Market Commentary

» Posted by on Aug 15, 2019 in Announcements, Shop Talk, Uncategorized | 0 comments

Stock traders struggle to keep up with evolving global economic outlooks.

Both Germany and China have recently released data pointing to further economic slowdowns.

Germany, the EU’s largest economy, saw its economic output sputter in the second quarter, which many economists are blaming the “trade war.”

Some are even saying the German economy has entered recession territory, which adds even more uncertainty to the European Union ahead of the upcoming Brexit and policial problems in Italy.

In China, factory output has fallen and again economist are pointing to the trade dispute with the U.S. Fed dovishness has worked to some degree to cover-up the negative global economic sentiment.

At the same time, the trade was hoping to see some type of trade agreement or resolution between U.S. and Chinese leaders. That appears to be off the table for the moment, leaving the market to trade on its own merit.

In other words, the two big market puts, a dovish Fed and a Chinese trade deal, seem to have expired or lost their luster.

Those two major driving forces were probably providing a type of safety-net underneath the stock market. If the trade now believes that safety-net is removed, investors will probably feel more comfortable walking the tightrope from a lower level. How much lower is the big question? I suspect many professional traders are keeping a close eye on the inverted yield curve, what many consider a canary in the coal mine and a tell for predicting the next recession, where the 10-year yield has fallen below the 2-year yield for the first time since 2007.

At the same time, the 30-year yield has now fallen to record lows. I also believe the Great Recession of the last decade is still very fresh in investor’s mind and the possibility of another lurking just over the hill is understandably sending many in search of safer havens.

News that Argentina’s economy may be in meltdown is adding even more fuel to the fire.

Interestingly, former Fed Chairwoman Janet Yellen taped an interview with Fox Business yesterday in which she offered a bit of reassurance. “I think that the U.S. economy has enough strength to avoid [a recession],” Yellen said, though she clarified that “the odds have clearly risen and they are higher than I’m frankly comfortable with.” The full interview airs Friday on Fox Business Network’s “WSJ at Large.”

U.S. economic data today includes Retail Sales, Productivity and Costs, Industrial Production, and Business Inventories, all of which will be dissected very carefully by traders hoping to gain some insights into where this is all headed.​

Many inside the trade are already starting to look towards next weeks Jackson Hole Economic Symposium, which is considered one of the longest-standing central banking conferences in the world.

The mission of the event is to foster an open discussion, but I suspect the big question for central bankers will what their plan will be moving forward? Lots of unanswered questions in play right now… 

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