Saturday 15 June 2019

Weekend Update 15/06/2019 Rolling Over. The Trump Recession?


Baltic Dry Index. 1085 +23     Brent Crude 62.01

Never ending Brexit now October 31, maybe.
Trump’s Nuclear China Tariffs Now In Effect.
USA v EU trade war postponed to November, maybe.

“If some people in the United States are still thinking of playing the game of extreme pressure and continue the current state of instability and immaturity in their external statements, then I fear there is only thing to say: there’s no point in meeting and no point in talking.”

China.

With China’s economy slowing, Asia’s economy is slowing. Continental Europe already seems to e on the cusp of recession and we still have no deal Brexit to come.  China seems to have lost interest in trying to reach a deal with the erratic President Trump. But would he even stick to any deal reached?

But one year on, now Trump’s easy to win trade wars seem to be misfiring. The global economy seems to be rolling over again. Is what comes next the Trump recession? Some serious players seem to think so.

While we await further developments in the new Gulf tanker war, below our world on the cusp of recession, if the next recession hasn’t already started this quarter.

Business conditions are at their worst level since the 2008 financial crisis, says Morgan Stanley

By Mark DeCambre  Published: June 14, 2019 10:10 p.m. ET
The business environment is deteriorating — fast.

That is according to a gauge of business conditions tracked by Morgan Stanley, which said in a recent note that its proprietary Business Conditions Index, or MSBCI, fell 32 points last month, marking its sharpest collapse since the metric was formulated. The gauge touched its lowest point since the 2007-08 financial crisis. A separate composite business-condition index also fell by the most since 2008 and hit its lowest level since February of 2016. 

Morgan Stanley’s report comes as stocks in June have mostly drifted higher in turbulent trading, with the Nasdaq Composite Index COMP, -0.52% entering correction territory on June 3, but gaining 6.3% since that point as of Friday morning trade, according to FactSet data.

Swirling anxiety around the U.S.’s trade relationship with China and other major international counterparts has hurt the confidence of business leaders because the unresolved tariff battles have made it difficult for corporate chieftains to develop business strategies and forced many companies to alter their supply chains.

Morgan Stanley said that its index also reflects an apparent slowdown in domestic jobs growth. Economists for the report, led by Ellen Zentner, wrote that the fall in business conditions is “consistent with the slowdown in gross hirings reflected in the latest employment report for May, and raising the risk that weakness in labor demand persists into next month’s report.”

----Morgan Stanley said that taken with other metrics that drill down deeper into financial conditions, “these indicators point to business expansion coming to a near halt in June.”
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Opinion: Why the next bear market could shave 35% off the Dow

By Mark Hulbert Published: June 14, 2019 6:22 p.m. ET

Stock market downturns tend to be more severe when they start from high valuations

Predicting when the next bear market will occur is notoriously difficult. Just ask stock-market timers. But what about predicting the severity of the next bear market?

That has become a pressing question of late, since Wall Street has shifted from whether a U.S. recession will occur in the next 12-18 months to when. A bear market for stocks is almost certain to accompany an economic downturn. By one measure, the Dow Jones Industrial Average DJIA, -0.07% would suffer a particularly steep decline.

To find out whether a bear market’s severity can be forecasted, I analyzed all bear markets since 1900 (according to a bear market calendar maintained by Ned Davis Research, the quantitative research firm). U.S. stock investors have experienced a total of 36 bear markets since then, by their count.

The first hypothesis I tested is that a bear market’s severity is a function of the prior bull market’s length. Some have worried that this might be the case, since many assume that the current bull market is the longest in U.S. market history.

Fortunately, there is no correlation between bull-market length and subsequent bear-market severity, as you can see from the chart below. Consider first those bear markets that followed the 50% of bull markets that were the shortest: In those bear markets, the Dow fell by an average 31.5%. Following the 50% of bull markets that were the longest, in contrast, the Dow lost a nearly identical average of 30.8%. Other tests of this hypothesis reached similar results.

Somewhat more promising is the price/earnings ratio. Specifically, I tested the hypothesis that a bear market’s severity is correlated with the overall market’s P/E ratio at the start of that bear market. As before, I divided the 36 bear markets since 1900 into two equal-sized groups: One contained those for which the P/E ratio was lowest when they began, and the other containing those with the highest ratios.
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Bond king Jeffrey Gundlach bets on gold and rings alarm bell on potential U.S. recession

By Barbara Kollmeyer Published: June 14, 2019 9:31 a.m. ET
---Investors seem eager to insure themselves against geopolitical tensions that have flared up in the Middle East and Hong Kong this week, with gold vaulting on Friday. Meanwhile, U.S. technology stocks might not win any popularity contests as a red flag cropped up over how the trade war is biting that industry.

Tech conglomerate Broadcom is sliding in premarket activity after slashing its revenue guidance, citing a hit from an export ban on big Chinese customer Huawei, so it could be the Nasdaq COMP, -0.52%  that leads the market south as traders head into the weekend.

Trade tensions are also one reason DoubleLine Capital Chief Executive Officer Jeffrey Gundlach now sees a bigger chance of a recession hitting U.S. shores in the not-too-distant future.

Providing our call of the day, Gundlach predicted a 40% to 50% chance of a U.S. recession within the next six months and a 65% chance of that happening in the next 12 months, in a webcast to clients late Thursday, according to a roundup of his comments from Reuters and other media outlets. He said signs of a slowdown on the global economic front are also a worry.

The so-called bond king and closely watched market forecaster isn’t the only one starting to fret. JPMorgan’s chief quant strategist Marko Kolanovic said in a note this week that President Donald Trump’s trade battles have cost U.S. companies trillions, and could trigger a downturn that would end up being known as the “Trump recession.”

Meanwhile, Morgan Stanley reported Thursday that its closely watched Business Conditions Index fell by the most on record in June to a level of 13, nearing levels not seen since the downturn of 2008, though economist Ellen Zentner said their analysts weren’t really blaming that on trade.

No doubt, the calls for the Federal Reserve to head off a downturn are growing louder by the day. Gundlach is not expecting an interest-rate cut when the Fed meets next week. Instead, he notes the bond market is tipping two or three cuts by the end of the year.

As for where Gundlach is putting his money, he said he is “certainly long gold,” given expectations the dollar, which stands to take a hit if the Fed lowers interest rates, will close the year weaker.
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Gathering clouds cast shadow over Paris Air Show

Date created :
Slumping orders, production bottlenecks, regulatory pressures and the prospect of fewer flyers: Aviation executives have plenty on their minds as they head to France on Monday for the opening of the Paris Air Show.

It's a starkly different mood from the previous edition two years ago, when airlines worldwide were optimistic about their prospects and placing big orders for new planes.

But industry leaders Airbus and Boeing have instead seen clients cancel orders for dozens of planes in recent months, managing to sell just a handful of new jets.

While Airbus might claw back some ground with the launch of the A321XLR at the airshow in Le Bourget, just north of Paris, Boeing's future has been clouded by two deadly crashes that have grounded its popular 737 MAX.

With the cancellations, "we're in negative territory for the year, and Airbus has a chance to rescue that a bit, but Boeing does not," said Richard Aboulafia, a longtime industry analyst at the Teal Group in Fairfax, Virginia.

He said that slowing passenger traffic globally -- year-on-year growth slowed to just 4.3 percent in April, compared with 6.5 percent growth for all of 2018 -- also has airlines worried.

The decline echoes soft global economic growth amid trade tensions between the US, Europe and China, three huge markets for air travel.

And Aboulafia noted that air freight levels are usually good predictors of passenger traffic trends, "and these past couple of months have been even worse for cargo traffic".

The International Air Transport Association reports that freight traffic has been in a downward spiral since the beginning of the year.

"The two most recent months, March and April, were just god awful, and we're going into this show not really knowing what is happening," he said.
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In other news, tired of Trump’s rhetoric, China seems to be saying no to a Trump meeting at the upcoming G-20 meeting in Japan. Trump is now back peddling on a meeting to end his not so easy to win trade war. Meanwhile, China’s and Asia’s economy continues to slow. A Trump recession next?

Trump says 'it doesn't matter' if China's Xi attends G20 - Fox News

June 14, 2019 / 2:11 PM
WASHINGTON (Reuters) - U.S. President Donald Trump said on Friday “it doesn’t matter” if Chinese leader Xi Jinping attends the Group of 20 summit later this month in the Japanese city of Osaka, predicting a trade deal with Beijing would occur at some point anyway.

“We’re going to see. Eventually they’re going to make a deal,” Trump said in an interview with Fox News Channel. 

Trump repeatedly said he would meet with Xi at the summit, although China has not confirmed the meeting. The two men last met at last year’s G20 summit in Argentina, and agreed to a pause to their trade war.

Trump also said China manipulates its currency in order to avoid the squeeze of U.S. tariffs on Chinese goods.

“They’re paying hundreds of billions in dollars. I have 25% on $250 billion (£199 billion) ... They’re manipulating their currency in order to pay for it,” he said.

----- The two countries were engaged in talks in order to reach a detente, but those ended in May without a deal. Washington has accused Beijing of reneging on several promises, which China has denied.

China has ramped up its rhetoric since last month, promising to “fight to the end” in the trade war and neither give in to pressure nor compromise on its principles.

In a commentary on Saturday, an influential and widely-read state media social media account said certain people were “creating talk of a so-called ‘leaders meeting’” in the run-up to the G20 summit.
If the United States can return to the consensus reached at the leaders’ meeting in Argentina and earnestly seek to resolve China’s core concerns, then it’s quite possible the Osaka summit could mark a turning point, said Taoran Notes in a WeChat account run by the Economic Daily.

“If some people in the United States are still thinking of playing the game of extreme pressure and continue the current state of instability and immaturity in their external statements, then I fear there is only thing to say: there’s no point in meeting and no point in talking.”
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China's May industrial output growth cools to 17-year low as trade war escalates

June 14, 2019 / 8:50 AM
BEIJING (Reuters) - China’s economy flashed more warning signs in May as the United States ramped up trade pressure, with industrial output growth unexpectedly slowing to a more than 17-year low and investment cooling, underlining a need for more stimulus.

Hours after the surprisingly weak data, China’s central bank announced 300 billion yuan (£34.29 billion) in fresh support for smaller banks, though analysts expect more sweeping measures in coming months if the U.S.-Sino trade dispute intensifies. 

Despite a slew of support steps since last year, China’s economy is still struggling to get back on firmer footing, and investors fear a longer and costlier trade war between the world’s two largest economies could trigger a global recession.

Industrial output grew 5.0 percent in May from a year earlier, data from the National Bureau of Statistics showed on Friday, missing analysts’ expectations of 5.5% and well below April’s 5.4%.

The reading was the weakest since early 2002, and exports were a major drag, showing only marginal growth.

---- Vice Premier Liu He stoked expectations of more action on Thursday , urging regulators to do more to boost the economy and saying Beijing has plenty of tools it can use.

Analysts at Goldman Sachs said in a note they expect authorities to further cut banks’ reserve requirement ratios (RRRs) to free up more funds to lend and lower interbank interest rates. But they do not expect China to actively use currency depreciation to support the economy.

Real estate investment, a key economic driver, also showed signs of fatigue, with construction starts slowing markedly and property sales falling the most since October 2017.

“The slowdown in the real estate sector is concerning. We really need to keep an eye on its negative impact on growth,” economists at ANZ said in a note to clients, trimming its 2019 growth forecast for China to 6.2% and 6% for 2020.
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This may be a good summer, a perfect summer, to enjoy risk free sitting with cash. By the autumn we ought to have a better picture of the US and global economy. A better picture too, on China’s African swine fever, pork production problem. A better picture on America’s grain production problem and a possible agriculture sector recession. A better picture on a EUSSR heading into a no deal Brexit.
"We finished the year, and we reported that we had $17 billion of cash sitting at the bank's parent company as a liquidity cushion. As the year has gone on, that liquidity cushion has been virtually unchanged."
Alan Schwartz, CEO Bear Stearns, March 12, 2008. Bust March 16, 2008

The monthly Coppock Indicators finished May

DJIA: 24,815 +49 Down. NASDAQ: 7,453 +71 Down. SP500: 2,752 +46 Down. 

The S&P has reversed again to down after only one month. With some sanity returning in Washington via Mexico, the relief rally will probably continue a little longer, but with a slowing global economy and a recovery already about to become the longest on record, to this old dinosaur market follower involved with markets since 1968, it’s a classic exit rally.

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