Stress mess. Stocks slid yesterday as trade tensions continued to weigh on traders and the Fed seemed content with rates just as they are. Tuesday’s optimism gave way to stress as investors began to think about a potential trade retaliation from China.
WHAT YOU NEED TO KNOW:
1) The Fed is, or was, happy with their current policy. Yesterday’s FOMC minutes showed that the Fed was committed to keeping rates on hold for the long haul. The minutes also revealed that it was not just Chairman Powell who believed that the slump in inflation was temporary. Many believed that Jay Powell went off script in the press briefing following the last policy meeting when he said that the soft inflation was “transitory”. The comments caused a selloff in equities but many traders continued to hold out hope of a rate cut later this year in order to boost inflation to target and to counter the effects of the trade war. The minutes made it pretty clear that the policy-making body was not even considering the cut. Yesterday’s minutes release hampered stocks as hopes of a rate cut were somewhat dashed. It is important to realize however that the meeting took place before the trade war with China escalated.
2) No relief in site for trade negotiations. WHILE YOU SLEPT, the heat was turned up by China. A Chinese Government researcher reported that the trade war and its effects will last to 2035! Additionally a state-controlled publication referred to the US as a trade troublemaker stating that the President’s trade policy is making the US a laughing stock. Equity futures were weighed down by the rhetoric.
3) BREXIT alert… it’s still ugly. Prime Minister Theresa May seems all but on her way out as a top cabinet minister resigned and she appears to have lost faith from her own Tory Party, not to mention the opposition Labor Party. Parliament watchers expect May to be out as early as tomorrow. All of the wrangling is increasing the probability of a no-deal BREXIT, which would not be welcomed by business owners.
Stocks could not gain any ground yesterday as traders were hit with a steady stream of bad news. News that Qualcomm had received a negative ruling in a court case involving its pricing combined with a renewed fear that China would take out its Huawei frustrations on Apple caused the tech sector to fall by -0.57%. The FOMC minutes release added more pressure to an already reeling market and a weekly Department of Energy report on crude supply showed a buildup of crude oil causing a selloff in oil and the energy sector, which fell by -1.58%. The S&P500 fell by -0.28%, the Dow Jones Industrial Average slipped by -0.39%, the Russell 2000 traded off by -0.88%, and the NASDAQ 100 sunk by -0.41%. Bonds advanced yesterday and the ten-year treasury yield fell by -4 basis points to 2.38%.
WHAT TO LOOK FOR TODAY:
This morning, Markit will release its preliminary PMI’s and Manufacturing is expected to have risen to 52.7 from last month’s 52.6 and Services is expected to be 53.5 compared to last month’s read of 53.0. Also this morning, the US Census Bureau will release its New Home Sales figure which is expected to show a month over month decline of -2.5% versus last month’s +4.5% growth. In the Fed world, Robert Kaplan (Dallas Fed), Mary Daly (San Francisco Fed), Raphael Bostic (Atlanta Fed), and Tom Barkin (Richmond Fed) will be on a panel taking Q&A. Pre-bell earnings include Kraft Heinz, Best Buy, and Hormel. After the bell, we will hear from Intuit, Hewlett Packard Enterprise, HP Inc., Ross Stores, and Lions Gate Entertainment, amongst others.