Tuesday, March 26, 2019

This Morning's Log Entry

Equity futures are pointing to a strong open this morning. To the extent that the yield curve inversion drove stocks lower on Friday, it would make sense that traders would either, 1, rotate back into stocks as they get their heads around the historical average length of time between inversion and recession (18 months) -- when, that is, an inversion presages a recession, or, 2, chalk it up to the yc inversion exacerbating already palpable global angst over the prospects for a protracted trade war (drawing in Europe) amid slowing, but not on balance recessionary, global economic conditions, and, thus, take the buying opportunity Friday offered up – as the consensus base case is that trade tensions will abate markedly over the next few weeks. Plus, and this is a huge plus!, central banks en masse are currently efforting mightily to maintain easy monetary conditions.

Also, Brexit headlines this morning are net positive, which is being confirmed by a sharp spike in the pound vs the dollar. Sustainably positive news there could make for a sizable bounce in global equities this week as well.

The overwhelming risk for markets remains global trade. A newly published study quantifies the notable hit U.S. income is currently taking as a result of “Trump Administration’s trade policies” and acknowledges the destruction it’s wreaked onto existing global supply chains. Hence, my strong opinion that a trade deal that does not do away with these tariffs is ultimately not a bullish economic/market event.

As I close this note, U.S. housing starts for February came in weaker than expected; S&P futures immediately gave up a couple of points. I don’t expect that this particular data point will by itself completely kill the opening rally this morning.

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