ABOUT FACE!

Stocks opened higher this morning, rebounding from yesterday’s Tweet-induced sell-off. The Dow is currently up 211 pts and the SPX is up .9%. Cyclical sectors like energy, financials, industrials and tech about-faced and are up more than 1% in early trading. The VIX Index, a common measure of fear among traders, fell back to 18.2. Just like that, traders flipped the switch and sentiment is largely risk-on today. Commodities are trading higher; WTI crude oil rebounded to $56.15/barrel and copper is up over 2%. Bonds are roughly unchanged today. Longer-term safe-haven Treasuries are selling off a bit. The 10-year Treasury Note yield ticked up to 1.47%. Junk bonds are up modestly.

Former Federal Reserve Chairman Alan Greenspan laments the fact that the trade war is “eroding” the global economy. But strangely enough, he says that the stock market will determine whether the US falls into an economic recession. “We underestimate the wealth effect on the economy and this type of volatile stock market moves, it has an impact which I don’t think we fully understand nor measure correctly.” He’s referring to the notion that US consumers in part measure their wealth (or financial health) according to the stock market. And a large, prolonged drop in stocks causes people to decrease spending and increase saving.

The immediate reason for today’s rally is simple. Hong Kong’s China-controlled puppet leader, Carrie Lam, announced the full withdrawal of the controversial extradition bill that spurred widespread social unrest in recent months. Withdrawal of the bill is one key demand of protestors. Because China is bent on exercising authoritarian control over Hong Kong, Ms. Lam admitted her government will not be able to “address all the grievances of people in society.” Overnight, Hong Kong’s Hang Seng stock index shot up nearly 4%. However, there is one other reason for global stocks to move higher. Caixin’s Services PMI for China—which measures business activity—rebounded to 52.1 in August following a massive decline over the spring and summer. As a reminder, PMI readings above 50.0 indicate expanding business activity. It’s a small thing, but it’s positive.


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