Saturday, 20 July 2019

US stocks fall as NY Fed clarifies rate stance

Markets were mixed on Friday.

The S&P 500 fell 0.6 percent but the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 surged 2.0 percent.

US stocks lost momentum after investors realised that the Federal Reserve may not be as prepared for a big rate cut as previously expected. A spokeman for the New York Federal Reserve said that President John Williams’ assertion that policymakers need to “act quickly” as economic growth slows was drawing from research, not hinting at what may happen at this month’s Federal Open Market Committee meeting.

Still, some continue to expect a big cut.

“They really need to convince guys like me and the people that control a lot of the money on Wall Street that they are truly serious about reinflating the economy,” said Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management.

Friday, 19 July 2019

US stocks rise but US-China trade war still poses a risk

Markets were mixed on Thursday.

The S&P 500 rose 0.4 percent but the STOXX Europe 600 fell 0.2 percent and the Nikkei 225 plunged 2.0 percent.

In the US, stocks were supported by a comment by New York Federal Reserve President John Williams that the central bank needed to “act quickly” when the economy was slowing and rates were low.

Japanese stocks were dragged down by a report showing that Japan's exports fell 6.7 percent in June from a year earlier.

Asian stocks in general were also weighed down by trade issues.

“Donald Trump’s renewed trade threats this week undermine relief from the resumption of US-China trade talks agreed to by Presidents Trump and Xi at June’s G20 meeting,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, wrote in a note.

And US stocks could still get hit by the trade war, according to CFRA Research investment strategist Lindsey Bell.

Bell noted that “we haven’t gotten indication that they’re making major progress yet”.

Bell said that there are risks to corporate earnings “primarily in the fourth quarter of this year” and that corporations “are going to bring guidance down as they release second-quarter earnings”.

Thursday, 18 July 2019

Markets fall, US-China trade talks still have a “long way to go”

Markets fell on Wednesday.

The S&P 500 fell 0.7 percent, the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 fell 0.3 percent.

Markets may have been weighed down by comments from US President Donald Trump on Tuesday that the US and China still have a “long way to go” on trade and that the US could still slap additional tariffs on Chinese goods.

Meanwhile, US economic data released on Wednesday were mixed. While the Federal Reserve's beige book survey showed that businesses were generally positive, another report showed that new building permits fell 6.1 percent in June while housing starts fell 0.9 percent.

Some analysts remain homeful on the market.

“There are good reasons to believe that despite the downbeat expectations, earnings season could come in better than expected—which would be good for markets,” Brad McMillan, chief investment officer at Commonwealth Financial Network said in a note.

Wednesday, 17 July 2019

Markets mixed, “pain trade remains up”

Markets were mixed on Tuesday.

The S&P 500 fell 0.3 percent and the Nikkei 225 fell 0.7 percent but the STOXX Europe 600 rose 0.3 percent.

“The bullish move that some equity markets enjoyed thanks to the slight improvement in U.S.-China trade talks, and the chatter about the Federal Reserve lowering rates, has run out of steam, and some traders are taking a breather,” wrote David Madden, market analyst at CMC Markets UK.

However, the latest Bank of America Merrill Lynch fund managers survey suggests that there is room for further gains as cash allocations remain well ahead of historical averages.

“The dovish Fed and trade truce have caused investors to reduce cash and add risk, but their expectations of an earnings recession and debt deflation still dominate sentiment,” Michael Hartnett, BofAML’s chief investment strategist, said in a statement. “The pain trade for the summer remains up in stocks and yields.”

Tuesday, 16 July 2019

JP Morgan sees “upside case for equities”

Markets rose on Monday, with US indices eking out gains to close at record highs.

A report on Monday showed that China’s GDP growth slowed in the second quarter to 6.2 percent, the lowest since 1992, but markets reacted little to it.

“The GDP figures matched market expectations to the dot,” wrote Carl Weinberg, chief international economist at High Frequency Economics.

Instead, investors may be mostly focusing on potential rate cuts by central banks.

In a note on Monday, JP Morgan's chief US equity strategist Dubravko Lakos-Bujas wrote that they are “raising our S&P 500 12-month price target to 3,200 as our upside case for equities is increasingly in play with Fed and Trump easing on policy while investor positioning/sentiment remains low”.

A stock market melt-up, however, is unlikely, according to Mark Haefele, global chief investment officer at UBS Global Wealth Management.

“While we expect modest upside for stocks in our base case, valuations and corporate fundamentals don’t point to a ‘melt-up’. Earnings growth remains subdued and multiples have only modest scope for further expansion,” he wrote.

Monday, 15 July 2019

S&P 500 at record high at risk of rate-cut disappointment

The S&P 500 closed at an all-time high of 3,013.75 on Friday.

Stocks were driven by expectations for an interest rate cut by the Federal Reserve at the end of this month after Fed Chairman Jerome Powell's congressional testimony last week.

In his testimony Powell said that the Fed is prepared to “act as appropriate to sustain the expansion”.

Indeed, some investors think a 50 basis-point cut is possible, with the Fed funds futures market placing a 23.5 percent chance of such a move as of Friday.

“Historically the Fed has wanted shock and awe when they ease,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management.

In contrast, some question the need for a rate cut at all.

“Unemployment is below the Fed’s maximum employment target, prices are as stable as they have ever been in the history of the country, and the yield on a 30-year Treasury yield is 50 basis points above its all-time low,” noted Michael O’Rourke, chief market strategist at JonesTrading.

“I’m having a hard time figuring out why they’re planning to cut,” said Mark Stoeckle, CEO and senior portfolio manager at Adams Funds.

Indeed, Michael Schumacher, global head of rate strategy and managing director at Wells Fargo Securities, suggested that the Fed is “going to disappoint the market” by not cutting as much as it already anticipates.

Anthony Grisanti, founder and president of GRZ Energy, said: “I don’t think he’s going to cut rates at the end of the month.”