Equities move higher this week as S&P 500 moves higher for the seventh consecutive session. PMI readings out of China and Europe throughout the sooth investor anxiety developed from the stagnation of global economic growth. There is a hint of global growth recovers. Trade talk news was ever present throughout the week with optimism looming over each country but worries out of Brexit news continue.

Theresa May had no choice but to turn to the Labour party, her opposition to figure out and secure an agreement with a majority. There are a lot of talks of a hard Brexit making its way to the UK and Europe. While Tory Brexiteers can’t help but feel stabbed in the back.

This Friday NFP jobs reports hit the US as we got a revised number higher of last months dismal announcement and a surprise beat in this months number. This moderately shifted equities higher as they continued to range throughout the day after making pre-market gains.

Trade talks progressed between China and the US which could be a catalyst for the recent upside we’ve seen in the equity market. Vice Premier Liu, from China, was in Washington this week which hinted of a deal being negotiated by the end of the month. After an announcement of the deadline for the deal potentially being extended to 2025. Crude oil broke its 200 day moving average for the first time in half a year and the USDX continued to push higher. Nasdaq being the “weaker” market this week having a single negative day still made the most gains. Moving 2.7% as the S&P 500 moved up 2.1% and the DJIA 1.9%.

Here is a look of last week’s stock market on a daily basis (red vertical lines split days).

Stock Market and Sector Overview

Here is a break down of the weekly performance in various stock market sectors (top chart):

  • Energy stocks up 2.22%
  • Technology up 2.59%
  • Financials up 3.46%
  • Retail up 1.39%
  • Utilities down 0.15%

Overview of key markets last week (bottom chart):

  • Crude oil up 6.35%
  • S&P500 up 2.65%
  • Silver was up 0.57%
  • Gold up 0.47%
  • US dollar up 0.16%

Central Banks across the world have been sweeping things under the rug for a decade!

Lets face it, global debt is at all time highs, exponentially increasing since the financial collapse in 2008/09. The increase in global debt has suffocated economic growth throughout the world but key economic indicators, aka stock markets have not been reflective of the faltering data.

Comparison of debt by countries by Bloomberg

China was once known for low debt and responsibility in terms of debt, but have since grown their debt exponentially. The over leverage of the US leading up to the crash was led by house hold debt being extremely high while a drop in the personal savings rate. The US household debt was near 100% of the US GDP, 98% to be exact. What was the reason? Cheap credit! Low rates helped people over leverage.

Solution? Cut rates to create more leverage! Wait? So how does that make sense? The long way around this is deleveraging which creates discomfort and some slowing in economic growth. Then China took center stage as the “borrower of last resort”, turning China into a debt powerhouse, just like the US. Since 2008, major loans (auto and student) have gone from $1.36 trillion to $2.73 trillion. Albeit, household debt is lower than it was in 2008.

Banks have the ability to “print” money, but how sustainable is that. The S&P 500 debt to equity ratio significantly decreased over the years due to quantitative easing. From 2000 to 2009 the debt to equity ratio hovered around 5.5 to 6.0, extreme. From 2010 to 2019 the ratio dropped significantly to 1.0 on average.

Debt to Ratio by Bloomberg

European data has also come out weak over the few months even years, as a result deleveraging broke out of Europe. We can all agree that China is on edge, the increased debt and the continuing weak data out of the country can rock the whole world. If China falls into a recession, the rest of the world could feel it exponentially. Compared to the US, China’s household debt to GDP was 19% in 2008. Which has since grown to 50%, total debt in China has grown by 700% since 2008. Meaning that China has taken on 70% of the new debt throughout the world since 2008. Increased debt leads to recession. As China continues to climb into the abyss of debt, crucial levels may be upwards of 70%. China is the new debt leveraged worry child of the world, the US can breathe.

 

Weekly Economic Calendar

Quieter week ahead in the markets on a news from as we anticipate this months FOMC meeting minutes rather early. We had Non-Farm numbers that came out on Friday stronger than expected but markets had a muted reaction to the number.
Monday-No news
Tuesday-No news
Wednesday- The heaviest news day of the week. GDP and Manufacturing numbers out of the UK. Refinancing rate announcement and monetary policy statement out of Europe. If the refinancing rate is anything other than 0.00 there will be a shock to the Euro. This is followed by the ECB press conference. CPI and core CPI data out of the US premarket and the FOMC meeting minutes out of the US in the afternoon.
Thursday-OPEC meeting, watch oil! Along with PPI data out of the US premarket.
Friday-No news

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