Extensive anxiety has dominated markets for a couple weeks now and all-in-all stock prices and indexes haven’t changed much. Markets are sensitive to trade news or tariff pronouncements, to the point they’re ignoring interest rates, writes Gene Inger from Rome today.
Resolving these disputes is essential. Markets do not perpetually advance on hope but on progress that’s signaling deals that can facilitate both a calming down of chaotic unknown prospects and restore faith in earnings power and growth looking forward.
Reuters: Dow, S&P higher Monday on trade talk optimism, techs sink on Nasdaq.
Here in Italy, the view is that Italian Depute PM Salvini was reasonable in his calling-out the EU over the tragic bridge failure.
However, as I heard in the middle of Forum Romanum today, most Italians don’t blame the ECB or the IMF or any of the grand policies. They blame systemic corruption in a society that’s shown a lot of inertia in terms of getting things done.
I’m in Rome now and yes there is a sharp move in Italy’s yield curve in recent weeks.
The relationships out there, whether between metals and Bond yields, or between Fed policy and the markets, is unyielding while all of it pales to a deal or no deal with China.
Of course, the markets would rally a bit if were able to cut a deal with Mexico or settle things with Canada, but China is of course the big play. Chinese yuan (CNY). My personal view remains a settlement will be coming.
And therein lies the rub. If investors perceive accelerated growth again, in a post-crisis recovery time, then doesn’t that allow higher rates as well as a challenge for the stock market? The answers are yes and yes.
Yet the market oscillates with the indecision born of necessity given that at least a lot of the fiscal reform, growth and earnings prospects do correlate directly.
This past week the CBO lowered their growth estimates based on reduced profits (and some inflation adjustments) due to tariffs kicking-in. I concur but this perspective changes if we get a big China deal.
Maybe that even will shake people up (it has) but it’s not a sovereignty or other EU-related issue as most financial media suggest.
It’s the evolution I hear of an ingrained trend of not just inertia but rapid government turnover not to mention corruption. I’m told everybody knew that bridge was bad but nobody did anything about it.
Bottom line: That’s how it is with the U.S. stock market: everyone knows it’s expensive but nobody wants to take a heroic stand and get seriously heavily liquid.
It’s high, it’s dangerous and it remains very sensitive.
