Pro Perspectives 7/24/19

July 24, 2019

Over the next five business days we'll hear from the European Central Bank, the Bank of Japan and the Fed.

The ECB will kick it off tomorrow morning.  And we head into this major central bank meeting with U.S. stocks sitting on new record highs.  And with German bond yields trading very near record lows (at negative 37 basis points).  

We already know all three of these major central banks have made it clear over the past seven months that they will do more easing, more unconventional policies if needed.  The question is, will the ECB, just seven months removed from ending its QE program, announce a new stimulative program?  Will the BOJ add to its QE program?  Doubtful.  I suspect, a reversal of course by the Fed next week (from a three year rate hiking campaign, to cutting rates), will be enough to ease the pressure on the global economy, without more official action from the ECB and BOJ. 


Any pressure on the ECB and BOJ to do more would be further eased, if a U.S./China trade deal were to follow the Fed's move.

The Trump administration appears to be putting the timeline in place.  U.S./China trade negotiations will restart in China next Tuesday through Wednesday (the day we expect to get a Fed cut).  And then the Treasury Secretary said today, they plan to have meetings come back to D.C. 

Remember, Trump is in the position of strength on the China negotiations.  At anytime, he can make any concessions necessary to do a deal, and remove the overhang of uncertainty on the global economy.  Heading into next year's election, he would have a tailwind of a booming economy. 

Now, with U.S. stocks sitting on record highs, let's take a look at a couple of stock market charts that should offer bigger opportunity over the next five months, following the global economic relief of a Fed pivot (rate cut). 

Here's a look at German stocks.  The S&P 500 is on record highs, the DAX is 9% off of the record highs (from January of last year). 

And here's a look at Japanese stocks.  You can see the Nikkei looks like a technical breakout is coming (i.e. going higher).  The S&P 500 is on record highs, and the Nikkei is 13% away from the October 2018 highs. 

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