TradeTheNews.com Weekly
Market Update: Positive tone sours as trade war escalates
Fri, 23 Aug 2019 16:07 PM EST
Markets opened the week on a positive note helped by talk of fiscal stimulus
around the globe and the expectation key central bankers would offer dovish
commentary later in the week from Jackson Hole. Weak global growth and
continued uncertainty on trade induced speculation that officials in Germany,
Washington DC and across Asia were looking for measures to ensure growth. To
that end China announced new measures on lending that effectively resulted in
the lowering of a key interest rate. The ECB’s Renh emphasized they stand ready
to significantly increase stimulus measures, while President Trump kept up his
rhetoric calling on the Fed to cut rates by 100 basis points and confirmed the
White House is looking at new tax cuts, though not imminently. The Commerce
Department granted Huawei an additional 90 day extension on a license that
allows the company to conduct some business with US customers, which was taken
as a constructive move on the trade front. UK PM Johnson met with key leaders
in Europe raising hopes that a path towards a Brexit deal could forged, however
unlikely it still appeared. As PM Conte stepped down in Italy markets were
encouraged by President Mattarella granting the Five Star and PD parties enough
time to come up with a coalition deal to avoid a new election.
The tone changed significantly though as the week drew to a close, as press
reports speculated China was readying retaliatory tariff measures. On Friday,
China confirmed those reports by announcing plans to levy tariffs on $75B in US
goods effective September 1st, with some addition levies going into effect in
mid-December, mirroring the timing of the next round of US tariffs. The news
came alongside Fed Chairman Powell’s highly anticipated speech at Jackson Hole.
Ultimately the Fed Chair offered little in the way of new ground, suggesting
the wide array of views held by policymakers will continue for some time. He
acknowledged low inflation remains the conundrum of the current central bank
era and reiterated that policymakers stand ready to act to keep the expansion
going. Futures continued to project a 25 basis point cut as inevitable next
month, but the path after that remains unclear, beholden to things like Brexit,
Hong Kong, and tariffs as Powell enumerated. The President reacted quickly on
twitter, insuating both Chairman Powell and President Xi were both enemies of
the US while indicating his administration would soon announce new measures to
deal with trade and the byproducts of a Fed Reserve that is not as
accommodative as Trump sees fit. The US 2-10 year spread bobbed in and out of
negative territory and rates generally moved lower. Stocks and other risk
assets tanked into Friday afternoon. Copper hit another 2+ year low and gold
prices pushed back towards the highs of the year. The Friday selloff pushed
stocks into their fourth straight down week: the S&P500 lost 1/4%, the DJIA
dropped 1%, and the Nasdaq fell 1.8%.
Earnings from major retailers led corporate news headlines this week. Home
Depot reported a beat but trimmed its sales outlook due to lumber and tariffs.
Lowe’s shares surged after its profitability came in well above forecasts
despite inclement weather. Kohl’s EPS topped estimates, though same store sales
came in under consensus, pushing shares modestly lower. Target posted a large
beat and raised its outlook, noting volume boosts from in-store pickup and
same-day shipping, sending shares up 20% to record highs. Gap reported revenue
below consensus and weaker than anticipated comp sales due to a ‘challenging
environment.’ Toll Brothers shares slipped post earnings, though they pointed
to a good start in Q4. Salesforce stock rallied on a revenue beat and forecast
raise, soothing investor concerns about the cloud giant’s recent acquisition of
Tableau Software.
SUN 8/18
*(CN) China PBoC announces new interest rate reform plan, Loan Prime Rate (LPR)
as the new Benchmark Reference Rate to be used by banks for lending (aimed at
supporting funding for small businesses); to be set monthly
(US) President Trump: China tariffs have cost nothing or very little, China
wants to make a deal, we'll see what happens; humanitarian outcome in Hong Kong
would be good for trade deal; China President Xi has something in mind to do
with trade, reiterates not ready to make a deal with China - speaking from New
Jersey
MON 8/19
(DE) Germany reportedly targeting job creation, domestic market in potential
stimulus measures as contingency for crisis - US financial press
(US) Commerce Sec Ross: Confirms US granting Huawei another 90 days for some
business; Added 46 more subsidy to Huawei 'entity list' - Fox business
(US) President Trump tweets: Fed should cut by at least 100 bps; strong dollar
is hurting other parts of the world
(EU) ECB's Rehn (Finland): Reiterates stance that ECB needs to provide a
significant degree of monetary stimulus to ensure that financial conditions
remain very favorable and to support euro area growth and domestic price
pressures"
BIDU Reports Q2 $1.47 v $0.94e, Rev $3.84B v $3.77Be
(US) White House reportedly considering temporary payroll tax cut in effort to
reverse weakening economy - Washington Post
(US) State Attorney Generals to move ahead with antitrust investigation of big
tech companies, looking at marketplace dominance - US financial press
TUES 8/20
HD Reports Q2 $3.17 v $3.08e, Rev $30.8B v $31.0Be
KSS Reports Q2 $1.55 v $1.52e, Rev $4.43B v $4.46Be
WEDS 8/21
LOW Reports Q2 $2.15 adj v $2.00e, Rev $21.0B v $21.0Be
TGT Reports Q2 $1.82 adj v $1.61e, Rev $18.4B v $18.3Be
(US) Labor Dept: prelim estimate of nonfarm payrolls benchmark revision would
reduce March 2019 employment level by 501K, or 0.3% - press
*(US) FOMC MINUTES FROM JULY 31 MEETING: MOST OFFICIALS SAW RATE CUT AS
'MID-CYCLE ADJUSTMENT' OR POLICY 'RECALIBRATION'; TWO POLICYMAKERS WOULD HAVE
PREFERRED A 50BPS CUT IN JULY RATHER THAN 25BPS CUT
(JP) Japan Investors Net Buying of Foreign Bonds: ¥499.7B v ¥175.8B prior week;
Foreign Net Buying of Japan Stocks: -¥359.6B v -¥187.1B prior week
(KR) Bank of Korea (BOK): Japan export curbs could be more damaging to local
economy than tariff hikes; chip exports likely to continue to fall y/y for the
duration of 2019
THURS 8/22
(CN) China Commerce Ministry (MOFCOM) spokesperson Gao Feng: despite delayed
tariffs from US, any new tariffs to lead to trade escalation; urges US to stop
imposing new tariffs
*(FR) FRANCE AUG PRELIMINARY MANUFACTURING PMI: 51.0 V 49.5E (moves back into
expansion and highest reading since Nov 2018)
*(EU) EURO ZONE AUG PRELIMINARY MANUFACTURING PMI: 47.0 V 46.2E (7th straight
contraction, but highest reading since Jun 2019)
*(EU) ECB ACCOUNT OF POLICY MEETING (JULY MINUTES): Widely agreed on need for
accommodative stance for prolonged period
*(US) AUG PRELIMINARY MARKIT MANUFACTURING PMI: 49.9 V 50.5E (lowest since Sept
2009)
(DE) Reportedly Bundesbank sees no need for Germany fiscal stimulus right now
(US) Fed's Kaplan (dove, non-voter): would like to avoid cutting again in Sept,
but will have an open mind about taking further action in next few months -
CNBC
CRM Reports Q2 $0.66 v $0.47e, Rev $4.00B v $3.95Be
GPS Reports Q2 $0.63 v $0.52e, Rev $4.01B v $4.02Be; affirms FY19 guidance
FRI 8/23
(CN) Global Times Editor-in-chief Hu Xijin tweet: Based on what I know, China
will take further countermeasures in response to US tariffs on $300 billion
Chinese goods. Beijing will soon unveil a plan of imposing retaliatory tariffs
on certain US products. China has ammunition to fight back. The US side will
feel the pain.
(US) Fed's Bullard (dove, voter): market has expectations for low inflation,
TIPS breakeven suggest only 1% inflation over next 5-years; we should
"take out more insurance against the downside risks"; expect
"robust debate" about 50bps cut in Sept - TV interviews from Jackson
Hole
*(CN) CHINA TO LEVY 5-10% RETALIATORY TARIFFS ON $75B OF US GOODS; effective on
Sept 1st and Dec 15th
(US) JULY NEW HOME SALES: 635K V 647KE
(CN) Pres Trump promises to respond to China's tariffs 'this afternoon';
'orders' American companies to immediately start looking for an alternative to
China
(DE) Germany govt document: govt does not see a need for short term economic
stimulus; govt does see a recession in Germany, forecasting a second
consecutive quarter of contraction in Q3 - German press