Tell Me What You Want To Hear!
My father used to tell me a story about when he worked for a Fortune 500 company back in the 80’s. He and his colleagues in the management committee would gather to discuss strategy, results etc. The story he told me was about one meeting when the company was facing challenges on many fronts. The CEO of the company, turned to the head of the finance department and asked: “How do the numbers look this quarter?” The reply from the head of the finance department was: “How do you want them to look?” (I am sure it was just friendly banter…)
The reason I repeat this story is that it seems to have relevance when we try to evaluate the Chinese economy. The market analysts often say that it has been historically difficult to evaluate the economic numbers such as GDP Growth, Loan growth, bank and non-bank lending etc. While it seems that the reporting has improved over the past years, it is still difficult for this author to put much credence in the numbers generated on a monthly basis for a country with 1.2 billion in population and a rapidly changing manufacturing and service industry. The Chinese economy and the actions of the government to stimulate are a key component in evaluating where the global economy is headed in 2019/2020. I am by no means an expert on China and what they have accomplished over the past 30 years is quite impressive, the question is how is the economy doing now? How bad is the debt situation? How badly is the current trade dispute with the U.S. hurting their economy? Will the ongoing Huawei dispute (U.S. justice department yesterday accused Huawei of stealing trade secrets and committing bank fraud) affect relations between the two key global economic engines?
As Steen Jakobsen, the CIO at Saxo Bank points out:
President Trump has had 3 major themes that he has focused on and promised his voter base he would fix:
- The Wall
Currently the Wall is in limbo and with the democrats taking over control of the House of Representatives, it seems that President Trump’s base will have to wait on the wall.
MAGA: this point is up for debate and it depends on whether you support the administration or not, on whether you think America is great again.
That leaves China as a mainstay issue (which has support from many democrats) as a vital issue for the President to show progress.
We are in the middle of company reporting season in the U.S.:
Caterpillar missed on its earnings(biggest miss in 10 years) and gave weak guidance. China slowdown is cited as cause
Nvidia (semiconductor/gaming): said gaming and datacenter revenue are below expectations during Q4 guidance. Stock dropped over 14% on the announcement.
Apple Inc is out today and the market is very interested to see how the China slowdown has affected their results and to hear what management has to say about the future.
Fed out tomorrow, will give us direction, if dovish, will support stocks and we think the markets could grind higher. If the Fed doesn’t deliver, then equity markets will fall from here!
S&P headed towards a breakout. We think a close below 2,635 leads to test of 2,500. Positive Fed news and jobs report, could see us test 2,700.
We think the downside is more likely, but market is holding in for now in the face of what appears to be slowing global growth and difficult political issues.
USD index in range between 97.50 and 94.75 since October. Fed may push it out of range depending on message it sends Wednesday.
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– Mark W