E Markets: Immoral

Markets are amoral. Prices aren’t right or wrong but for your position and your profits. The mix of church and state has been the battle for centuries across all parts of the world. Governments can’t legislate morality either. The blasting of the US indictment of Huawei and the extradition of its CFO led to a Chinese official to call the US actions “unfair and immoral.” The CFO’s lawyer characterizes her as a “hostage.” This is an interesting clash to watch as it sets the tone for US/China talks this week with the March 1 deadline looming and with the focus on China growth not going away. Asia shares slipped while EU has bounced. The Yellow Vests in France suffered an electoral set back as their campaign director quit due to internal squabbling with 10 candidates pushing for seats in the upcoming May EU elections. The French consumer confidence was also better today – suggesting the movement's effect on the broader economy maybe petering out. Overall, the worries about Asia still dominate the picture into US earnings, the FOMC decision, and ongoing US political storms. The risk mood up in Europe, down in Asia leaves the US stuck waiting for Apple earnings, the UK Brexit vote and more from Trump. It’s the nature of markets to price risks to reflect the worst possible outcome for the largest positions and that makes the GBP and its fate today important. GBP/JPY maybe the more exciting barometer for those that want to mix the worst fears about global trade, US/China and Europe together.  Unlike the GBP/USD which points to a breakout with 1.35 risks still, the GBP/JPY warns of a bear-market rally at risk of fizzling out into significant resistance at 146 and 147. How the UK manages today, how the US markets absorb more tech earnings stories, how Trump plays his Huawei card in China talks – all that is in play and there isn’t much about principles or morality that will shift traders and investors from waiting this one out.

Question for the Day: Is the US/China talks the issue or China growth? The stimulus plans from China in 2019 helped markets last week but not so far this week. Some put the blame on the headlines into the talks this week, while others see the doubts about the Chinese consumer rising. The WSJ highlights this point on the auto sector – reporting on the “nothing burger” announcements today. “Local governments with adequate resources” will be able to offer subsidies to rural car buyers trading in their old vehicles. Central government support seems likely to be limited, with no mention of a cut in the tax on vehicle purchases, a tool Beijing has often used in the past to boost auto sales. Chinese auto stocks slumped by as much as 4%, after what Bernstein autos analyst Robin Zhu termed this “nothing burger” of an announcement. They had rallied almost 20% in the past three weeks after a senior government official suggested stimulus was on the way,

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