Stock futures have been mixed this week as global uncertainties continue looming ahead of the long-awaited G20 meeting in Japan this weekend. On the docket are issues ranging from oceanic stability, to reforming the WTO, and empowering women. Arguably as important are the bilateral agreements scheduled to take place between world leaders. The world’s eyes will be on President Trump and President Xi from China, as this proclaimed tariff war is weighing on Asian manufacturing. Neither side wants to appear weak. President Xi came out on Thursday making heavy demands regarding the concessions he must see from Trump to conclude a trade deal. Xi is demonstrating the same hard-headedness displayed by Trump, given the American president’s knack for strong-arming his political adversaries and publicly boasting about “winning” international deals. Considering the intensity of the demands (all tariffs dropped, US to halt export pressure, and to sell American tech to Huawei), I am not overly optimistic about the results of the G20, and it seems stock investors have a similar view. At best, I would hope for a civil “detante” between the two economic powers, meaning they will continue talks and halt additional trade restrictions. but President Trump has a reputation for unpredictability, and I would not be surprised to see profit-taking into this weekend’s events.
The trade war (along with more cyclical factors) are working to slow the global economy. Data coming in from China, Europe, and the U.S. has been soft over the last couple of months and it is pushing central banks around the world to adopt a dovish attitude and lay out a path to rate cuts. Slashing interest rates is the simplest form of monetary easing, and stock markets like that. The most recent rally was triggered based on discussion from the Fed, but was led to all-time highs by defensive stocks, warning of possible turmoil ahead. Safe-haven assets are elevated, central banks are cutting rates, and there is no shortage of geopolitical turmoil, yet stocks are pushing against new highs. Investors beware, we are navigating uncharted waters.
E-Mini S&P 500 Sep ’19 Daily Chart