Trump, Xi to Talk in Person; CPI on Tap; Oh, Boy, Canada!
The meeting between presidents Trump and Xi will be the first face-to-face talk in years; also on tap Malaysia, Japan; mass layoffs at Target.
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Happy CPI Friday! Or should we say, "Happy Fri-Yay!" It's been a heck of a week, and we've made it this far. Just a little further, friends and then you can rest. Kind of reminds me of a few words written by Robert Frost back in 1922...
The woods are lovely, dark and deep,
But I have promises to keep,
And miles to go before I sleep,
And miles to go before I sleep.
Fun fact... John McGraw's New York Giants defeated the New York Yankees in the 1922 World Series 4-0-1. Yes, there was a tie in Game Two that year. Extra innings. No lights. Home Run Baker, who led his league in home runs three times, but never hit more than 12 in any one year, stepped to the plate for the final time in that Series. Interestingly, Babe Ruth had an awful Series in 1922, hitting .118 with no home runs.
Game On!
No, not baseball. One reason markets rallied on Thursday and Asian markets rallied overnight was the announcement made by White House Press Sec. Karoline Leavitt during a press briefing less than 24 hours ago. U.S. Pres. Donald Trump will meet with Chinese Pres. Xi Jinping next Thursday at the Asia-Pacific Economic Cooperation summit in South Korea.
This will be the first face-to-face meeting between the leaders of the world's two largest economies since 2019 during Pres. Trump's first term, though the two have spoken over a telephone at least three times since the U.S. president's return to power in January. Pres. Trump has consistently mentioned a preference for direct talks when nations have issues with one another and the president has said that he expects that these talks will produce a positive outcome.
Keep in mind that the U.S. has expanded on a Biden-era restriction on exports of U.S. technology to China, placed levies on Chinese ships at U.S. ports, has threatened to place additional tariffs of 100% on imports from China starting Nov. 1 and is now considering new export limits to China of critical U.S. software.
China has consistently tightened restrictions of exports of rare earth minerals and metals to the U.S., placed import curbs on U.S. semiconductors and has placed levies on U.S.-associated ships at Chinese ports. Coming to an actual trade deal might be too much to ask. At least extending what had been the status quo could prevent broad disruption across both economies.
Pres. Trump leaves for Malaysia tonight to meet with Prime Minister Anwar Ibrahim. The president will speak at an ASEAN (Association of Southeast Asian Nations) dinner on Sunday evening. On Monday, the president heads for Tokyo to meet Japan's new Prime Minister Sanae Takaichi on Tuesday. Then, it's off to South Korea on Wednesday to meet with Pres. Lee Jae Myung, deliver a keynote address at the APEC summit and ultimately meet with Pres. Xi.
To say that there will be some headline risk to U.S. and global market performance next week would be an understatement. In addition, throw in the additional risk associated with the Federal Open Market Committee policy statement and subsequent press conference due this coming Wednesday.
Time Out, Canada!
Pres. Trump announced late on Thursday that he was terminating trade negotiations with Canada. The U.S. president was reacting to a television commercial sponsored by the provincial government of Ontario that featured the voice of former U.S. Pres. Ronald Reagan speaking negatively about tariffs. The audio is from a 1987 radio address delivered by Pres. Reagan where the late leader said that tariffs hurt American workers and consumers and result in trade wars that could result in lost jobs.
The Ronald Reagan Presidential Foundation announced on Thursday evening that the ad misrepresents Reagan's words and that the province of Ontario did not ask for permission to use the recording. The Reagan foundation is reviewing its legal options. Oddly enough, Pres. Reagan at the time, was explaining that while he was not in favor of tariffs as a tactic, it was then necessary to impose new tariffs on Japanese imports to the U.S. Obviously, the commercial, which I watched, completely failed to mention that the speech made by Reagan was made in defense of imposing new tariffs despite his lamenting that he had to.
Marketplace
Equities were hot on Thursday, completely reversing the "Day One" bearish sell-off on Wednesday. Interestingly, Treasury debt securities sold off on Thursday. The U.S. Ten-Year Note paid as much as 4% on Thursday afternoon (up 5-basis points) and are yielding more than 4.01% in overseas trade as we traverse the zero-dark hours of Friday morning.
The S&P 500 moved 0.58% higher, while the Nasdaq Composite gained 0.89%. Small and mid-caps were in vogue on Thursday as the S&P 400, S&P 600 and Russell 2000 scored gains of 1.35%, 1.08% and 1.27% respectively. The hottest mid-major equity index on Thursday was the Philadelphia Semiconductors led by the equipment providers such as Lam Research (LRCX) , Micron Technology (MU) and KLA Corp (KLAC) . There was a bit of "ugly" on the screen on Thursday, as the Dow Transports were roasted for a loss of 1.9% as Ryder Systems (R) and Southwest Airlines (LUV) were pummeled for beatdowns of more than 12% and 6% respectively.
Breadth
Thursday's rally was broad. Seven of the 11 S&P sector SPDR ETFs closed out the Thursday session in the green. Energy (XLE) led the way with Technology (XLK) close behind. Most importantly, the top six performing funds were all cyclicals or growthy in nature. Four of the five bottom feeders on Thursday were defensive sectors. That's a rebirth of optimism, at least economically speaking, gang. Anyone else notice that the VIX has been sinking like a rock for over a week?
Winners beat losers by a roughly 7-to-4 margin at both the NYSE and the Nasdaq. Advancing volume took a 61.9% share of composite NYSE-listed trade and a 61.5% share of composite Nasdaq-listed activity for the day. All well and good? Day one threat from Wednesday all gone? Yes, but not because of increased trading volume.
There was more activity on Wednesday. On a day-over-day basis, aggregate volume was a sharp 27.8% lower on Thursday across Nasdaq-listings and down 2.5% across NYSE-listings. Trade was lower, by just a smidgen across the membership of the S&P 500 as well. The reason why Thursday's rally negated Wednesday's "Day One" was simple. The rally took out Tuesday's closing level for the S&P 500. That is not just a pause. Wednesday and Thursday taken in aggregate produced a small gain. No, Thursday is not a "Day One" bullish reversal. Yes, that's because of the reduced trading volume. We return to square one technically.
In Other News: Off Target, Quantum Talk
- On Thursday, a Commerce Department spokesperson told CNBC that the U.S. government was not in talks with quantum computing companies to take equity stakes in those companies. This came after the Wall Street Journal had run a story that people familiar with the matter had said that there were indeed talks. Regardless, IonQ (IONQ) , Rigetti (RGTI) , D-Wave (QBTS) , Quantum Computing (QUBT) and Churchill Capital Corp X / Infleqtion (CCCX) all traded sharply higher on Thursday, and all are trading still higher overnight.
- The Wall Street Journal is reporting that broadline retailer Target (TGT) is planning to lay off roughly 1,000 corporate employees while eliminating 800 open positions amounting to an 8% reduction in its labor force. Elsewhere, electric vehicle maker Rivian (RIVN) plans to lay off more than 600 employees or a rough 4.5% of their labor force.
- Alphabet's (GOOGL) Google Cloud and burgeoning chip business got a new and significant boost from the newly announced deal with Anthropic, which is a rival of OpenAI. According to the deal in place, Anthropic will access up to 1 million Google tensor processors, or TPUs, to train and run the firm's "Claude" large language models. TPUs use vertical power delivery to maximize efficiency, as opposed to Nvidia's (NVDA) GPUs that use lateral power delivery. Time will tell if this is a major development or not and if this is a serious threat to Nvidia's dominance in the AI-capable chip design business.
Economics
(All Times Eastern)
08:30 - CPI (Sep): Expecting 0.4% m/m, Last 0.4% m/m.
08:30 - Core CPI (Sep): Expecting 0.3% m/m, Last 0.3% m/m.
08:30 - CPI (Sep): Expecting 3.1% y/y, Last 2.9% y/y.
08:30 - Core CPI (Sep): Expecting 3.1% y/y, Last 3.1% y/y.
09:45 - S&P Global Manufacturing PMI (Oct-Flash): Expecting 52.0, Last 52.0.
09:45 - S&P Global Services PMI (Oct-Flash): Expecting 53.7, Last 54.2.
10:00 - U of M Consumer Sentiment (March-F): Flashed 55.0.
10:00 - U of M One-Year Inflation Expectations (March-F): Flashed 4.6%.
10:00 - U of M Five-Year Inflation Expectations (March-F): Flashed 3.7%.
1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 548.
1:00 - Baker Hughes Oil Rig Count (Weekly): Last 418.
The Fed
(All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: BAH (1.51), (GD) (3.72), (HCA) (5.73), (ITW) (2.72), (PG) (1.90)
At the time of publication, Guilfoyle was long LRCX, MU, CCCX, GOOGL, NVDA equity.
