October 2, 2018

Stocks opened higher again this morning (Dow +131 pts; SPX +.16%). There’s not much news for traders to chew on today. Utilities are bouncing back 1.3% after having corrected in September. At the same time, materials, tech and energy are trading higher. Biotechs, banks and transports are in the red. Small-caps are taking a hit (-2% in 2 days) after a new trade agreement was reached with Canada. Remember, small-caps were seen as a safe haven investment when trade tensions were at their worst. European stock markets were lower in today’s session on concerns about Italy’s budget deficits. The fact that the dollar is stronger and Treasury yields are lower has to do with Italy as well. Whenever European finances or economic growth look a bit uncertain, global investors tend to buy US Treasury bonds. So the 10-year Treasury yield dipped back down to 3.05%. And that, of course, is why utility stocks are rising today.

The Euro currency is trading at a 2-month low after the Italian government announced its 2019 budget deficit will be about 2.5%. That level breaches European Union rules, which require heavily indebted countries to work toward narrowing budget deficits. So that’s causing some political turmoil, and EU officials are worried that Italy could go down the same path blazed by Greece. Economist Mohamed El-Erian warned that while emerging markets stocks are cheaper than here in the US, this is not the time to invest more capital in the emerging world. “History suggests that rising oil prices, strong dollar, tighter global liquidity conditions and slowing global growth can be a disruptive combination for quite a few emerging economies.”

Tesla (TSLA) says the Chinese government is now imposing a 40% tax on its vehicles. That compares to a 15% tariff on other cars imported into China. Tesla is responding in two ways, by speeding up construction on a new manufacturing plant in Shanghai, and by raising car prices in China by 20%.

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