Bassanese Bites: Blue sky – November 04 2019

It was yet another positive week for global stocks, with the S&P 500 reaching new record highs.  Ongoing optimism with regard to US-China trade talks, a good US earnings reporting season, and signs of stabilisation in global manufacturing were all contributing factors.  Even the Fed’s decision to signal a potential end to the rate cut cycle was not enough to dent stocks – partly because the market simply doesn’t believe it.

As regards the trade talks, early indications are that the Chinese are offering to buy up more agricultural products in exchange for the US dropping recent tariff increases.  If that’s all that is agreed, it will be a clear sign that Trump has caved due to concerns about the economy.  That said, Trump would nonetheless trumpet it as the greatest trade deal in history, and his media and heartland voters will no doubt agree. For markets, what’s important is that the growing negative impact of the trade tensions are alleviated sometime soon, and talk of future deals postponed until after the November 2020 Presidential election.  If Trump can refrain from threatening China again between now and then, there’s a good chance that global economic indicators can improve as we head into next year, and in turn revive corporate earnings and push equity prices even higher.

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