Markets are hitting a speed bump today as investors navigate a multitude of weekend developments. Top of mind are heightening geopolitical tensions stemming from Beijing, Moscow and the Middle East. The Chinese Communist Party is seeking to reduce pressure from the incoming Trump administration while attempting to support its ailing economy, engaging in tit-for-tat trade actions against the US while proposing further accommodation to fiscal and monetary policies. Meanwhile, Syria’s Bashar al-Assad fled to Russia today, wrapping up his family’s 24-year regime in response to an unexpected rebel victory in Damascus, which occurs as South Korean President Yoon Suk Yeo is banned from leaving the nation following his misstep announcing martial law. And in Europe, rate watchers are contemplating whether the ECB will reduce its key benchmark by a half a point rather than the typical quarter, as London, Paris and Berlin struggle amidst weak demand, sticky inflation and budgetary discords.
An Eventful Weekend
China’s Politburo just announced it would increase fiscal stimulus next year and embrace moderately loose monetary policy. It hasn’t used such language to describe monetary policy in roughly 16 years. Beijing is struggling with weak domestic demand, a glut of real estate and sagging orders for exports, with Mexico having become the top trading partner for the US. Additionally, President-elect Trump’s protectionist policies could further weaken the Asian country’s manufacturing competitiveness. China, furthermore, announced an anti-trust lawsuit against computer chip manufacturer Nvidia (NVDA). The move comes shortly after the Biden Administration clamped down on the types of products the company can export to China to limit the country’s ability to expand its military technology, causing some observers to question if the lawsuit is retaliatory or a pre-emptive move in anticipation of new tariffs.
Meanwhile, South Korea appears to be rudderless with President Yoon Suk Yeol facing the wrath of legislators and the general public after declaring martial law and sending armed soldiers into the National Assembly with hopes of taking control of legislators. While an effort to impeach him failed this week, the Ministry of Justice has imposed travel restrictions on the leader and investigators are searching for evidence that can be used against him. In other developments, the Organization for the Liberation of Levant, or Hay’at Tahrir al-Sham (HTS), captured the capital of Syria, causing the country’s president, Bashar al-Assad, to flee to Russia and ending his family’s stronghold of the county. In response to concerns that ISIS would use the turbulence to increase its influence in the country, the US launched airstrikes on more than 75 camps, leadership facilities and other locations used by the organization. Control of the country is likely to be determined by HTS top commander, Abu Mohammed al-Golani, forming a coalition among the diverse factions that supported the rebellion, which is expected to be a difficult task.
Investors Press Sell
Asset prices are tilted bearishly with the cost of capital creeping up amidst losses across every major, domestic equity benchmark. The Nasdaq 100, S&P 500, Dow Jones Industrial and Russell 2000 indices are down 0.7%, 0.4%, 0.1% and 0.1%. Sectoral breadth is deeply negative with 8 out of 11 segments lower and led south by communication services, utilities and financials; they’re down 1.5%, 0.9% and 0.8%. On the other hand, energy, materials and consumer staples are helping to balance things with the areas up 0.8%, 0.6% and 0.2%. Treasurys are selling at the margin with the 2- and 10-year maturities changing hands with yields of 4.13% and 4.19%, 2 and 4 basis points (bps) heavier on the session. The Dollar Index is near the flatline, as it depreciates versus the euro, pound sterling, franc, yuan and Aussie and Canadian tenders but appreciates against the yen. Commodities are bullish on the session with geopolitical concerns propelling, causing silver, crude oil, copper, gold and lumber to gain 3.6%, 2.4%, 2%, 1.3% and 0.1%. WTI crude is trading at $68.75 per barrel as geopolitical worries coincide with improving prospects of stimulus from Beijing.
Optimism for the Long Term
Trump’s embrace of no longer doing business as usual to help encourage US manufacturing and stimulate growth by cutting taxes is likely to be a long-term tailwind for corporate earnings and capital markets. As with many changes in national policies, however, investors are adjusting their expectations, which is fueling short-term turbulence, or Trump bumps, that we have previously discussed. As we explained last week, strengthening consumer spending, buoyant capital markets and wage increases that are outpacing inflation are likely to help sustain the economic cycle and corporate earnings.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from IBKR Macroeconomics and is being posted with its permission. The views expressed in this material are solely those of the author and/or IBKR Macroeconomics and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
