Could Negative Rates Ignite Stocks?
Trade war jitters are back!
Stocks suddenly reversed early Friday afternoon after a story hit the wire claiming that a Chinese trade delegation canceled its planned visit to farms in Minnesota.
Investors are clearly on alert for any new trade war shenanigans as the averages once again approach their highs, so news of the China visit falling through was all it took for stocks to retreat heading into the weekend.
We then learned last night via Bloomberg that China canceled the visit at the request of the US, “indicating it wasn’t caused by a negative turn in the lower-level discussions held in Washington last week.”
Even as the market smooths over this latest trade-war bump, I still expect the administration to tighten the screws on China as the averages approach new all-time highs within the next couple of weeks. I suspect we’re entering yet another cycle in Trump’s trade war playbook. Expect the White House to ratchet up the rhetoric as stocks rise.
In fact, the US-China trade war news cycle is already kicking into gear early this morning. World markets are retreating today “as the two countries signaled an agreement remained out of reach,” The Wall Street Journal reports.
European stocks are taking the brunt of the damage so far today after reporting downright terrible manufacturing data that many are blaming on the trade conflict. Some economists are already declaring that Germany has tumbled into a full-blown recession as manufacturing PMI cratered to its worst reading in more than 10 years, MarketWatch notes.
Meanwhile, Trump continues his online assault against the Federal Reserve as he pushes for even lower rates.
Fed Chair Jerome Powell continues to attract Trump’s ire for his “failure” to slash rates.
The Fed has left the door open to more extensive measures last week as Powell continues to take heat from Trump to make deeper cuts than the expected 25 basis points. Trump once again tweeted in Powell’s direction Sunday, complaining that “we should always be paying less interest than others!”
But I doubt Powell is going to fold that easily…
“Powell has said he doesn’t think the central bank will look at using negative rates,” Bloomberg reports. “A handful of central banks – in Denmark, the euro zone, Japan, Sweden and Switzerland – have pushed interest rates below zero. And earlier this month, the European Central Bank lowered its deposit rate by 10 basis points to minus 0.5% as part of a wide-ranging package to prop up the region’s faltering economy and lift depressed inflation.”
Turning to the evolving cryptocurrency space, bitcoin takes another step toward the mainstream as Intercontinental Exchange Inc. launches bitcoin futures.
“The new futures are part of a venture called Bakkt (pronounced “backed”), whose ultimate goal is to make cryptocurrencies sufficiently transparent and regulated for individuals to use in retail purchases,” The WSJ notes. “Bitcoin has failed to gain traction as a tool for payment, in part because of its extreme volatility. If successful, ICE’s futures could make it easier for merchants to protect themselves from swings in bitcoin prices.”
ICE rival CME Group was first on the bandwagon, launching its own bitcoin futures during the height of the mania in late 2017. The WSJ notes that more than $200 million of CME’s bitcoin futures are traded every day.
Will ICE’s new futures finally tip the scales for the mass-adoption of crypto? We’ll have to wait and see. Meanwhile, bitcoin continues to rest quietly following its massive second-quarter rally that rocketed it from $4,000 to more than $12,000 in a little less than three months.
The flagship crypto is sitting just below $10,000 this morning. After consolidating for most of the summer, bitcoin has yet to show any signs that it’s ready to break higher or lower just yet…