Two Market Narratives Look To Duke It Out This Week
The major indexes look to be starting the week off with a bang. The S&P 500 (^GSPC) has an implied open above 2,730 for a rise of 0.64% in the premarket session, and the Dow Jones (^DJI) and Nasdaq 100 (^IXIC) ar up 0.85%, for now. It’s looking like traders want to believe news out of China that the brewing trade war between Washington and Beijing is “on hold” according to Treasury Secretary Steve Mnuchin. This despite the fact that both sides are saying that they “stood their ground”. The fact that both sides are saving face though is itself an indication that things went better than they could have gone and perhaps there will be no self-destructive tariff wars down the pike. The key will this week will be to see if the positive China narrative can sustain any market momentum and perhaps bring us back to previous highs, or if it fizzles out in favor of the worrying rate-rising narrative instead.
Inflation Getting Obvious?
According to CNN, if you think being alive in America is becoming more expensive, you’re not crazy. Prices are rising and it’s getting hard to ignore. Firms raising their prices include Deere (NYSE:DE), McDonald’s (NYSE:MCD), Chipotle (NYSE:CMG), Amazon (NASDAQ:AMZN) which is raising Prime membership prices by 20%, Tyson Foods (NYSE:TSN), and Stanley Black & Decker (NYSE:SWK). In a sky-is-blue sort of comment explaining this, the CEO of Black & Decker said, “We’re in business to make money, and in order to do that, we have to achieve price increases to offset some of that inflation.”
Some firms like Kroger (NYSE:KR) have said that they have sacrificed margins in order to keep their prices down. The question is, how long will that last? And if retailers capitulate and raise prices across the board, how long before it pushes the official inflation indexes even higher and leaks into the already hemorrhaging bond markets?
General Electric About to Make a $20 Billion Move?
Could the year and a half decline for one of the Dow 30 finally be over? General Electric (NYSE:GE) could be about to announce a deal to sell or merge (reports differ on which) its transportation business to Westinghouse Air Brake Technologies (NYSE:WAB), AKA Wabtec. The move would be a cost-cutting measure for GE, whose stock price has been plummeting since December 2016. The deal would put $20 billion into GE’s pocket if it goes through, about the size of the company’s short term debt load. GE has lost over $6 billion in two of the last three years, so a restructuring is in order and could boost share prices at least in the short term.
Treasuries Keep Getting Hammered
Traders are getting worried about rates not necessarily because they are going up, but because they don’t know exactly why they’re going up. $21 trillion (national debt) reasons why and an additional $1 trillion reasons (annual federal budget deficit estimated) why per year now may not be enough reasons. Deutsche Bank (NYSE:DB) chief international economist Torsten Slok for one does not think this is reason enough reason and “the lack of a credible story for such a wild ride in rates is worrying,” he said. Rates on the 10-year jumped unexpectedly to a high of 3.122% last week, but have since backed off to the 3.06% range. With futures decidedly higher this morning, rates could take another trip higher as risk-on looks to be the theme of the day.
The Revolution Continues in Venezuela
Nicholas Maduro, former bus driver extraordinaire and now reelected President of Venezuela, won his election in the South American paradise with over 75% of the vote in a not-so-stunning victory. Inflation is so high now in Venezuela that its central bank has stopped reporting the statistics and the only clue the outside world can get is from estimations by the opposition, which are around 13,000% annual. Maduro made his victory speech sporting his classic proletarian uniform, indicating he is one of the “working men”, though also sporting a very expensive wristwatch. Less than 47% of Venezuelans turned out to vote at all, though the opposition says that turnout was less than 30%. This probably won’t help increase Venezuela’s plummeting oil output, so no respite for oil prices from that direction.
