Is it really “endgame” time on the U.S.-China trade front?
If you believe a report that a deal is 90% of the way there, then maybe. No matter, because global equity markets, that never seem to tire of getting juiced by trade hopes, appear to be buying this latest development on Wednesday.
hold on just a minute... "The FT reported that if a deal is not reached this week, negotiations could be extended as late as the end of June"
— StockCats (@StockCats) April 3, 2019
“The reports are not necessarily out of the blue and we’ve known this week’s talks are happening, but on something so significant, investors want to be constantly reassured, “ Craig Erlam, senior market analyst with Oanda, tells clients in a note.
And no matter that some Wall Street analysts can’t shake their caution and just embrace the idea of bull year No. 11. There may be one tiny crack on the surface, though, as noted by Cracked Market blogger Jani Ziedins who says “now that prices are a lot higher, it is harder to find people willing to chase stocks.”
Count Luca Paolini, chief strategist at Pictet Asset Management, who provides our call of the day, among them. He told clients in a note that “equities are a turnoff,” with Pictet moving to an underweight position on the asset class and overweight on cash.
“With developed economies under pressure and corporate profit growth slowing, prospects for most stock markets look uninspiring,” said Paolini, who says he just doesn’t think equities can repeat the “stellar performance” seen since the late 2018 selloff.
He’s least keen on Wall Street: “The U.S. stock market looks the most vulnerable to a correction; not only is it the most expensive in our scorecard, but profit margins among U.S. companies look set to contract from record highs of 11%.” Backing this up, he cited data from the National Association for Business Economics Survey showing that nearly two-thirds of U.S. companies have reported higher wage costs.
Here’s a snippet of their chart that shows the regions they like best with regards to stocks. The U.K., for example, is stocked with defensive names that have been unfairly tainted by Brexit, while emerging markets have resilient growth, low inflation, weak-dollar boost going for them.
And markets appear to be underpricing the risk of a recession, says Paolini. Whether or not that pullback is coming, is a major debate for investors, though the IMF, for one thinks it isn’t. Cyclical equity sectors and high-yield U.S. credit, in particular, are underestimating the potential effects of a slowdown, he says
What does Pictet like? Defensive stocks, such as health care and utilities, but steer clear of the two “most expensive industries” right now — goods and services that consumers don’t view as essential, and technology, they say.
The market
Dow US:YMH9 S&P 500 US:ESH9 and Nasdaq US:NQH9 futures are higher. That’s after Tuesday’s session that left the Dow DJIA, -0.30% lower, but the Nasdaq COMP, +0.25% and S&P 500 SPX, +0.00% slightly higher.
The dollar DXY, -0.28% is down, while gold US:GCU8 and crude US:CLU8 are up.
Europe stocks SXXP, +0.66% are on a fourth day of gains. Asian equities were mostly higher, lifted by upbeat talk over a trade deal. Data showed a private indicator of China’s service sector hit a 14-month high. The Shanghai Composite SHCOMP, +1.24% led with a 1.2% gain.
Bitcoin BTCUSD, +3.72% is up again after a big day on Tuesday.
The chart
If the economy is indeed in and end-cycle phase, the question is which stocks are a better bet? Our chart of the day, (h/t The Daily Shot ) from BlackRock, shows developed markets have managed the best returns, followed by emerging markets:
The buzz
While, Trump appears to have eased up on threats to close the border with Mexico. Fallout from the rhetoric has contributed to the biggest price jump in nearly a decade for avocados. Some say a prolonged border closure could affect millions of U.S. jobs.
No one’s really envying Blue Apron’s APRN, -1.68% new CEO, Linda Kozlowski, whose new job may be a tough and thankless task.
Read: Intel gets CFO Davis from Qualcomm
Boeing BA, -0.20% and accident investigators are looking into a Florida repair shop, which worked on a faulty sensor linked to the crash of the Lion Air 737 Max last year.
A Netflix NFLX, +0.21% executive is suing the video streamer, which she said fired her for being pregnant.
Embattled U.K. PM Theresa May is ready to turn to the opposition to help break the logjam over a Brexit deal.
Read: After 312 years, the Queen’s grocer is going global
The economy
As a precursor to Friday’s jobs data, we’ll get the ADP employment report, followed by the final Markit services PMI and the ISM non-manufacturing index for March. Read our jobs preview here.
A bunch of Fed speakers will also hit the tape — Atlanta Fed President Raphael Bostic, Richmond Fed President Tom Barkin, Kansas City Fed President Esther George and Minneapolis Fed President Neel Kashkari.
The quote
"Every child out there should know this:
Each of you, one day, can be the Mayor of Chicago."
— Lori Lightfoot (@LightfootForChi) April 3, 2019
“We can and we will break this city’s endless cycle of corruption, and never again allow politicians to profit from their elected positions.” — That was a tweet from Lori Lightfoot, who has made history in her election as Chicago’s first black female and openly gay mayor.
Random reads
Kansas woman cleans out Payless shoe store, donates them all to Nebraska flood victim
Trump to former VP Joe Biden, accused of inappropriate behavior to women: ‘Welcome to the world.’
South Africa’s trees are being wiped out by a tiny and seemingly unstoppable black beetle
Algeria is partying as President Abdelaziz Bouteflika steps down after a two-decade rule
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