Investors are keeping a wary eye on oil after weekend attacks on Saudi Arabia crude facilities triggered the largest one-day gain for the commodity since 2008, and plenty of risk-off action all over.
The cautious tone looks here to stay as attention turns to the two-day Federal Reserve meeting starting on Tuesday.
Some are doubting we’ll even see that much anticipated interest-rate cut (see chart of the day).
Not that it matters, says our call of the day, from Binky Chadha, Deutsche Bank’s chief global strategist and head of asset allocation, in an interview with MarketWatch.
He warns a U.S. recession is on the doorstep, the Fed can’t help and the S&P 500
is ignoring all of the warning signs.
“We are cautious on stocks. We would argue you want to be defensively positioned [and] we would argue that the U.S. equity market has run way, way ahead of growth,” says Chadha.
The S&P, he notes, tends to be “very strongly correlated” with indicators of cyclical growth like the Institute for Supply Management survey (ISM), which fell into contraction territory last month. It suggests the index should be at 2,600, not at current levels just below 3,000, which appear to price in a “good solid rebound” for the ISM.
Elsewhere, he says annual U.S. jobs growth slowed from 2.5% in the middle of last year to 1.3% last month, marking the weakest expansion in 10 years, and nearing “stall-speed” for the economy.
“Every time payrolls growth has gone below 1%, the U.S. has ended up in recession. We would argue the U.S. economy is dangerously close to…tipping into recession,” he said, adding that the fate of the economy hinges on one thing – the trade war.
He said a market sell off would make President Trump more likely to relent on trade policy.
“I would argue that’s a necessary condition for growth to bottom and rebound and or the stock market to go up in a sustainable way,” he says.
If that doesn’t happen, Chadha says he will kiss goodbye his own “very bulllish” year-end S&P forecast of 3,250.
is reversing some of Monday’s historic gains, as another weak day builds for stocks, with Dow
futures all down. Gold
is down, while the dollar
are struggling, while Asia markets
are getting by Saudi-related tensions.
Industrial production and capacity utilization data, followed by a home builders’ index, are on tap, along with the start of the Fed’s two-day meeting (see preview).
Here’s one question making the rounds: Could the Fed not cut interest rates this week? The CME FedWatch Tool, based on the Fed Funds target rate, shows a 33% chance of no change, versus last week’s 8% possibility.
Another way to gauge the possibility is via eurodollar futures
, which settle at a three-month rate that tends to be in step with Fed’s target rate.
Here’s a one-month eurodollar chart
and our chart the day. The higher those futures rise, the lower the implied Fed rate and it’s been going down — suggesting there are at least a few bets the central bank could surprise Wednesday:
could take a hit after the materials group cut its outlook.
Early sales of Apple’s
new iPhones are looking even better than their predecessors.
International regulators are set to blame Boeing
for its 737 Max jets approval process after two fatal crashes involving those planes.
Off again. WeWork’s parent is reportedly postponing the planned initial public offering for the office rental company. Shares of big investor and Japan conglomerate SoftBank
took a hit.
At least one trade deal is ready to go — between the U.S. and Japan.
“We’re not in some defensive posture where we’re mostly in cash or anything like that.” — That was Microsoft
co-founder Bill Gates telling Bloomberg that, at 63, he’s still keen on stocks.
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