full Nasdaq index fell 0.05% despite opening the session higher. There was a similar course of travel for the S&P 500 which ended -0.23% after a brighter start. After tepid moves on Monday and Tuesday, the S&P 500 has traded in a range of +/- 0.78% over the last three sessions, the second narrowest of the year. Healthcare names struggled again yesterday with the sector dropping 2.89% as the fallout from concerns about “Medicare for All” continued. The sector has now lost 6.61% this month which compares to a 2.33% gain for the S&P 500. Treasuries ended little changed at 2.592% – although are down a couple of basis points this morning – while in commodities we saw copper rally +0.94% to reach the highest level since July.

Philadelphia Fed President Patrick Harker reiterated his prior views in favor of one more rate hike this year followed by one in 2020. Separately, St. Louis Fed President James Bullard gave a presentation in favor of nominal GDP targeting. He is one of the most dovish members of the committee, but there certainly seems to be a growing contingent of policymakers in favor of changes to the Fed’s operating framework. Later in the session, the Fed’s Beige Book said that there was “some strengthening” in conditions and “reports on manufacturing activity were favorable.” However, there was some “trade-related uncertainty” and “labor markets remained tight.” On inflation, prices were reported to “have risen modestly.” So nothing really new to shake the Fed’s current views.

As for the data that was out yesterday, the February trade deficit came in at -$49.4 billion. This was narrower than expected as exports performed strongly, rising 1.1% versus a more tepid 0.2% rise in imports.

The latest earnings reports can only really be described as mixed. Morgan Stanley shares closed up 2.64% after beating earnings expectations, but disappointing on revenues. Balancing that out were poor results from Abbot Labs (-4.61%), which beat headline expectations but failed to impress with their guidance amid the healthcare rout, and Bank of New York Mellon (-9.52%), which saw weak net interest income and fall in deposits.

Yesterday’s Fed Beige Book had the ‘squeeze’ label all over it (higher labor compensation costs across the board with limited corporate pricing power). And maybe some investors are now catching up to how the system is “gamed” …cut earnings estimates, then beat them and see your stock price soar as the naïve FOMO investors believe that beating targets are more important than contracting top and bottom lines. So the headlines scream, for example, how Morgan Stanley smashed through its estimates, yet was forgotten as the stock got bid up 2.6% yesterday while profits were down 9% year-over-year and on the back of a 25% plunge in the company’s key investment banking revenues.

If China's gargantuan credit injection was supposed to prompt a wave of global "green shoots", it failed to make a dent on Europe. In Germany, the manufacturing PMI was reported at 44.5, well below the 50.0 expansion mark for the third consecutive month, and missing expectations of a 45 print (up from 44.1 in March). If a German manufacturing PMI of 44.5 in April is a sign of economic reacceleration, as the cheerleaders have been forecasting, I’d hate to see what malaise looks like. Once again, it’s the core industry for Germany that’s the worry – the carmakers are struggling.

Germany's weak manufacturing sentiment echoed a miss in the French manufacturing PMI which also missed, printing at 49.6 (below the 50 exp.) and down from 49.7, resulting in the Eurozone PMI falling to 51.3 from 51.6 – also missing the 51.8 expected and the first data point for the second quarter signaling further sluggishness. In essence, those green shoots in Europe just turned a shade of brown. If China wishes to grow Europe's economy (its biggest trading partner) it will have to launch even more stimulus.

Staying with Europe, as expected Germany’s economy ministry slashed its forecast for 2019 growth to 0.5% with the ministry still expecting a weak first half. That matches our economists’ forecast for this year.

Looking at the screens this morning there is a mild risk-off way to end the week. Perhaps some apprehension ahead of the partial release of the Mueller report to Congress. Or maybe a response to Karl Rove’s missive on the Op-Ed of the Wall Street Journal — Bernie Sanders Could Win This Time. Music to the ears of the millennials, but definitely not to the markets! Or maybe it’s just valuations. As the media rejoices the move in the Nasdaq 100 to a new all-time high the concept of mean reversion should be on everyone’s mind —as an aside, this applies to sky-high profit margins, in general.

To the day ahead – Having re-slumped in February, after bouncing back from December's plunge, retail sales were expected to rebound solidly in March (as analysts projected auto sales and a bounce in gas prices would help) and it did. Headline retail sales rose 1.6% month-over-month in March (crushing the 1.0% expected) – the strongest monthly surge since September 2017. Core retail sales (ex-autos and gas stations) rebounded notably (+.90%) in March after it plunged in February. Also hitting the tapes, initial jobless claims keep grinding lower and lower. The last time this few Americans sought the help of government after losing a job was in November 1969. Initial jobless claims tumbled another five thousand from the prior week's revised 197K to just 192K – the second consecutive sub-200K print in 50 years and the lowest print since September 1969.

50-Year Lows!

Source: Bloomberg

Later today the April Philly Fed business outlook, PMIs, February business inventories and March leading index will be released. Finally, the earnings highlights include Philip Morris, American Express and Schlumberger. Also today, Attorney General William Barr is releasing the redacted Mueller report at a press conference at 9:30 am ET which has the scope to generate headline volatility.

U.S. equity futures are treading flat to up a smidge on the stronger than expected retail sales data. In bond market I see three to four basis point declines in 10-year yields overseas (largest rally in three weeks). This has been matched so far in the U.S. as the Treasury comparable is back down to 2.57%.

Markets are closed tomorrow in honor of Good Friday! There will be no market commentary tomorrow.

Wishing everyone a Happy Easter!