The Trade War Rages On…
First today, a note about an email some of you received on Friday. That was sent in error to my long standing readers, and didn’t come from me. Chalk it up to growing pains with my new team in Baltimore. I appreciate your trust in Morning Thoughts and apologize for the mix up. To the markets…
Stocks fell on Friday as the weekend approached and investors considered what’s next for global trade after China reported weaker macro data. We got some negative news out of BA (more 737 MAX concerns) & JNJ (asbestos laced baby powder). That helped to pummel the Dow while a pullback in NFLX shares, think analyst downgrades, helped to drag down the Nasdaq. And this tells us plenty. While the earnings so far have been much better than expected, the market remains anxious. So issues that are company specific (BA, JNJ and NFLX) cause a broader pullback in the market as money comes off the table.
Next, we continue to get hit by geo-political unrest in Turkey/Syria and in Hong Kong. The Democrats continue to push for impeachment while UK PM BoJo pushes for BREXIT. We then have the IMF warning that the days of more monetary stimulus are numbered and that negative interest rates in some countries (or near negative rates in the US) have seen their better days. The stimulus is losing its “umph.” Finance ministers and central bankers from around the world met over the weekend and suggested that leaders better start considering FISCAL stimulus to re-ignite long term growth and allow for normalization of rates for their respective countries.
The “synchronized slow down across 90% of the global economy” was at the top of the list this weekend in Washington, DC. Both the IMF and the World Bank held their annual meetings to discuss the state of the global economy and what to do next. Singapore’s finance minister, Tharman Shanmugartam, summed it up nicely by saying that the “warnings are loud and clear.” There is profound uncertainty facing central bankers around the world. While the IMF chimes in saying that “Central banks are LOW on ammunition, there is little room for error.” Sounds a bit ominous, but are they wrong? How long have we been talking about the effects of negative and ultra low rates around the world?
And the tariffs… They continue to raise concerns over the predictability of trade in the future. While we can argue that “predictability” is always an issue, it has become more of an issue as the 22 month trade war drags on and on. Now China has suddenly become very critical of “Freedom of Speech,” suggesting that if they don’t like support of human rights (think the Hong Kong debacle, the NBA Tweet, and the King James commentary), then they will clearly shut the door. All while making demands of US companies to “fire” or eliminate the noise makers. And that, my friends, is where the danger lies. Are we going to allow a foreign country to dictate our “freedoms” because of trade? That is a slippery slope and one that we should NOT go down…
We are weeks away from signing any trade deal at all. We have also discussed the likelihood of the latest “trade lite” deal really being approved. I mean it is FAR from being signed, sealed, AND delivered and it has plenty of issues that still need resolution. Over the weekend, Vice Premier Liu He did say that “substantial progress” is being made on the trade deal, leaving analysts to suggest that there is about a 60% chance of a deal coming together before the APEC meeting in Chile on Nov 16-17.
[APEC, the Asia Pacific Economic Cooperation, was founded in 1989 to enhance economic growth and provide a path to prosperity for the region.]
By the end of the day, the Dow lost 255 pts, or 0.95%, the S&P gave up 11 pts or 0.39%, the Nasdaq fell by 67 pts or 0.83% and the Russell lost 6 pts or 0.41%.
On Saturday we learned that the British Parliament did not vote to pass the latest BREXIT deal at all. But, they did vote to have BoJo request an extension until Jan 31, 2020, something that BoJo does NOT want to do. So, there is still no definitive answer, but expect him to continue to rally the troops today. Now if he does request an extension, the EU could deny it and force a BREXIT upon the UK based on the agreed upon deal that was negotiated last week. This will keep the heat on the UK.
Overnight, Asian markets were higher as investors tried to digest the latest headlines. The IMF, World Bank, BREXIT, and earnings left the global markets in a state of confusion. Liu’s comments on Saturday are giving hope to progress for any trade deal and that is supporting markets today. As reported last week, China’s economic growth is slowing. While it still has a handle on it, the expectation is that GDP will be in the 5s in the near future. Japan +0.25%, Hong Kong + 0.02%, China +0.3% and ASX +0.04%
In Europe, markets there are mostly higher as the sun rises. BREXIT is front and center as UK lawmakers are forcing BoJo to request an extension from the EU. As noted above, the jury is still out. The EU could very well deny this request. But remember, it is in everyone’s best interest to have an orderly exit vs. a forced one that could be seen as wreaking havoc on both the UK and the EU. If BoJo cannot get the lawmakers to pass the deal as is, then the rumor is that the EU will grant that extension. That would open the door to a new general election in the UK. FTSE +0.1%, CAC 40 + 0.08%, DAX + 0.61%, EUROSTOXX + 0.32%, SPAIN + 0.40% AND ITALY + 0.40%.
US futures are also pointing higher as we await another busy week of earnings. Dow +17, S&P + 4, Nasdaq + 16 and the Russell is +6.
HAL, PG, TSLA, MMM, V, JBLU, WM, MCD, SNAP, DOW, CMG, WHR, BA, MSFT, EBAY, PAYPAL are just a few of the names to expect this week. In addition, you can be sure that investors here will be watching the unfolding drama in Europe as well as any progress reports coming out of Beijing and DC over trade.
The S&P remains in the 2950/3000 range for now. I suspect that as we move through this week and next, we may see the market pull back. 2860-ish would not be out of the question if earnings begin to disappoint. So stay tuned…
There are no economic reports due today. But, later in the week expect to see the Richmond FED Survey, Existing home sales, Durable goods, Capital Goods Ordered and Capital Goods Shipped, Markit US Manufacturing PMI, Services PMI and New Home Sales. So there will be a fair amount of economic data to consider as well as the week progresses ahead of the upcoming FED meeting at month end.
Over the weekend we learned that the Saudi’s are postponing the IPO of Aramco, just days before the planned launch. Doubts are re-emerging over the $2 trillion valuation assigned to it. And OIL this morning? It’s down small trading $53.28/barrel. It is the usual suspects: weak economic data causing demand concerns. All while Russia pumps more oil than they are supposed to, saying that they did not meet their “supply reduction commitment” in September as they prepare for another cold harsh winter. Additionally, new talks scheduled between the Saudis and Kuwaitis over restarting production from joint fields in the “Neutral Zone” could add another 500,000 barrels per day, only adding to the over supply.
Take good care.
Chicken Thighs Bathed in Herbs and White Wine
This is a simple dish…one pan and that’s it. No messy clean up at all. For this you need: 8 thighs – skin on!, kosher salt, black pepper, olive oil, 2 med shallots – thinly sliced, 2 tbls sherry vinegar, water, ¾ cup of white wine – Pinot Grigio works well. (Do not use Chardonnay – too fruity.) Equal amounts – like 1 ½ tspns of finely chopped fresh Marjoram, parsley, and thyme and ¼ + stick of butter.
Season the chicken pieces with the kosher salt and black pepper – set aside.
On med-hi heat the oil in a large skillet. Place 4 thighs skin side down in the pan and cook for 5 – 8 mins or until golden brown. Flip and cook the other side – another 8-10 mins – cook until the juices run clear. Remove and set aside in a large serving platter and repeat with the remaining pieces.
Now ….in the same skillet – add the sliced shallots and sauté until softened. Next add the vinegar and let it deglaze the pan…make sure to scrape up any of the bits that might be stuck to the bottom of the pan.
Now add in the white wine and maybe a ¼ cup of water and simmer for 5 – 7 mins or so. It will reduce down to about 1/3 to ½ cup of liquid. Now add in the butter, and the herbs. Stir until the butter is melted. Pour this sauce over the chicken pieces and serve family style. Fresh sautéed spinach works really well with this dish. Drink the rest of the white wine you used to cook with.