Hey Folks, just a quick reminder that this Monday will be a Banking Holiday in the US but all markets will be open except for the US Bond Markets. This past week certainly confirms for us the markets are on razors edge just waiting for more good news on the US – China Trade Talks with the surge in Bullish action this past Friday on news the US will put a pause on continuing trade tariff escalation while getter a few more items in return from China…but the hard work still remains to be done. We will see how this all plays out but as expected, it will be inserted into the 2020 US Presidential election rhetoric for sure…
Weekly Sound Bites:
• From a Trade War to a Tech War and now possible to a Capital War…how this all progresses will determine in large part where the Global Economy goes from here…This past Friday’s “Phase 1” deal with the possibility of several more Phases down the road already says this will take some time to hash out…So far what we know is that China has agreed to buy $40 to 50 Billion more in US AG products and scrap foreign ownership in limits in its financial sector and in return the US will not impose additional Tariffs that were scheduled to take place this Oct 15h with more details to follow…and keep in mind this is a verbal deal with no signed paper yet so things can change…the fact a “pause” in the trade war was enough for market price action to move much higher this Friday giving US Indexes an up week…I am sure more turbulence will be coming at times least expected but the fact both sides now seem more eager to get back to the negotiating table is enough to lift markets near term…
• We also saw this past week the FEDs coming out an announcing up to $60 per month in Treasury purchases, more specifically on the short end of the duration curve or T-Bills (Just don’t call it QE!)… these purchases will drive the proverbial Yield Curve higher (shorter term interest rates will go down while the T-Bills will move higher)…already the 3s over 10s have moved back into positive territory and I suspect it will move higher thru the fourth Quarter…this will all be a net positive for the financial sector and especially banks since they make their money by borrowing short and lending long…
• With these latest announcements and the Feds cutting rates we have seen a shift in money flow from Debt back into Equities…as a result, the SPY is up 18.5% YTD while TLT (tracks the debt markets) is up 15.6%…thru the summer months Debt was outperforming equities but this shift could also provide a bigger lift to the US Equity markets as we head into this fourth Quarter…keep in mind we still have over $15 Trillion of Global debt with negative interest rates or about 25% of all worldwide issued debt…even beleaguered governments like Greece and Italy have issues negative yielding debit…keep in mind negative rates have not helped in Japan, with the Nikkei 225 index peaking in 1989 and has never fully recovered with today showing it sitting about 45% below its peak…
• This coming week brings us 52 S&P 500 Company Earnings including key financial sector stocks JPM, BLK, BAC, USB, PNC, MS and AXP…I had mentioned this before but since Jan 2018 the S&P is only up about 3.4% with the US – China Trade tensions holding us back in this wider trading range…similar to what we experienced in 2015/16…With next week’s earnings kick-off, analysts expect earnings growth to drop by 4.5% YoY…if this occurs it would mark the third straight quarter of contraction and the longest such streak since 2016…with the bar set very low for Q3 some analysts are forecasting a 1.5% growth based upon the historical beat rates we seen in the past…so we will know shortly how this all plays out…
Enjoy our Weekly Round-Up
Don’t Be A Rat Brian Trader – Be the Red Strip Zebra !!
Trade Smart !
hpb
