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Stocks continued to come under pressure yesterday as the tension between the US and China continues to boil over…

The US commerce department late Monday added some 28 Chinese companies to an ‘export Blacklist’ because of human rights abuses in Xinjiang – meaning that US suppliers will be barred from providing technology that originates in the US to the Chinese firms identified, which only lit the fuse yesterday causing the algos to hit the road.

Now while this move is ‘not related’ to the current trade negotiations – you gotta believe it is not helping the trade negotiations.   To combat that, China did promise swift and meaningful retaliation and that just drove the tone further into negative territory.

And then late yesterday, the administration threatened to impose visa restrictions on any Chinese officials that are linked to those abuses… and this only accelerated the move lower.

By the end of the day, the Dow gave up 313 pts or 1.2%, the S&P lost 45 pts or 1.5%, The Nasdaq lost 132 pts or 1.6% and the Russell gave up 25 pts or 1.6%.

Then enter stage left: Kristalina Georgieva. Does that name ring a bell?  Well if not, it should. She is the woman who is now sitting in the captain’s chair at the IMF (International Monetary Fund).   Quick bio — she is a Bulgarian economist who was the CEO at the World Bank from Jan. 2017 – Oct. 2019.  She is Harvard educated and is married to some guy named Kino. In this new role, we can expect to hear a lot from her concerning the global economy, and yesterday she came on the world stage in her debut performance and opened with this line:

“The global economy is now in a synchronized slowdown.”

Along with everyone else, she is blaming trade tensions as the key risk to global growth, warning that these tensions are causing a deterioration in the outlook.  She then adds that a hard BREXIT will not only hurt the UK and the EU but it will also hurt low income countries that have ties to them, although she did not identify which countries she was talking about. She went on to say that “IMF data shows that growth has already slowed in 90% of the world”.

Well isn’t that a kick in the pants!

Then Fed Chair Jay Powell took over. Speaking at The National Assoc for Business Economics in Denver, CO, Powell announced that the FED will soon begin increasing its purchases of SHORT TERM TREASURIES to rebuild the balance sheet and prevent a reoccurrence of the stresses witnessed last month in the money markets that caused short-term panic that we were about to go over the edge. He made it very clear that this move is intended to “maintain a firm grip on short term rates and not to provide economic stimulus”.

“This is NOT QE (quantitative easing).  In NO sense is this QE” 

Recall QE was the plan put in place during the Great Financial Crisis.  It worked well, although we had four iterations of it for nearly a decade. When after the worst was over, we began to pare back, trying to normalize.

Yesterday’s move will allow the treasury to rebuild the level of reserves in the system, allowing them to control short term lending rates vs. forcing longer term rates even lower — which is what they did during QE.

And the algos were not happy. They were not happy because all they want is more KOOL AID. They want to see more monetary stimulus and when they didn’t get it they initiated another wave of selling.

OK – so what’s happening today?  Asian markets were mixed, remaining in a sort of purgatory as investors there continue to worry about trade while China’s Minister of Commerce told Trump to stop interfering in his country’s internal affairs and remove the relevant entities from the list ASAP.

As the sun set, Japan lost 0.61%, Hong Kong lost 0.81%, China gained 0.14% and the ASX gave up 0.71%.

In Europe this morning, markets there are all higher. Why? Because between the time that the sun set in Asia and rose in Europe, someone in China apparently indicated that China is open to a partial trade deal.

Stocks went from mildly negative to firmly higher. With trade talks scheduled to begin on Thursday, this headline has once again ignited hope that cooler heads will prevail. News sources suggest that China is willing to do this to prevent any further damage to its economy — as long as Trump does not impose any more tariffs.  Remember — right now there are two more sets of increases due to take effect later this month (Oct. 15) and then again in December. This limited deal would not include any of the major sticky points but would be a small olive branch.

Capping any significant move higher is the fact that the UK is on the verge of another BREXIT crisis.

UK PM BoJo is facing mutiny within his own party over the potential of a NO-DEAL BREXIT in only 12 days. Insults flying across the continent are not helping the tone. But right now, it appears that investors are more focused on US/China trade. FTSE +0.48%, CAC 40 + 0.65%, DAX +0.95%, EUROSTOXX +0.72%, SPAIN +0.43% and ITALY +0.57%.

As you might expect, US futures are surging after one month of weakness that shaved nearly 5% off the indexes.  News that China has indicated that they are willing to consider a partial deal has sent the algos into a frenzy, taking the futures up significantly.  It is RISK ON for today. Dow futures are up 202 pts, S&P’s are adding 26 pts, Nasdaq is ahead by 80 pts and the Russell is tacking on 16 pts.

Yesterday’s weakness took us down and thru trendline support at 2928 and thru 2900 — that is just psychological — to end the day at 2893. 

Any excitement today could easily retake the 2928 trendline – which now represents ‘resistance’ vs. support. I suspect that at least for today, that is where we will stall. That would represent a 1.2% move up from last nights close and with European markets up less than 1%, that just feels right.

Now if Donny chimes in with a positive trade tweet then all bets are off — because you could see the algos go hog wild if there is any sense of thaw.

Political news surrounding the latest on the impeachment inquiries will only serve to provide entertainment — do not buy or sell stocks on any of these headlines.  It’s just noise. 

Stay tuned.

Eco data today includes Mortgage Apps, and the JOLTS job openings report – exp of 7.2 mil available jobs to be reported.  At 2 pm we will get the FOMC minutes from last month. We will also hear from both Fed Chair Powell and KC Fed Pres Ester George at 11 am. I don’t expect their speeches to move the markets at all. 

Take Good Care,

KP


pesto

Stuffed Baby Pumpkins (think Thanksgiving)

OK – so get this: what a great dish for the holiday that is only 5 weeks away.  Use the pumpkins to stuff with the Butternut/Pumpkin Risotto.

You get the little pumpkins — you know the ones. Take them home, slice off the tops, discard the seeds and save the tops. Place a dab of butter in the center and then place in a roasting pan with the lids on.   Drizzle with oil and roast in a 400-degree oven until they soften some — but do not collapse. Maybe 35-40 mins.

Remove and let cool.  Once cooled, use a spoon scrape the ‘flesh’ away from the outer skin… careful not to pierce. Place in a bowl to use in the risotto.

Now make the Pumpkin/Butternut Squash Risotto:

You will need:  Chicken Broth, Arborio rice, Butternut squash, 1 1/2 cups of pumpkin puree (not the pie filling that you buy in the store — you need real pumpkin puree), large diced onion, chopped fresh basil, plenty of fresh grated Parmegiana Cheese, olive oil – and the kicker – 3 tblspn of Mascarpone Cheese. –

Preheat the oven to 400 degrees.

In a baking dish, combine the rice, cut up butternut squash, the pumpkin puree, diced onion and the chicken broth.  Season it with a bit of S&P and mix well.  Cover it tightly with a lid or with tin foil and place in the middle rack in the oven. Revisit it in 10-minute intervals and stir. It will be done when most of the broth has been absorbed and the rice is no longer hard. This should not cook any longer than 40 mins.

Remove from the oven and add the Parmegiana, the Mascarpone and the chopped basil and the flesh from the pumpkins.  Mix well.  Now fill each pumpkin with the risotto so that it is overflowing a bit, place the lid back on and set in a large serving platter for the presentation.  It’s a great way to brighten your dining room table and your guests will love it.

Buon Appetito.

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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