1. Moving the markets

Yesterday’s attempt by Trump to put some lipstick on the trade pig, via a possible delay of certain tariffs, now seems to have had only a one-day effect with global realities taking front and center.

Newly released data shows a worrisome development regarding economic growth with China and Europe’s economic powerhouse Germany both presenting weak data. Chinese production slowed to 4.8% YoY, its lowest level since 2002, while retails sales came in way below consensus. But at least they’re showing positive numbers.

That can’t be said for Germany, which showed its GDP contracting -0.1% in the second quarter, the first time since the 3^rd quarter of 2018. Much is contributed to the impending Brexit later this year.

But the nail in the market’s coffin, at least for today, was the bond market where the 2/10 yield inverted for the first time in 12 years. What that simply means is that, if you invest in a 2-year bond, you will get a higher rate of return than for a 10-year bond. Insane! The 30-year bond plunged to a record low yield as well.

This type of inversion (2/10) has always signaled an upcoming recession, which is why we saw this violent market move today. The damage was widely spread, but the low volatility SPLV softened the blow somewhat (-1.98%) vs. the S&P 500’s -2.93%.

Our Trend Tracking Indexes (TTIs) came under fire as well (see section 3), and the Domestic one has reached a point that is within a hair of generating a ‘Sell’ signal. If this should materialize, we could see more downside damage with the potential of re-visiting the December lows now appearing to be a real possibility.

Of course, these days some more bad news could be interpreted as good news by the speed-reading computer algos, and we could be going back the other way.

1. Moving the markets

Again, it was a trading day that had me shaking my head. After yesterday’s drubbing, with the Dow losing close to 400 points, an explosive rebound sent the major indexes back into rally mode wiping out just about all of yesterday’s losses.  

It was a headline, that the speed-reading computer algos interpreted as an incredibly positive event regarding the US-China trade dispute. The statement that caused this violent bullish reaction was this one:

…some tariffs will take effect on Sept. 1 as planned, “certain products are being removed from the tariff list based on health, safety, national security and other factors and will not face additional tariffs of 10 percent,” the U.S. Trade Representative’s offices said in a statement Tuesday.

“Further, as part of USTR’s public comment and hearing process, it was determined that the tariff should be delayed to December 15 for certain articles,” the statement continued.

“Products in this group include, for example, cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing.”

In other words, tariffs will go ahead on September 1^st but tariffs on some products will be delayed until December 15 on the basis of health, safety and national security.

It looks like the algos only saw “delay” and “December 15” and the bidding war was on. If you think that this is ridiculous, you are correct, but this is the insane market environment we are living in.

In the end, the S&P 500 ended up close to where we left off on Friday with nothing gained but also nothing lost. It promises to be a hot August, as global/trade uncertainties will continue to affect volatility and market direction.