This Morning’s Log Entry

China’s trade activity
has plummeted, relative to expectations, European growth has been subdued and
the U.S. is clearly showing cracks; virtually all of it related to slowing
global trade, and the uncertainty/fear that it engenders.

China has boosted its market
this year with carefully targeted stimulus and optimism over a U.S. trade deal.
Last night their markets tanked on trade numbers and a message from policy
makers that they don’t intend to go hog wild on stimulus going forward.
The S&P moved up through
its 200-day moving average with ease, just as the supporting data (and
technical indicators) suggested it would. This week, however, it looks to be
buckling – as yesterday’s close took it slightly below the 200-dma and this
morning it’s going to open with a spike lower (unless the jobs number rescues
The underlying (stock
market) strength leading into this week was all about optimism over a
U.S./China trade deal. This week’s Washington hit to trade with India and
Turkey, and statements that “maybe I’ll walk away” or “maybe there’ll be no
deal” from Trump have served to notably weaken the sentiment that pushed the
market to these levels.
The next couple of weeks
will be very telling. Odds favor the upside as it is in both China’s and the US’s
interest to get very chummy on a trade deal, and soon! The latest market
weakness sends a signal that there’ll be no stomach for a deal that doesn’t
eliminate the tariffs implemented over the past year+. So, in that regard, if
Washington respects the signal (Washington really wants the market to like the
deal), the latest weakness will have turned out to be very constructive.
General conditions
continue to signal low recession risk, thus, the overall setup remains bullish
provided smart policy decisions are made going forward. Central banks have
turned supportive amid the global slowdown…


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