This past week equities markets took a strong beating as trade tensions between the US and China grew and loomed over market fear. Tech was the headliner this week for both sides and the sector managed to pull equities lower. Mainly, Huawei the Chinese telecom giant was the focal point of the controversy. The White House blacklisted the Chinese company while China plotted to retaliate against US companies with its earth monopoly and put pressure on the US. The two powers edged closer and closer toward a cold war scenario this week.

There was news from Europe this week as well as Theresa May threw some more chips on the table in an attempt to gain support for her withdrawal bill. The Brexit offer was again rejected at the end of the week which was her last straw. The Parliament took it into their own hands to find a new Conservative leader. There was still agree that the UK would be still parting with the EU to come to the end of October.

Weaker economic data continued to pour out of Europe with the word “recession” not only circulating the US but now other corners of the world.

The substantial drop in oil eliminated firmer inflation hopes as the commodity slipped below the $60.00 level in the CL futures market and even below the 200-day moving average, and close to 2-month lows.

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 down 3.54%
  • Technology down 1.41%
  • Financials down 0.41%
  • Retail down 1.49%
  • Utilities up 1.01%

Overview of key markets last week (bottom chart):

  • Crude oil down 7.79%
  • S&P500 down 1.35%
  • Silver was up 1.01%
  • Gold up 0.51%
  • US dollar down 0.40%

Rate Cuts and QE ahead?

The US economy has been at the center of TPA analysis for some time and its no surprise that we are a little concerned and have been concerned with the macroeconomics of the United States for a while. It is about time that we see a dip lower in the US stock market, which will prompt QE, considering that this 10-year bull has depended on QE.

US markets had an outstanding start to 2019 after 20% across the board, and the cause is not surprisingly the Fed, infinite stock buybacks, and of course Mr. Trump and Co. Hitting twitter with all they’ve got and every press conference to help the bulls. However, the macro data suggests that this thing is drastically overbought.

Lets look at some of the Macros that back the overbought bias.

  • Retail sales growth is down YoY.
  • Corporate tax vs Personal tax
  • Employment numbers
  • Federal Debt
  • US Markets

The image below is is from FRED (Federal Reserve Economic Data) which outlines the two prior scenarios that retail sales dropped into the 0.00 percent change and below which lead to two market crashes. The tech bubble, and the housing market crash. This time around there are quivers at that same level.

Tax cuts, we’ve seen tax cuts but have they generated investment growth? Not really, the investment growth came from the stock buybacks. The tax cuts only decreased corporate taxes payable, not so much personal taxes payable which have been on a very steady incline.

The employment numbers look great, from a surface level. The unemployment rate is low! This is usually the case just at the end of an economic cycle, opening the flood gates to a recession. In the last 50 years, this is the lowest employments been, and the excessive drop in unemployment is hard to sustain. To add to this, the growth of the working population is muted, in fact its dropping in facts its negative, which could bring trouble. Birth rates are down as well! So where do we go from here? Inability to pay pensions, social security and more…

Its no surprise that debt is on the climb, which has been the focus of a lot of our article supporting an oncoming recession. Take a look at the chart below. The Federal deficit is nearing 2008-09 levels while GDP is still relatively high, but not enough so to offset debt.

Weekly Economic Calendar

Substantial week ahead when including the high impact and medium impact news in the coming week. There is a lot of data that comes out of the US later in the week as we anticipate more Trade talk out of the US and China. We have a shorter week ahead as the US observes Memorial Day.
Sunday, the news begins out of Europe with elections and the BOJ as Kuroda addresses the country.
Monday, no news.
Tuesday, CB consumer confidence in the morning out of the US. Followed by RBNZ news out of New Zealand and Kuroda addresses Japan yet again.
Wednesday, BOC rate statement out of Canada, watch the CAD. There is news out of Australia as well, building approvals and private capital expenditure. The day ends of New Zealand annual budget release.
Thursday, current account, and Gov Council Member Wilkins speaks out of Canada, prelim GDP data out of the US, FOMC member Clarida speaks and Treasury currency report comes out in the afternoon. The days ends on Chinese news, with PMI data coming out.
Friday, large medium impact day out of the US with Core PCE price index, personal spending, Chicago PMI, revised UoM Consumer sentiment and FOMC member Williams speaks. Out of Europe there is German Prelim CPI data and GDP, and RMPI data out of Canada.

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