Things you should know
- China remains defiant
- Trump tells us that the US is not ready to sign any deal with China
- Trump visits Japan and talks trade
- European Elections show wins for Pro-EU parties – but the pressure is rising
Stocks ended the day on a plus note on Friday – but ended the week a bit lower after a confusing, threat filled week that has only extended the stalemate that now exists between the US and China. The indexes have now closed down for 5 weeks in a row with little to no end in sight……the escalating rhetoric between the two nations has raised the temperature on both continents igniting somewhat of a retreat from stocks in general and more specifically stocks connected to China – with tech bearing the brunt of the worry. The mkts have bounced all over the place with two steps down and 1 step up as investors, traders and algo’s try to figure it all out. On Thursday – the mkts took a beating as China vows to hold steady in the face of what they say is US bullying. Additionally – the NY Fed led by Johnny Williams is starting to worry that the tariffs will really begin to hit home saying that as of now – the current level of tariffs is costing the average US household over $800 yr and if Donny raises them even more – which he has threatened to do – the number will only go higher eventually causing more pain for Americans.
In a statement over the weekend while he was in Japan – Donny told us that tariffs on American goods ‘could go up very, very substantially, very easily’ – causing more stress for investors but igniting a call by China that they ‘will never give in to US demands…’
And when the temperature goes up and the broader mkt gets punished – investors are seeking the safety of US Treasuries, Gold and Utility stocks (XLU – is the Utility ETF and it is at all-time highs) as all of those asset classes are considered the safety play in times of turmoil. Gold which has been under pressure as investors were betting on a trade deal – tested support at $1,276/oz a week ago and has bounced off of it as the ‘trade war’ rages on and the rhetoric heats up. By Friday – Gold was about to test intermediate resistance at $1,297/oz and if it pierces up and thru – then watch for $1,310/oz in short order.
What is interesting is to watch how responsive the mkts are to the headlines – something that we have been discussing – Trump can make or break the mkt with a tweet – which is unnerving in itself – and with the rhetoric as toxic as it has been – clearly the negative headlines garner all of the attention……like I said – two steps down, one step up….and overnight – Chinese President – Xi Xi made it very clear that China will never give into US demands to change its ‘State Run Economy’. In a story published over the weekend – The Chinese claim that the US is the one harming global growth by carrying on this trade war. The article went onto say that –
“At the negotiating table, the U.S. government has made many arrogant requests, including restricting the development of state-owned enterprises, Obviously, this is beyond the field and scope of trade negotiations, (and) touches upon China’s fundamental economic system. This demonstrates, that behind the trade war the U.S. has launched against China, there is an attempt to violate China’s economic sovereignty, (and) compel China to damage its own core interests.”
Now look – China’s giant state-owned enterprises control very strategic industries – think energy, telecommunications, technology and defense. Since those companies benefit from favorable policies and subsidies, foreign companies complain of an unfair advantage. So the question is – Is there an unfair advantage? Of course there is which goes to the heart of the negotiations….When China joined the WTO (World Trade Organization) in 2001 – they promised to reduce state control of those key enterprises and allow market forces to play a bigger role in their economy – that has not happened at the pace many expected and therefore continues to be at the core of trade negotiations with China saying that ‘those matters are NOT up for negotiation’ – which is a bit confusing – since only one month ago – we were ‘this close’ to signing a deal….
In any event – Asian mkts ended the day a bit higher and Trump ended his state visit to Japan. News that Trump and PM Shinzo Abe were hammering out a trade deal did little to upset the mkts – as they are expected to come to an agreement. Tough talk by China caused that mkt to advance. By the end of the day – we say Japan +0.37%, Hong Kong +0.38%, China +0.96% and ASX +0.51%.
In Europe – mkts there are bit lower – yes trade is still at the top of the list, but there is also a fair amount of stuff happening on that continent, EU elections, BREXIT, and more drama over the Italian state budget. The Italian mkts is losing over 1% on renewed tension between Rome and Brussels over Italy’s finances….as the EC (European Commission) considers hitting the Italians with a ‘hefty fine’ for failing to control its budget causing Deputy Prime Minister Matteo Salvani to say that ‘he would use all of his energy to fight what he claimed were outdated and unfair European fiscal rules’. In the EU (European Union) elections – the majority of the wins went to Pro-EU parties BUT that margin of safety is under pressure as ‘Euroskeptic and nationalist’ parties are gaining ground….think BREXIT like momentum sweeping across the EU. And on the eco front – German consumer sentiment fell to the lowest level in 2 years – causing angst in that country. FTSE -0.1%, CAC 40 – 00.56%, DAX – 0.56%, EUROSTOXX -0.70%, SPAIN -0.80% AND ITALY – 1.22%.
US futs which were up slightly overnight are all down small at 6:30 am….Dow futs showing a loss of 45 pts, S&P down 4, Nasdaq off by 15 and the Russell 2000 losing 3 pts. Mkts will continue to be focused on trade especially since Trump told the world yesterday that ‘The US is not ready to make a deal with China right now’ but he does expect one in the future….So that is leaving the algo’s confused….is that a negative statement or a positive statement? Do they send out Buy or Sell orders? At the moment is appears that the mkts are taking it in stride. The Dow, the S&P and the Nasdaq are all hovering on or near their long term support lines – while the Russell broke theirs two weeks ago. This is all very key…. Technically – the mkt is at a decisive moment – further negative talk over trade will continue to put pressure on stocks – and if we break long term support then it becomes a bit messy again as the mkt will thrash around re-pricing the risk that now exists. Remember – the mkts soared to ‘new highs’ only weeks ago as the talk was of a deal being signed – investors around the world celebrating the breakthrough by buying stocks – so when the story changes and the deal is now off the table – did you expect the mkts to continue to advance?
The next move is solely dependent on the tone of the trade talks – more negative language will only put more pressure – eco stats will take a back seat and the beginning of earnings season in early July will only put more pressure as we begin to hear about how the ‘protracted’ trade talks are beginning to hit home…..Expect to see more analysts now come out and lower guidance (again) as they run the latest events thru their models – I mean a protracted dispute along with even higher tariffs (as Donny threatened this weekend) cannot be seen as a short term positive by any stretch – so the question is – What will the models tell us?
Key levels to watch: Dow 25,435, S&P 2,776, Nasdaq 7,530 – remember the Russell has already broken its support – was that the warning siren?
Take good care.
Chicken Cutlets in a Lemon/Walnut Sauce
This is different and not something that you might put together or even thinks goes together…but it is simple to make and will fast become a family favorite.
For this you need: Boneless Chicken breast – (preferably thin sliced) – if not then you can pound them. Flour, olive oil, (I use butter), fresh chopped parsley, lemon zest, lemon juice, walnuts, diced onion and chicken broth.
Begin by dredging the cutlets in seasoned flour (s&p). Shake the excess off. Set aside.
In a lg frying pan – heat up some olive oil (w some butter) and sauté the diced onion until soft – maybe 8 – 10 mins….Do not burn.
Remove the onions and set aside. Next – add the chicken breasts and brown on both sides.
While browning – chop the walnuts and mix with the chopped parsley and lemon zest – not too much but enough so that you get the flavor….(if unsure – add less and taste..you can always add more).
When the cutlets are browned on both sides – add in the chicken broth – enough to bathe them – do not drown. Add in the onions and about a tblsp of lemon juice – cover and simmer for about 5 mins….
Remove the chicken and set on a warmed serving platter leaving the juice in the pan. Turn up the heat to med hi and add the walnuts/parsley/zest. Allow the juice to thicken a bit – should be no more than 3 mins max. Pour the sauce over the cutlets and serve with roasted potatoes and maybe some sautéed spinach and a large mixed salad dressed in a champagne vinaigrette.