(New York)

If you are feeling some relief because of the “trade truce” between the US and China, don’t. At least that is what Morgan Stanley and Bank of America are saying. Morgan Stanley explains that the current rally is very reminiscent of what happened last November, just before the market imploded and had the worst December on record. At that time, the US and China had another truce which sent markets rallying. However, bigger tensions loomed larger and set the market up for a historic fall. One of the big issues was that the seeming ”truce” stopped inventory managers from purchasing because there was no more incentive to stockpile.

FINSUM: The most interesting view here is the idea that the markets are trapped between the “Powell Put” and the “Trump Call”. That is the concept that every time markets are doing well, Trump will try to drive a harder bargain with China, and if the market falls, Powell will cut rates. In this way, markets could be trapped in a banded range.

(New York)

America tends to be very US-centric, but right now it would be wise to pay attention to some global economic signals. In particular, manufacturing is starting to look very weak across the world, and the negative wave is already impacting the US. Factory output across Europe and Asia declined in June, and the US’ barely rose. Globally, it was a second straight month of contractions, something that has not happened since 2012. More specific data showed declining sales and production in both China and Germany.

FINSUM: The US has been sprayed with Teflon for most of this bull market, but given the global nature of the trade war, it seems like we may be starting to get sucked into the downturn.

(New York)

Something the market has not had to deal with for some time is once again occurring. That change? Slumping buybacks. Hiked dividends and big buybacks have been staples of the this historic bull run, but the latter are starting drying up. Share repurchases shrank for the first time in seven quarters in the second quarter. The total amount of buybacks—over $200 bn—is still quite robust, but it is a sign that companies are tightening up, which could be indicative of the overall direction of the economy.

FINSUM: This is immaterial. In 2018, companies spent $800 bn on buybacks, so $205.8 bn (the 2nd quarter’s figure) is actually ahead of pace.

(Chicago)

In what comes as a troubling sign for the economy, but surely one good for the likelihood of a rate cut next month, new economic data shows that US manufacturing output slipped in June. The ISM manufacturing index slipped own into the territory between expansion and contraction. Perhaps more worrying than the absolute level is the fact that the index has been dropping for three straight months. However, many were expecting a worse drop, so this data was not as alarming as expected.

FINSUM: The fact that this was not as bad as expected is actually a very bearish sign, as it shows the current expectations of the market.

(Washington)

The market has the idea that the Fed holds a massive “put”. The concept entails that the Fed can effectively set a floor on asset prices because it can take dovish action to support markets at any point. However, that notion is problematic at the moment because a rate cut in the near term may actually induce a correction. In fact, markets look set for a lose-lose scenario. On the one hand, if the Fed does not cut rates, markets will be very disappointed and slump. On the other hand, investors have already priced in a near 100% chance of a rate hike, so it happening won’t give markets much of a boost and is more likely just to make investors worry that the economy is headed south.

FINSUM: We hate to say it, but we kind of buy into this view. Maybe not so much that markets will fall even if the Fed cuts rates, but the cuts certainly won’t be overly supportive at this point and may lead to a gradual decline.