Art Hogan’s Week in Review – August 9, 2019

Week in Review  8-9-2019

There is an old expression in New England that states “if you don’t like the weather, just wait a minute.” That seems to fit US equity markets over the last eight trading days. To recap- Fed cuts rates on Wednesday, but refers to it as “mid-cycle” and the Dow is down 300 points. Thursday rolls around and investors / traders have a re-think, and the Dow is up 300 points, until “Tariff man” slaps a drive-by 10% tax on the remaining $300 Billion of Chinese exports into the US. The Dow erases its gains and closes lower by 281 points on the day. Follow on Friday takes the Dow down another 98 handles.

Over the weekend there is no new news to add to the negative narrative surrounding the recent market action. Mondays rolls around and China lets its currency peg fall below the psychologically important level of 7 Yuan to the US dollar level, and the narrative quickly shifts from the fear of a prolonged trade war to the potential of an outright currency war.

The Dow Jones Industrials plunge 761 points, or 3%, representing its worst day of 2019. Turnaround Tuesday arrives on cue, and the Dow has a mild bounce of some 390 points and we are whipped sawed again by the market volatility. Wednesday saunters in and the Dow sells off 600 points at the open as global sovereign yields plummet, only to close down 22 points for the day as a late day rally erases most of the day’s losses, amidst a stabilization of the Yield on the US 10-year yield.

U.S. stocks rose Thursday to put major indexes back into the green for the week after enduring their biggest one-day drop of 2019 on Monday. Safe-haven assets like Treasury bonds and gold gave back some of their gains from yesterday as investors dialed back their cautious sentiment. The impetus was the People’s Bank of China pegging the Yuan value at 7.0039 to one U.S. dollar, just a hair above the symbolically significant level of 7 yuan per dollar. It’s the highest target since 2008, but still not as  weak versus the dollar as some had feared.

Friday finally gets here and the market trades lower in response to President Donald Trump telling reporters on that the U.S. is not ready to strike a trade deal with China. “China wants to do something, but I’m not doing anything yet,” Trump said. “Twenty-five years of abuse. I’m not ready so fast.”

Trump also said the U.S. will not do business with Huawei. However, stocks came off their lows after Fox Business reported the White House clarified Trump’s statements on Huawei, highlighting it is only the U.S. government that is not buying Huawei products. This comes after China decided to stop buying American crops and after the U.S. officially declared China a currency manipulator earlier this week. The U.S. designation came after China let its currency, the yuan, fall to its lowest level in a decade relative to the dollar, sparking the biggest sell-off of 2019 for stocks. We ended the day well off the lows and for the week we closed almost completely flat.

We are in a headline driven market, that gets exasperated with lower summer time volumes. We continue to believe that volatility will be the norm, not the exception, unless and until we get constructive news on US-China trade. That won’t happen until September at the very earliest.   Ladies and gentlemen, the Captain has turned on the Fasten Seat Belt sign. … At this time, make sure your seat backs and tray tables are in their full upright position and that your seat belts are fastened.

Market News for the week:

Kraft Heinz Co. shares opened at a record low after the troubled food giant backed by Warren Buffett posted steep declines in sales for the first half. Management told investors the company needs a “long-term plan” and lacked the necessary confidence to give guidance. The shares tumbled as much as 14% in New York to the lowest level since the company was formed in 2015. For the first six months of the year, EBITDA slipped 15% in the company’s home market. Net sales fell too as the company struggles to boost growth with its portfolio of brands. “The level of decline we experienced in the first half of this year is nothing we should find acceptable moving forward,” new Chief Executive Officer Miguel Patricio said.

China took steps to limit weakness in the yuan, providing some stability to global financial markets in the wake of Monday’s rout, and said it won’t depreciate the currency to be competitive. The People’s Bank of China on Tuesday set the daily currency fixing stronger than analysts expected and announced the planned sale of yuan-denominated bonds in Hong Kong. The moves, which came after the U.S. labeled the country a currency manipulator, helped drive the yuan up 0.2% a day after it sank the most since 2015. The central bank also rejected the accusation it manipulates the yuan.

Four former Federal Reserve chiefs made a joint plea for the central bank to be able to operate without political pressures or the threat of removal of its leaders, responding to President Donald Trump’s persistent attacks on current Chairman Jerome Powell. “We are united in the conviction that the Fed and its chair must be permitted to act independently and in the best interests of the economy, free of short-term political pressures and, in particular, without the threat of removal or demotion of Fed leaders for political reasons,” Janet Yellen, Ben Bernanke, Alan Greenspan and Paul Volcker said in an op-ed in the Wall Street Journal.

The CME Fed Watch Tool now has the probabilities of a rate cut at the September 18 meeting at 100% with 74% speculating there will be another 25 basis point cut and 26% looking for a 50 basis point cut. See the data Here

Next Week’s Catalysts:

Monday – earnings (CRNT and SYY before the open and BE, TDW, TME, and VCTR after the close).

Tuesday – German ZEW for August (5 am ET), US CPI for July (8:30 am ET), the NY Fed Q2 consumer debt/credit report (11 am ET), and earnings (AAP, AVYA, EAT, ELAN, GDS, Henkel, IIVI, JD, before the open and CDK and MYGN after the close).

Wednesday – Japan core machine orders for June (Tuesday night/Wednesday morning), China Jul IP/retail sales/FAI (Tuesday night/Wednesday morning), Eurozone

industrial production for June (5 am ET), Eurozone Q2 GDP (5 am ET), US import/export price index for July (8:30 am ET), and earnings (Embraer, M, and Tencent before the open and A, BGG, CACI, CSCO, NTAP, and WYY after the close).

Thursday – Australian jobs for Jul (Wednesday night/Thursday morning), Japan IP for June (Wednesday night/Thursday morning), China new home sales for Jul (Wednesday night/Thursday morning), US Empire manufacturing for Aug (8:30 am ET), US nonfarm productivity/unit labor costs for Q2 (8:30 am ET), US Philadelphia Fed Business Outlook for August (8:30 am ET), US retail sales for Jul (8:30 am ET), US industrial production for July (9:15 am ET), the US NAHB housing index for August (10 am ET), and earnings (BABA, Carlsberg, CSIQ, IHRT, JCP, TPR, and WMT before the open and AMAT, ARAY, NVDA, and VIAV after the close).

Friday – Eurozone trade balance for June (5 am ET), US housing starts/building permits for July (8:30 am ET), US Michigan Confidence for August (10 am ET), and earnings (DE before the open).

The views and opinions expressed herein are those of the analyst Arthur Hogan and are current as of this report’s posting date. This commentary is general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. Neither Art Hogan nor National Securities Corporation is affiliated with the issuers mentioned herein, and no part of this analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the analyst in the report. The views & and strategies may not be suitable for all investors and is are not intended to be relied on for legal or tax advice. Please note that any investment involves risk including loss of principal.