This Morning's Log Entry: The Trade Truce, And Its Implications

6/29/19 Saturday

The Trump/Xi summit concluded pretty much as the market anticipated -- a truce -- with one even market-friendlier exception; Trump suggested that U.S. companies can indeed sell to Huawei when national security is not at risk ("more details to follow").

So, no escalation at this point, negotiations to restart right away, trade war tariffs already in effect remain, no time frame for the reaching of a deal, and possible Huawei relief.

My expectations for the stock market:

This Week's Message: The Big Meeting's Big Implications

So, it's 9:09 Saturday morning in Osaka Japan, as I type, and there's this big meeting between presidents Trump and Xi happening sometime today. Its implications for financial markets are, well, big!

A Tough Political Spot For Trump

Stocks are hanging in there this morning on news that even before Trump and Xi get together on Saturday their respective post-meeting statements have already been drafted. Reports have it that the U.S. will suspend the threat of new tariffs and new talks will get immediately underway. 

Three-Month Update of My Six-Month Thesis

Three months ago I offered up the highlights of my then six-month thesis. I'll cut and paste it below, and report (in red) on how its panning out so far:

March 14, 2019:

Video Commentary on the Latest Action (and why foreign subsidies are good for U.S. consumers)

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Things Get Ugly Without a "Grand Deal"!

In this 48-second clip macro strategist Mark Cudmore echoes precisely the discussions we've been having for weeks in client review meetings and the messaging here on the blog. I.e., without a deal removing all new tariffs, things gets very ugly 6 to 12 months out:

Bad News is Bad News, At Least for the Moment

My equity screens got all jumpy right at 7am (pt) this morning, as new home sales, consumer confidence and the Richmond Fed Manufacturing Index were all released at the same time.

Data of the Day

Not that we needed any, but here -- out this morning -- is yet more support for our thesis that the trade war needs to end sooner than later:   emphasis mine...

Is Trump's Approach Strategy or a New Standard? The Answer Is Ultimately Everything for Markets

The G20 meeting happens later this week and virtually all that matters this go-round is the Trump/Xi summit.

Clearly, Trump pushed too hard against a China that early-on seemed desperate to give all but the farm to end the trade war. 

This Week's Message: There May Be A Game-Changer on the Horizon!

I'm hitting again this week on a theme I've presented herein a number of times in recent years, but, make no mistake, this one's indeed worth hitting again!

While we can use charts and data till the cows come home to form our hypotheses, history (if we bother to look) reminds us that there's often more going on than meets the eye. 

The market was barreling into all-time-high territory in 1995, while the economy was beginning to show some serious cracks.

Watch this classic CNBC video clip:

Video Commentary on the Latest Action

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Quick Thoughts on the Fed Meeting

The Fed did about all the market could ask for this morning. No cut in rates (that was too much to ask), but acknowledgement of heightened risks and the willingness to cut rates later if need be.

Two things:

What CFOs Worry About

Duke University’s Fuqua School of Business and CFO magazine conduct the Global Business Outlook by surveying CFOs of companies and subscribers of CFO magazine around the world every March, June, September and December.

This Morning's Log Entry: Is the first rate cut a sell-the-news or buy-the-news event?

A number of credible analysts have been making the case that Fed rate cuts are not necessarily good for stocks, specifically the first cut in a series of cuts. They claim that the data say that investors should buy stocks on the third or fourth cut in a series, but not the first.

Headline of the Day

You may have noticed this morning's big rally in stocks! 

We can definitely credit the President with the Lion's share of this one. 

We were already looking at a 150-point rally in the Dow (on Mario Draghi's dovish commentary), but the following tweet explains the additional 250:

There's U.S. Stuff In There!

So yesterday was the first day of the Paris Air Show, and, alas, Boeing booked zero new orders while its European competitor Airbus had a great day. That's great for Europe, bad for us. Right? Well, not so fast!

This Morning's Log Entry: The Bulls Are Aching For a Signal From the Fed

Tomorrow’s Fed decision, and the all-important post-meeting commentary, really shouldn’t be tough to call, although it is!

Be Careful What You Wish For This Week!

The next two weeks are virtually certain to be packed with huge volatility in the stock market!

This Morning's Log Entry

Broadcom’s forecast downgrade, due of course to trade war concerns, has tech selling off a bit this morning. China’s very weak industrial data from last night has the market jittery as well. Not helping matters, ironically, is decent U.S. industrial production and retail sales (both data points released this morning). The latter challenges the notion that the Fed needs to step in and cut interest rates right here.

This Morning's Log Entry

The major equity averages are rallying at the open this morning: The S&P future contract, while already in the green, popped higher on the higher than expected weekly jobless claims number; i.e., bad news remains good news for now, as it bolsters the case for Fed easing going forward.

Must Watch 2-Minute Video Clip

In a Bloomberg interview this morning, hedge fund legend (trust me, this guy more than deserves the label) Paul Tudor Jones pretty much echoes what we've been preaching herein for months (although we're more certain on the recession risk):

Here's a clip:

This Morning's Log Entry

Last week’s rally carried through Monday and into the morning on Tuesday; turning around intraday and closing lower. This morning the Dow and S&P are floating around break even, while the Nasdaq is off .22%.

Video Commentary on the Latest Action

In today's video commentary I dig, frankly and directly, into current market and economic conditions.

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

This Morning's Log Entry

The no-tariff news on Mexican goods has the market continuing last week’s rally this morning.

I have to admit that I’m a bit surprised that we’re looking at these levels at this juncture. The underpinnings of the latest rally are anything but fundamentally positive.

This Week's Message: All We Can Be Certain Of, For the Time Being

Question: Which of the following two hypothetical headlines would make you feel better about the present state of the U.S. stock market?

This Morning's Log Entry: The Problem With "Playing With The Bank's Money" Given Present Conditions

This morning’s disappointing jobs report confirmed two things that I already knew, tariffs are doing a real number on the economy and we’ve entered a bad-news-is-good-news (bad news means the Fed will cut its benchmark interest rate) period for stocks; the Dow, S&P and Nasdaq are all positive in the futures session as I type.

Brief Commentary on the Latest Action (video)

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This Morning's Log Entry

As I type equity futures are moving nicely into the green, after trading lower for most of the evening. From Europe, Trump stated that he could add tariffs to an additional $300 billion of Chinese goods when the time is right, but added that China, and Mexico, really want to make a deal. The hint of deals, as opposed to the threat of more tariffs, is what traders keyed on this morning. 

This Morning's Log Entry

Yesterday’s huge rally speaks to traders’ faith that the Fed can cure all economic ills. Problem is, it can’t. But my how it can spark a rally with the merest hint of a rate cut; particularly when the economy is slowing, but not yet in recession mode; which is my current assessment.

End of Day Wrap Up (video)

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Brief Commentary on the Latest Action (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust: 

Wall Street Waking Up

In yesterday's log entry (posted herein this morning), I suggested that Wall Street is finally coming around to our way of thinking.

Just got a little more evidence of that from this evening's Asia edition of Bloomberg's Markets Live Blog:

Latest Log Entry

6/2/19 Sunday 

This week’s PWA Index came in at a low expansion reading of 10.59. While consumer data is holding up okay, industrial data is waning, and while the financial stress index on balance is okay (+40), spreads are moving in the wrong direction.

U.S. Manufacturers Feeling the Pain of Protectionism

While not quite as threatening as this morning's manufacturing PMI release, ISM's manufacturing survey for May also came in below expectations.

My highlights below of the report's featured responses sum up the long of the short of it:

No Surprises Yet In This Morning's Data

This morning's release of May's manufacturing purchasing managers survey (performed by Markit) should come as no surprise. The 50.5 reading (below 50 denotes recessionary conditions) screams to the impact tariffs are beginning to have on the U.S. economy.

Quote of the Day

We'll be taking a deeper dive into general conditions here on the blog this week, in the meantime macro strategist Cameron Crise pretty much says the short-term like it is: