09.10.2019 – Daily Report. The stock market bulls are tormented with a stream of negative news in the negotiations between China and the USA. Wall Street is going downhill. Nevertheless, the DAX is surprisingly robust on Wednesday morning – thanks to the Federal Reserve.
Fed sends DAX upwards
Investors on the German stock exchange recently showed a spirit of resistance: Attracted by the US futures, the DAX rose by 0.7 percent to 12,056 points. Many brokers hope that the Fed minutes, which will be published in the evening, will give clear indications of a loosening of monetary policy in the USA. On the trading floor, Fed Chairman Jerome Powell also created a better mood: He announced that the US Federal Reserve would buy US Treasuries again in order to prevent further turbulence in the credit market – at this point we had reported on the “Repocalypse” in September. Before the conference of the National Association for Business Economics in Denver, he also hinted at a further step in interest rates.
Trump for Trump
In addition, the Democrats’ impeachment efforts against US President Donald Trump have apparently suffered a severe blow. According to the Washington Examiner, the CIA whistleblower who testified anonymously last Friday to Inspector General Michael Atkinson about Ukraine had a professional relationship or worked for one of the democratic candidates in the 2020 election campaign. Maybe that’s why Trumps Nemesis Adam Schiff (Democrat from California), the head of the House Intelligence Committee, didn’t have the minutes published.
Customs dispute sinking courses
Previously, most of the world’s trade had been submerged. The Japanese Nikkei-225 dropped 0.6 percent to 21,456 points on Wednesday. In China, the CSI-300 held steady at 3,842 with a minimal gain of 0.1 percent. The leading Dow Jones index lost 1.2 percent to 26,164 points at the closing bell on Tuesday. The market-wide S&P 500 slipped by 1.6 percent to 2,893 points to the south. The high-tech index Nasdaq 100 also lost 1.6 percent to 7,604 points. No wonder: yesterday’s news about the China-USA customs dispute was like water torture for all those hoping for an agreement – depressing news kept trickling in.
Washington puts pressure on the red elite
First, the US blacklisted 28 Chinese companies and government organizations for their actions against the Muslim minorities in China. These companies may no longer be supplied from the USA. This affects companies that produce technology for the recognition of history or artificial intelligence. With this the USA once again attacks the need for security of the Chinese leadership, which fears the people’s anger and is currently a little nervous because of the unrest in Hong Kong and in view of drastically rising meat prices in the wake of swine fever.
In addition, the US administration imposed visa restrictions on representatives of the Chinese government and the Communist Party. Beijing strongly condemned this action as interference in China’s internal affairs. The Ministry of Commerce announced that Beijing would take all steps to safeguard its interests, but did not provide any details.
China resists real negotiations
Beijing also managed to lower expectations through its near-state press. The South China Morning Post, referring to the Ministry of Commerce, reported that Deputy Prime Minister Liu He and his delegation would only remain in Washington tomorrow, Thursday and Friday. Referring to an unnamed source, it was said that the scheduled departure date was Saturday. Moreover, according to the South China Morning Post, Liu will not bear the title “Special Envoy” of President Xi Jinping in this 13th round of negotiations. This indicates that the vice-premier did not receive any detailed instructions from the head of state. And the social media channel Taoran Notes, which belongs to the official “Economic Daily”, issued the motto: “talking while fighting”. Which doesn’t look like compromises.
Capital controls and Hong Kong
Finally, the news agency Bloomberg reported that Washington was working on the possibility of making it more difficult for American pension funds to invest in Chinese equities. Such capital controls are likely to hit some Chinese blue chips and the stock markets hard. Trump also reiterated his threat on Monday that any negative action by the Chinese in Hong Kong could influence the negotiations.
This puts the first talks since the negotiations were broken off in May under a conceivably bad star. At the time, the US had accused China of having overturned promises it had already made at the last moment. If there is no progress now, the USA should increase the tariffs for Chinese products worth 250 billion dollars from 25 to 30 percent starting next Tuesday. With foreseeable turbulence for equities, bonds and foreign exchange.
This is what the day brings
Distraction from the Chinese-American dissent brings on Wednesday only few important dates. As always, you will find the overview here: Market Mover
In the USA, wholesale sales figures for August will be published at 4pm.
At the same time the JOLTS job offers are announced.
At 4:30pm the EIA crude oil stock data is reported.
Last but not least at 7:35pm the FOMC minutes of the Fed meeting will be published.
The Bernstein Bank wishes you successful trades!
Important Notes on This Publication:
The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.