This Morning’s Log Entry: Perplexed

The next few weeks will be hugely telling in terms of second half prospects. While it might seem an exaggeration to describe global business conditions as being in disarray, that’s the word that comes to mind; earnings outlooks will go a long ways toward confirming whether I’m justified in my description.

Last night China reported its lowest GDP growth rate since it started keeping the record (early ‘90s), although that was .2% above the bottom of their own target range for this year, and some of the internals were encouraging – and the news (the lowest-ever reading) was celebrated by the White House!

Those last 13 words should have those who understand the world we live in today (read global supply chains and U.S. companies’ exposure to the world’s second largest economy, not to mention its largest customer base) perplexed. And for those who’ve been paying attention to China’s marked change of posture around trade war negotiations, as well as the presumed stage the process is in, well, perplexed, and, again, disarray, are the two words that come to mind.

Traders are all in on the Fed; assuming easier money in an already easy-money environment will keep the train running until the trade war ends. And I get it; the consumer remains in good shape (should be confirmed by tomorrow’s retail sales number), so good (and confident) in fact that he/she’s been ramping up the credit card debt of late (let’s hope the economy indeed hangs in there!).

While our own macro index continues to signal low current recession risk, and the technicals remain mixed (but improving), my concern is that traders will one day (any day/week/month now) wake up to the ongoing disruption of global supply chains, the deterioration in Sino-US relations, weakening capex and, most importantly/dangerously, the perplexing penchant for protectionism (now threatening Europe, Vietnam, India, etc. with tariffs) exhibited by the issuer of the world’s reserve currency. Oh, and, not to mention, stretched valuations for U.S. stocks amid a weakening earnings environment. Such realization on the part of traders would be reflected very negatively across global equity markets…


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