Week of Oct 11 2019 Weekly Recap & The Week Ahead
“I think investment psychology is by far the more important element, followed by risk control, with the least important consideration being the question of where you buy and sell.” — Tom Basso
1. US/China Up the Ante with Trade Dispute / Adds Chinese Firms to Blacklist — the U.S. added 28 Chinese entities to an export blacklist, citing their role in Beijing’s repression of Muslim minorities in northwest China. The decision came days before high-level trade talks are set to resume in Washington. The U.S. said the action isn’t related to trade talks, but it is likely to disturb Chinese officials already incensed over what Beijing sees as U.S. support for the pro-democracy movement in Hong Kong. Trade negotiations have made little progress since hitting an impasse in May. The one recent bright spot has been Chinese agricultural purchases, including more than 1.5 million metric tons of U.S. soybeans in the last week of September alone.
2. Boeing Suffers Setbacks — the effort to return 737 MAX jets to service has hit a new snag because of heightened European safety concerns about portions of proposed fixes to flight-control systems. Separately, the pilots’ union at Southwest Airlines sued Boeing, alleging that the plane maker rushed the 737 MAX to market and misrepresented the plane as safe. Boeing called the suit “meritless.”
3. US/China Trade Talks Resume — Senior U.S. and Chinese officials will square off for trade talks Thursday at a pivotal moment in the countries’ relationship, with higher tariffs looming if negotiators fail to break a five-month stalemate. China is looking to narrow the scope of its negotiations with the U.S. to trade matters only and put thornier issues—such as U.S. national security concerns over Chinese telecom giant Huawei Technologies Co.—on a separate track in a bid to break the deadlock. Business groups want Mr. Trump abandon plans to raise tariffs to 30%, which is set to happen Oct. 15. They also want him to drop plans to impose new tariffs of 15% on $156 billion in smartphones, apparel and other consumer goods starting Dec. 15.
4. Fed to Increase Supply of Bank Reserves — the Federal Reserve will soon increase its purchases of short-term Treasury securities to avoid a recurrence of the unexpected strains experienced in money markets last month, Fed Chairman Jerome Powell said in a speech in Denver. Fed officials stopped shrinking the assets on their balance sheet in August but never said when they would allow the balance sheet to grow again. As a result, bank deposits held at the Fed—a crucial liability on the balance sheet—have continued declining. Stresses in very-short-term funding markets recently suggested banks have grown reluctant to lend those reserves.
5. US/China Agreed to a Trade Truce — the US/China agreed to a initial tentative agreement on Friday. Mr. Trump said China will make some $40 billion to $50 billion more in agricultural purchases over two years and has promised to better protect intellectual property and welcome more foreign financial services. In return the U.S. won’t increase tariffs to 30% from 25% on $250 billion of Chinese goods next week as Mr. Trump had planned. The two countries also agreed to keep talking toward what Mr. Trump called a “phase two” agreement that would include the tougher issues such as Chinese technology theft and predatory regulation against American companies. There will also be a new consultation process to address disputes and monitor enforcement. The implication is that if progress continues, Mr. Trump will cancel the tariffs planned for December on more Chinese goods.
The week ahead — Economic data from Econoday.com:
