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Things you need to know
– US and China to meet on Monday
– Mkts celebrated – surging higher
– Then AG Billy Barr announces an ‘examination’ of TECH companies
– Mkts Under Pressure
Stocks shot higher yesterday – as a number of factors all come together – excitement continues to build on the earnings front – great reports from a couple of KEY players that all ‘beat the estimates’ AND offered upbeat guidance, Word that the Republicans and Democrats reached a deal on the debt ceiling helped, the UK elected Boris Johnson to succeed Theresa May, the FB settlement with the FTC (Federal Trade Commission) mandates privacy AND……(drum roll please…) word that Trade Rep Bobby Lighthizer and Treasury Sec Stevey Mnuchin are going to Beijing next week just lit the fuse….at 1:30 pm – while the mkt was already up – the news hit the tape – the algo’s went into overdrive – taking the S&P up and thru 3000 once again – (up until then it was struggling to get thru). You could feel the action and then it was exacerbated by the media – as the speculation and excitement builds……Will they get it done this time? Is the end of this trade war in sight? I mean – remember – the last time (June 25th) that the mkt started to sell off over fears of a complete breakdown in trade talks – Stevey (Mnuchin) came right out (on June 26th) and told us that ‘negotiations were 90% complete’ – he was very specific and optimistic……
Now clearly – it ain’t over yet…..both sides remain at odds over fairly significant issues – the US demand over ‘real structural reform’ of their economy and China’s insistence that the US remove the ‘punitive tariffs’ imposed upon them. In addition – the WH was hosting a brunch for tech executives to discuss easing up on the restrictions that Donny imposed on the Chinese tech giant – Huawei – which led National Economic Council Director – Larry Kudlow to report that the brunch (food) was great (and the meeting was positive too) giving him reason to believe that the US/China talks would yield some fruit. So it’s all good….by the end of the day the Dow added 177 pts or 0.65%, the S&P surged by 20 pts or 0.68%, the Nasdaq jumped by 48 pts or 0.58% and the Russell added 10 pts or 0.66%.
And then after the bell – the DOJ (Dept of Justice) led by none other than AG Billy Barr – announces that he is launching an ‘investigation’ or ‘examination’ into the big tech giants……(think anti-competitive concerns, data mining, privacy issues and ultimately the control that they have over Internet searches, social media and retail services) and BOOM…all of that ‘feel good Kumbaya’ goes down the drain….tech names (think FAANG) get slammed in the afterhours session and this morning US futures are all lower….at 5:30 am Dow futures were down by 55 pts, S&P lower by 9, Nasdaq down nearly 50 pts and the Russell off by 5 pts
Asian stocks all moved higher as the excitement builds on another round of US/China trade talks are announced. Billy Barr’s examination doing little to derail the excitement. Investors and the mkts just want to see movement on trade, , but before you go out and light the fireworks – remember no matter what Stevey (Mnuchin) tells us – there is still a fair amount of negotiating to do….and what no one is talking about is how does the US/Taiwan relationship play into all of this? Remember – there is some question about Taiwan and ‘who it belongs to’……Xi Xi still thinks that Taiwan is part of Greater China while the US views it as a ‘separate state’. Recall that the Chinese Civil War (1927 – 1949) created two self-governing states – the PRC (People Republic of China) – which we know as China and the ROC (Republic of China) which is what is known as Taiwan. (all very confusing). And to this point – the Pentagon would like to make a $2 bil ‘arms sale’ to Taiwan while China says ‘no way’ and has warned that they will end any ties with any US firm that is associated with this deal…..all I’m sayin is – it’s complicated. But for now – Asian mkts appear to be more focused on the upcoming visit. Japan +0.40%, Hong Kong + 0.20%, China +0.80% and ASX +0.77%.
European mkts are more mixed….some key earnings – a bit weaker than expected, and a new report out of the IMF (Int’l Monetary Fund) that cuts global growth forecasts (again) saying that the risks remain to the downside – well, no kidding…..would they be cutting the forecast if the risk was to the upside? They cite the usual suspects – US/China trade, BREXIT, lack of inflation across the world and unnaturally low to negative interest rates that are not helping. In their announcement they said:
“Mounting disinflationary pressure that increase debt service difficulties, constrain monetary policy space to counter downturns, and make adverse shocks more persistent than normal”
And with that said – we brace for the ECB announcement tomorrow where it is expected that Mario Draghi will cut rates by 10 bps…..and next week the FED is set to cut rates by 25 bps…..so, so much for that. FTSE -0.96%, CAC 40 -0.56%, DAX +0.10%, EUROSTOXX -0.2%
US futs are pointing lower still…..after the euphoria yesterday. Lots more earnings today so expect that to be the focus in the near term. Talk of the IMF downgrade, globally low interest rates and moving lower, AG Barr’s ‘examination’ of TECH and what that means for regulation will add to the cautious tone while the WH will push the positives on trade and the upcoming meetings next week.
I continue to believe that we are stuck in the 2975/3015 trading range – with lots of resistance in the 3000/3015 range. If we continue to struggle here then I think it sets us up for a pullback going into late summer/early fall.
Oil is up as tensions continue to be stoked by Iran…..but the reaction has been muted – which speaks volumes about who really controls the oil….News like this only 2 or 3 yrs ago would have caused a massive spike in the price of oil – and today – it does not….which only goes to my argument – Why should oil be $70 or $80 barrel? The world is awash in the stuff. Supply outstrips demand and not because demand is waning….but because supply is increasing.
Take good care.
Kp
Try the Popcorn.
It’s all about the show…so grab some “Jiffy Pop” and settle in. Jiffy Pop – now I’m really dating myself…….’It’s as much fun to make as it is to eat”! (1967)
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