Market Commentary

» Posted by on Sep 11, 2019 in Announcements, Shop Talk, Uncategorized | 0 comments

Stock markets remain relatively subdued ahead of the European Central Bank’s policy decision due out early-Thursday morning.

Bulls are expecting the European Central Bank to deliver aggressive stimulus measures. If the ECB delivers, the U.S. Federal Reserve is expected to follow suit with an interest rate cut of at least 25-basis points at their meeting next week, with the CME FedWatch tool showing about a 91% probability.

Recent economic data hasn’t really provided a crystal clear path for policymakers, though. The main reason investors are pressing for central bank action is fear that the U.S. and Chinese trade dispute (the worlds #1 and #2 economies) is causing a global economic slowdown, but the data thus far has been mixed.

Data released Monday showed consumer borrowing surged in July at its fastest pace in a couple of years, indicating consumer spending remains very healthy. More positive news was delivered yesterday by the U.S. Chamber of Commerce’s Small Business Index, which showed 71% of U.S. small business owners currently have a positive outlook on their companies’ financial future – the highest percentage since the chamber started the index.

At the same time, the National Federation of Independent Business (NFIB) Small Business Optimism Index fell to a lower-than-expected 103.1, its lowest level since March. Also casting a pessimistic shadow was the JOLTs report that showed a slight drop in job openings for July which indicates the labor market could be easing.

However, quits rose sharply to 3.592 million. Some analysts are saying the rise in quits could prove temporary. 

Today, investors will be digesting wholesale inflation data. The Producer Price Index (PPI) is expected to rise +0.1% for August, with core PPI (excludes volatile food and energy prices) rising +0.2%. At those levels, it would put year-on-year core wholesale inflation at +2.2%.

Also out today is the monthly OPEC report, which will update the oil cartel’s outlook for global supply and demand. It may not carry much weight with oil traders, however, given yesterday’s departure of National Security Adviser John Bolton.

There is some speculation that the move may be paving a path forward for negotiations with Iran, which in turn could put Iran’s oil production back into play in what some already feel is an over saturated market. Pay close attention to the OPEC rhetoric…  

Chinese Factory Data Stokes “Deflation” Fears: Investors and economists alike are concerned with new data showing Chinese factory prices fell -0.8% in August, but the fears go beyond a slowdown in China’s economy.

One of the bigger issues is with so-called “exporting deflation”, meaning cheaper Chinese goods could be skewing global prices and in turn making it difficult for central banks to meet their inflation goals.

Stubbornly low inflation has been a primary reason central banks have refrained from raising interest rates since the recovery from the financial crisis. Lower prices weigh down inflation and if it spreads far and wide enough, can lead to outright deflation. Accusations of exporting deflation have been levied against China on several occasions in the past, especially when it comes to the country’s notorious industrial overcapacity.

The biggest problem created by deflation is that it leads consumers to defer consumption of big-ticket items like appliances, cars and houses. The thinking is that if prices aren’t in danger of going up, why rush to buy? Once consumer spending begins to decelerate, it has a ripple effect on the broader economy that can trigger a recession. (Sources: Business Insider, MarketRealist)

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