Thursday, 31 October 2019

Fed cuts rates, stocks could "collapse"

The S&P 500 rose 0.3 percent on Wednesday to another record high after the Federal Reserve cut its benchmark fed funds rate by 25 basis points to between 1.50 percent and 1.75 percent.

However, some strategists see stocks plunging in the near future.

"The unfolding profits recession will expose the 'growth' impostors and they will collapse, as they are on the wrong 'growth' PE valuations with the wrong EPS projections," said Albert Edwards of Societe Generale.

Peter Cecchini of Cantor Fitzgerald sees a recession brewing in the manufacturing sector and said that while consumer spending has been propped up by loose lending standards, the latter are "slowly beginning to tighten across the board".

John Hussman, an investment manager and former professor, said he expects "the S&P 500 to lose somewhere between 50-65% over the completion of the current market cycle".

Wednesday, 30 October 2019

US stocks at risk as earnings expectations decline

The S&P 500 fell 0.1 percent on Tuesday, one day after hitting a new high.

Nevertheless, Charlie Ripley, senior investment strategist for Allianz Investment Management, noting progress on a trade deal with China, a “supportive Fed” and better-than-expected corporate results, said “we would expect market optimism to continue to improve which is particularly important as we head into the holiday spending season”.

However, UBS lead strategist Francois Trahan falling earnings expectations are a big threat to stocks.

Noting that the consensus year-on-year growth rate in S&P 500 forward earnings has dropped to a 1 percent from a peak of 23 percent in September 2018 he said: “Ultimately, the most vulnerable macro backdrop for equities occurs when forward earnings growth turns negative as LEIs are trending downward (pushing [price-to-earnings] lower).”

Tuesday, 29 October 2019

S&P 500 hits record high but Europe may be “outperformer going forward”

Markets rose on Monday.

The S&P 500 rose 0.6 percent to hit a record high. Elsewhere, the STOXX Europe 600 and Nikkei 225 both rose 0.3 percent.

“Binary earning surprises continue to favor the bulls so far this season,” said Jeff deGraaf, chairman of Renaissance Macro Research.

However, the Chicago Fed National Activity Index fell to -0.45 in September from 0.15 In August.

While US stocks are hitting record highs, European stocks have lagged behind their US peers for the past two years but Mislav Matejka, head of global and European equity strategy at JP Morgan, wrote in a note on Monday that this trend will reverse in the coming months.

Matekja said that he cut his overweight rating on US equities to neutral and he now believes “that international stocks will be an outperformer going forward” as “the long downtrend in Eurozone PMIs should be coming to an end”.

Monday, 28 October 2019

Economists call for end of US-China trade war

The S&P 500 rose 1.2 percent last week on increased expectations of a trade deal between the US and China.

The potential trade deal comes as a group of prominent economists from the US and China called for the world’s two largest economies to abandon their trade war.

In a statement issued in China on Sunday, the group of 37 economists – including Joseph Stiglitz, Michael Spence and three other Nobel winners – argued for a more sensible framework for future trade relations that would give China room to pursue industrial policies while also allowing the US latitude to respond with targeted tariffs if China’s policies were damaging its interests.

Also on Sunday, China’s National Bureau of Statistics reported that industrial profits fell 5.3 percent in September from a year earlier after having fallen 2 percent in August.

Saturday, 26 October 2019

Markets rise as progress on US-China trade talks seen

Markets rose on Friday.

The S&P 500 rose 0.4 percent to close just 0.1 percent below its record high. The STOXX Europe 600 and Nikkei 225 both rose 0.2 percent.

Market sentiment was boosted by comments by US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Friday that they have made progress on the first phase of a potential US-China trade deal.

“The price action today is due to expectations of a trade deal with China that may in fact take the December 15 tariffs off the table,” said Alicia Levine, chief strategist, BNY Mellon Investment Management.

However, she added that “if the Dec. 15 tariffs remain, 2020 earnings estimates are at risk”.

Kristina Hooper, chief global market strategist at Invesco, said that in the meantime, progress on trade, upbeat earnings and expectations of another Federal Reserve interest rate cut next week are driving the stock market rally, and “investors are not letting a few high-profile earnings misses dictate their assessment about the facts in general”.

Friday, 25 October 2019

Markets rise, US durable goods orders fall

Markets rose on Thursday.

The S&P 500 rose 0.2 percent, the STOXX Europe 600 rose 0.6 percent and the Nikkei 225 rose 0.6 percent.

A report on Thursday showed that US durable goods orders fell 1.1 percent in September, the largest drop in four months.

US corporate earnings have been more positive, with nearly 80 percent of companies posting results that beat analyst estimates, according to FactSet.

“Thus far earnings have been generally supportive of further progress and a number of potential minefields in the industrial sector have been navigated successfully,” Michael Shaoul, chairman and CEO of Marketfield Asset Management, wrote in a note.

The European Central Bank left interest rates unchanged at its monetary policy meeting on Thursday, the last presided by Mario Draghi, who makes way for Christine Lagarde on 1 November.

Thursday, 24 October 2019

Markets rise but economy may be “stuck” with low interest rates

Markets mostly rose on Wednesday.

The S&P 500 rose 0.3 percent, the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 rose 0.3 percent.

“In an environment of job growth, ultra-low interest rates and central-bank stimulus, this is actually an okay environment and one in which you need to be putting money into stocks because they can continue to go higher,” said Kate Warne, principal investment strategist with Edward Jones.

Indeed, a recent research paper suggests that US interest rates should have been even lower.

San Francisco Fed economist Jens HE Christensen wrote that based on the market response for five central banks that have introduced negative rates, “mildly negative U.S. policy rates from 2009 to 2011 could have supported higher economic growth and eventually pushed up inflation closer to the Federal Reserve’s target”.

On the other hand, former Bank of Japan governor Masaaki Shirakawa wrote that the focus on avoiding deflation by persistent monetary easing is wrong.

He said that the effectiveness of monetary easing derives from bringing forward future demand to the present. “If the economy is faced with a temporary shortfall in demand, this policy works,” he wrote.

However, “if there are bigger structural issues suppressing it -- the very act of monetary easing will make the 'natural rate of interest' fall faster, and eventually it will get stuck,” he said.

Indeed, the US central bank now appears to be needing ever greater liquidity injections to ensure financial stability.

On Wednesday, the New York Fed announced it is increasing its temporary overnight repo operations to US$120 billion a day from the current US$75 billion in an effort to hold the overnight funds rate within its target range.

Wednesday, 23 October 2019

Markets mixed, as are corporate earnings and Brexit news

Markets were mixed on Tuesday.

The S&P 500 fell 0.4 percent but the Shanghai Composite rose 0.5 percent and the STOXX Europe 600 rose 0.1 percent.

US stocks were weighed down by worse-than-expected third-quarter results from McDonald’s and Traveler Cos.

“Earnings have been mixed, but I still believe they’re going to surprise to the upside,” said Ken Engelke, chief economic strategist at Capitol Securities Management.

Brexit remained in the spotlight, with the UK parliament agreeing on Tuesday to consider Prime Minister Boris Johnson’s plan for leaving the European Union but rejecting his aggressive deadline for approving it.

Tuesday, 22 October 2019

Markets rise amid improved prospects for US-China trade and Brexit deals

Markets were mostly higher on Monday.

The S&P 500 rose 0.7 percent to come within 0.6 percent of its record high. The STOXX Europe 600 rose 0.6 percent and the Nikkei 225 rose 0.2 percent.

“Equities are looking more positively at U.S.-Chinese talks and the potential of a better than expected earnings season showing from major names this week,” wrote Arnim Holzer, macro strategist for EAB Investment Group.

Markets shrugged off news that UK House of Commons speaker John Bercow refused to allow a vote on Prime Minister Boris Johnson’s Brexit deal with the European Union, saying the same issue had been discussed on Saturday.

“The chances of a deal one way or the other are higher than they were two weeks ago, which is why the market is not falling back,” said Rupert Thompson, head of research at asset manager Henderson Rowe.

Monday, 21 October 2019

While Brexit drama continues, US stocks could hit new records

The drama over the UK's departure from the European Union continued over the weekend.

Members of Parliament voted on Saturday to withhold their backing to the revised withdrawal agreement Prime Minister Boris Johnson struck with the EU last week until the legislation needed to ratify it has passed, forcing him to seek a delay of Brexit beyond 31 October to abide by the law.

Johnson subsequently sent an unsigned letter to European Council President Donald Tusk regarding the delay request, followed by a signed letter stating that he was not seeking an extension to the Brexit deadline.

While Europe remains focused on the Brexit drama, investors in the US may push the stock market to new records this week.

“You’ve got the potential for a combination of things that drive us to new highs,” said Art Hogan, chief market strategist at National Securities.

John Augustine, chief investment officer at Huntington Private Bank, said the “narrative” around trade had gotten “so one-sided to the negative side, there may be a better chance than not that a phase-one deal is signed.”

“If corporate earnings show signs of resilience, especially by the U.S. consumer, then a run to new highs is by no means out of the question,” Tom Essaye, founder of The Sevens Report, said in a note.

“Global leading growth indicators might have bottomed, the Fed appears on track to offer a third “insurance” rate cut, sentiment is cautious and credit still flowing,” noted Michael Santoli at CNBC . “The setup has improved, suggesting it’s now becoming the bulls’ game to lose.”

Saturday, 19 October 2019

Markets fall, China's economy slows

Markets fell on Friday.

The S&P 500 fell 0.4 percent, the STOXX Europe 600 fell 0.3 percent and the Shanghai Composite tumbled 1.3 percent.

China reported that its economy grew 6.0 percent in the third quarter from a year ago, down from a 6.2 percent pace in the second quarter.

“Unchecked, the US-China trade conflict is set to sink growth well below 6%,” Mizuho Bank’s Vishnu Varathan, head of economics and strategy, wrote in a note.

Friday, 18 October 2019

Markets mixed amid renewed Brexit deal hope

Markets were mixed on Thursday.

The S&P 500 rose 0.3 percent, the STOXX Europe 600 dipped 0.1 percent and the Shanghai Composite fell 0.1 percent.

European stocks made early gains on the back of an announcement that the European Union and Britain had clinched a deal on the terms of Britain’s exit from the bloc but eventually closed lower.

“Unfortunately, it is too early,” said Michael Bell, Global Market Strategist at JP Morgan.

“It remains to be seen whether the reaction is short-lived as the politicians go toe-to-toe again at the weekend,” said Richard Hunter, head of markets at Interactive Investor.

Thursday, 17 October 2019

US stocks fall amid falling retail sales and overvaluation

Markets were mixed on Wednesday.

The S&P 500 fell 0.2 percent and the STOXX Europe 600 dipped 0.1 percent.

Earlier in Asia, the Shanghai Composite fell 0.4 percent but the Nikkei 225 jumped 1.2 percent.

A report showing a 0.3 percent fall in US retail sales in September raised concerns of a slowdown in consumer spending.

The report pushed the probability of an October interest rate cut by the Federal Reserve up to 90.3 percent from 73.8 percent on Tuesday, based on CME Group data.

Interest rate cuts may be all that is keeping some markets up, according to the International Monetary Fund.

“Equity markets appear to be overvalued in Japan and the United States,” the IMF said in its latest Global Financial Stability report released on Wednesday.

“Declines in interest rates have further motivated investors to search for yield by increasing duration and credit exposures, a development that has boosted asset valuations,” it suggested.

It warned that the search for yield is also “creating an environment conducive to a buildup of vulnerabilities”.

Wednesday, 16 October 2019

Markets rise on hopes for Brexit deal

Markets were mostly higher on Tuesday.

The S&P 500 rose 1.0 percent, the STOXX Europe 600 jumped 1.1 percent and the Nikkei 225 surged 1.9 percent.

Investors were cheered on Tuesday by a report that an agreement over the UK's exit from the European Union is close.

“One by one the major global risks to U.S. economic growth are falling by the wayside which gives investors the green light to back up the truck and buy lots of stocks,” said MUFG chief economist Chris Rupkey.

John Lynch, chief investment strategist at LPL Financial, said that “better days lie ahead”. He said that the US-China trade war “is unlikely to be resolved anytime soon, but we believe any small steps forward could increase business confidence and spark capital investment, lifting corporate profits”.

Tuesday, 15 October 2019

Markets mixed amid concern optimism on US-China trade deal is “premature”

Markets were mixed on Monday.

The S&P 500 dipped 0.1 percent and the STOXX Europe 600 fell 0.5 percent but the Shanghai Composite rose 1.2 percent.

Markets gave up some of the gains made after an announcement on Friday that the US and China had reached a partial agreement on trade.

“There was concern optimism might be premature,” said John Carey, a portfolio manager and director of US equity income at Amundi Pioneer Asset Management.

Nevertheless, JP Morgan analyst David Kelly suggested that “the fact that the negotiators were so anxious to announce a deal suggests that both sides now appreciate the damage being done to their economies by the conflict” and “probably reduces the risk of a re-escalation of the war in the months ahead”.

Indeed, Chinese customs data released on Monday showed that in US dollar terms, Chinese exports fell 3.2 percent in September from the previous year while imports declined 8.5 percent.

Monday, 14 October 2019

US-China trade deal “looks more like a truce”

US President Donald Trump announced on Friday that the US and China have reached a partial deal whereby the latter will purchase between US$40 billion and US$50 billion worth of US agricultural products while the US agreed to suspend a tariff increase on at least US$250 billion in Chinese goods to 30 percent from 25 percent which would have taken place on Tuesday.

The announcement helped push stocks up on Friday but analysts say the deal appears to be more of a “temporary truce”.

“We think the ‘substantial’ first-stage trade deal made by Trump with China looks more like a truce than a genuine deal,” said Christiaan Tuntono, senior economist for Asia Pacific at Allianz Global Investors.

“In terms of the real thorny issues, none of that is thrashed out,” said Mizuho Bank’s Head of Economics and Strategy Vishnu Varathan.

Friday, 11 October 2019

Markets rise on renewed hopes for US-China trade deal

Markets rose on Thursday.

The S&P 500 rose 0.6 percent, the STOXX Europe 600 rose 0.7 percent and the Nikkei 225 rose 0.5 percent.

Sentiment was boosted by US President Donald Trump's tweet that he would meet Chinese Vice Premier Liu He on Friday to advance a trade deal.

Stephen Suttmeier, chief equity technical strategist at Bank of America Merrill Lynch, told CNBC that the market is “building some kind of a base” that “resolves to the upside, meaning going to new highs”.

In contrast, Raoul Pal, co-founder of Real Vision financial television, said that the market is entering a “period of illiquidity” and that a stock selloff may be inevitable.

Thursday, 10 October 2019

US stocks rise even as Americans see recession around the corner

Markets were mostly higher on Wednesday.

The S&P 500 rose 0.9 percent and the STOXX Europe 600 rose 0.4 percent. Earlier in the day, the Nikkei 225 fell 0.2 percent.

Slowing growth and fears of a possible recession could hold back stocks though.

The latest Allianz Quarterly Market Perceptions Study in the US showed that 50 percent of respondents see a major recession right around the corner, an increase from 46 percent earlier this year.

35 percent of respondents said that now is a good time to invest in the market, down from over 40 percent at the beginning of the year.

Indeed, Stephen Gallagher, the chief US economist for Societe Generale, thinks that an erosion in corporate profit margins will push the US economy into a recession in 2020.

Wednesday, 9 October 2019

US stocks plunge amid concerns on US-China trade talks

Markets were mixed on Tuesday.

Early in the day, Asian markets rose, with the Nikkei 225 gaining 1.0 percent.

However, western markets failed to sustain the momentum. The STOXX Europe 600 fell 1.1 percent and the S&P 500 plunged 1.6 percent amid concerns that US-China trade talks set to begin on Thursday will fail.

Some support for markets did come from Federal Reserve Chairman Jerome, who said the central bank believes the current economic expansion can be sustained, and that the Fed intends to expand its balance sheet by purchasing short-term US government debt to support overnight bank-to-bank lending.

However, reports of the US blacklisting Chinese companies and imposition of visa bans on Chinese officials involved in the mass detention of Muslims in the Chinese region of Xinjiang weighed on sentiment.

Mike O’Rourke, chief market strategist at JonesTrading, said that while the Fed's move on buying short-term debt was “very QE-like”, the trade-related reports “took the air out of the Fed rally”.

Tuesday, 8 October 2019

Markets mixed as German industrial orders fall

Markets were mixed on Monday.

The S&P 500 fell 0.5 percent and the Nikkei 225 fell 0.2 percent but the STOXX Europe 600 rose 0.7 percent.

European markets rose despite a report on Monday showing that German industrial orders fell 0.6 percent in August.

“The German economy is in the midst of a recession. Today’s data make that clear again,” said Thomas Gitzel, economist at VP Bank Group.

Meanwhile, the risk of a US recession remains low. Results of a survey by the National Association for Business Economics showed that the economy is expected to grow by 2.3 percent in 2019 but slow to 1.8 percent in 2020.

Monday, 7 October 2019

S&P 500 to break out to “new all-time highs”

Stocks fell last week. The S&P 500 fell 0.3 percent, its third consecutive weekly decline. The STOXX Europe 600 fell 3.0 percent.

Oil also fell. West Texas Intermediate crude fell 5.5 percent, its biggest weekly decline since the week ended 19 July. Brent fell 4.4 percent.

However, BTIG strategist Julian Emanuel thinks that stocks will resume rallying in the fourth quarter.

“Similar to 1998, where stocks rallied for 18 months (advancing 68%) from the cyclical low to the point of maximum public bullishness, the 3/2000 ‘Tech Bubble Top,’” Emanuel was quoted by MarketWatch as saying, “we expect the current four-month S&P 500 trading range to resolve with new all-time highs as the prospect of higher interest rates... results in fund flows to stocks and the public’s eventual embracing of the ‘most hated bull market of all-time.’”

Saturday, 5 October 2019

Markets rise after “Goldilocks” US jobs report

Markets rose on Friday.

The S&P 500 surged 1.4 percent, the STOXX Europe 600n rose 0.7 percent and the Nikkei 225 rose 0.3 percent.

A report on Friday showed that the US economy added 136,000 new jobs in September.

“This is the classic definition of a ‘Goldilocks’ report,” said Michael Arone, chief investment strategist at State Street Global Advisors.

Friday, 4 October 2019

Markets mixed, “fears of recession continue to mount”

Markets were mixed on Thursday.

The S&P 500 rose 0.8 percent while the STOXX Europe 600 was flat and the Nikkei 225 plunged 2.0 percent.

A report from the Institute for Supply Management on Thursday showed that its services index fell to 52.6 in September from 56.4 in August.

Similarly, Markit's composite PMI for the euro area fell to 50.1 in September from 51.9 in August as the services PMI declined to 51.6 from 53.5.

MUFG chief economist, Chris Rupkey said that “fears of recession continue to mount”.

Thursday, 3 October 2019

Markets fall, “growing risk the US economy falls into recession”

Markets fell sharply on Wednesday.

The S&P 500 fell 1.2 percent, the STOXX Europe 600 plunged 2.7 percent and the Nikkei 225 fell 0.5 percent.

“The very weak ISM, weak levels of (capital expenditure) plans, and inversion of parts of the US yield curve suggests a growing risk the US economy falls into recession,” Joseph Capurso, senior currency strategist at Commonwealth Bank of Australia, wrote in a note.

Some technical analysts are also concerned of further downside to the market.

Ned Davis Research chief global investment strategist Tim Hayes noted that the comeback in September is becoming “another round of failure”, pointing to a lack of breadth, slowing equity fund inflows and a failure of the yield curve to steepen.

MKM Chief Market Technician JC O’Hara said “the market is not in the best shape to make new highs from its current position” since “shorter term technical indicators started to show some negative divergences”.

Tribeca Trade Group CEO Christian Fromhertz noted: “On the technicals, you’re losing breadth a little bit … we’re starting to see more groups tilt to the downside.”

Wednesday, 2 October 2019

Stocks fall, rate cuts may not help

Markets mostly fell on Tuesday.

The S&P 500 fell 1.2 percent and the STOXX Europe 600 tumbled 1.3 percent. Ealier in Asia, the Nikkei 225 rose 0.6 percent.

US stocks fell after the Institute for Supply Management reported that its manufacturing index fell from 49.1 in July to 47.8 in August, its worst reading since June 2009.

Following the report, the fed funds futures market is now pricing in a 65 percent chance of a quarter-point rate cut on 30 October compared with 40 percent a day ago.

However, UBS thinks that rate cuts will not save the stock market this time.

“The Fed-easing rallies of the 1990s were made possible by a strong inverse correlation between interest rates and P/Es. This relationship no longer exists today,” UBS equity strategist Francois Trahan said in a note on Tuesday.

Tuesday, 1 October 2019

Markets mostly higher amid mixed economic data

Markets were mostly higher on Monday.

The S&P 500 rose 0.5 percent and the STOXX Europe 600 rose 0.3 percent.

However, the Asian markets mostly declined, with the Shanghai Composite falling 0.9 percent.

Economic data on Monday were mixed.

In the US, the Chicago PMI fell to 47.1 in September from 50.4 in August.

In the euro area, the unemployment rate fell to 7.4 percent in August from 7.5 percent in July.

In China, the Caixin/Markit factory PMI rose to 51.4 in September from 50.4 in August while the official Chinese manufacturing PMI rose to 49.8 from 49.5.