Signs of deescalating trade tensions coupled with accommodative monetary policy gave investors hope that economic growth will resume and this bull market will march higher. Ten year US treasury yields jumped, with investors abandoning the safety of bonds and gold and moving back into stocks. Small cap stocks in particular, as well as value, posted solid gains for the week. High flying growth stocks, however, ended lower, leading some to believe a style rotation could be underway.
S&P 500: 3,007 (+1.0%)
FTSE All-World ex-US (VEU): (+2.2%)
US 10 Year Treasury Yield: 1.90% (+0.35%)
Gold: $1,488 (-1.2%)
USD/EUR: $1.108 (+0.4%)
- Monday – Elliot Management announced its $3.2 billion stake in AT&T, challenging the company’s strategy and asking it to divest noncore assets.
- Tuesday – Apple unveiled a trio of new iPhones at its annual event in San Francisco.
- Tuesday – The Census Bureau reported median household incomes remained flat in 2018 after three years of growth.
- Tuesday – Job openings decreased by 3% in July from a year earlier, despite the number of opportunities still outpacing job seekers.
- Wednesday – The Hong Kong Stock Exchange bid almost $37 billion to acquire the London Stock Exchange.
- Thursday – The European Central Bank announced more stimulus, including a small additional rate cut and the reopening of its bond buying program (i.e. quantitative easing).
- Friday – China said it would exempt US soybeans, pork and other agricultural products from additional tariffs, in a move to further deescalate tensions.
- Friday – The US House Judiciary Committee requested emails and financial statements from the big tech firms as part of its antitrust probe.
There were a few new developments this week, but once again all fell within the same ongoing macro themes of trade and interest rates. On the trade front, President Trump said he would delay tariffs on $250 billion Chinese goods set to take effect on October 1st, a move reciprocated by China later in the week. Reports also surfaced that China was looking to set aside more sensitive political issues, such as arms sales to Taiwan and American involvement in the Hong Kong protests, in order to keep trade talks moving forward. All of these developments helped lift markets, but as we all know these brief stints of optimism can rapidly reverse course. Expect more volatility on this front.
The story on interest rates actually came from Europe, where departing ECB President Mario Draghi issued his final farewell stimulus package. This included a small rate cut of 0.10%, moving the already negative target to -0.50%. It also included plans to restart bond purchases on November 1st, at a pace of 20 billion euros per month with no definitive end date, as well as provisions to exempt portions of banks liquidity from negative rates.
The situation in Europe will be interesting to watch. With rates already negative, the additional 0.10% cut is unlikely to move the needle on economic growth. And while bond purchases could help, it’s questionable how much of an impact they’ll have with long-term yields already so low. Perhaps this is why it was met with somewhat tepid enthusiasm by markets. In all likelihood, reigniting growth in the Eurozone could depend on one or many factors, including the potential for fiscal stimulus, a resolution to the U.S.-China trade war, and/or a softer Brexit.
Either way, it shows global central banks remain ready and willing to support this bull market as long as they can. Up next, the US Federal Reserve.