 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Tuesday's Headlines 1. U.S. Markets Slump as Trade Talk Turns Negative 2. U.S. Adds 28 Chinese Firms to Blacklist over Human Rights 3. China Bans NBA Over Hong Kong support 4. Fed to Expand Balance Sheet...Again Markets Closed
 Markets Today
U.S. markets tumbled today as the news around the trade talks that are scheduled to begin Thursday, turned sour. President Trump went from saying that a big trade deal with China was 'possible', late Monday afternoon, to saying that a big deal was, 'unlikely', today.
Today's issue surrounds human rights.
The U.S. blacklisted an additional 28 Chinese firms citing their role in Beijing's repression of Muslim minorities in northwest China. The companies targeted include video-surveillance and facial-recognition giants Hangzhou Hikvision Digital Technology, Megvii Technology Inc. and SenseTime Group Ltd.
The Commerce Department said in a filing the "entities have been implicated in human rights violations and abuses in the implementation of China's campaign of repression, mass arbitrary detention, and high-technology surveillance against Uighurs, Kazakhs, and other members of Muslim minority groups."
The decision by the Commerce Department to add the firms to its "entity list" alongside telecommunications giant Huawei Technologies Co.—which was added in May—means suppliers will be barred from providing technology that originates in the U.S. to the Chinese firms without a license.
China responded by telling the U.S. to stay out of its human rights issues and demanded it rescind the sanctions.
The U.S. then responded by putting visa restrictions on Chinese officials Tuesday amid ongoing abuses of Muslim minorities in the Xinjiang region.
Trade negotiations are supposed to begin October 10th.  The chart above from tradingeconomics.com shows China's Services Index over the past year. Today's report and the recent trend shows that China's services sector, which accounts for more than half of China's economy, is growing at its slowest pace in seven months as operating costs rise.
Like the U.S. services sector, China's services sector reflects its internal economy more than its manufacturing index, which reflects China's trade with other countries. In other words, it's hard to draw the direct line from the trade war to its slowdown in services. But, like in the U.S., trade tensions have a way of spilling over into other parts of the economy.
Think of the economy like the human body. If you twist your ankle, you are likely to start limping, which will eventually start hurting your lower back. Now you have a back problem, which you didn't have when you twisted your ankle, but the downstream effects make their way to your back.
We are seeing something similar in the U.S. among small businesses. Optimism among U.S. small businesses slipped in September, although it is still relatively high.
According to the NFIB (National Federation of Independent Businesses), while the survey shows no sign of a recession, several components of it show high levels of concern.  U.S. small businesses generate 44% of the country's economic activity, so if they turn cautious, it will have an impact.
The NBA vs. China Daryl Morey, the general manager of the NBA's Houston Rockets, may not have realized the potential impact of a tweet he made over the weekend in support of the Hong Kong protesters. He's realizing it today as China has all but banned the broadcast of NBA regular and preseason games across the country.
Morey's original tweet said, "Fight for freedom, stand with Hong Kong." It has since been deleted, and he has tried to walk his comments back with a new tweet on October 7th, but the damage may already have been done.  China Central Television (CCTV), China's main broadcaster, halted the broadcast of NBA preseason games immediately because it was dissatisfied with NBA Commissioner Adam Silver's support for Morey. Silver (no relation) told Kyodo News "I think as a values-based organization that I want to make it clear ... that Daryl Morey is supported in terms of his ability to exercise his freedom of expression."
That didn't sit well with Chinese officials or its state-run media companies. It also didn't sit well with the NBA's Chinese media and advertising partners, including Tencent, which runs some of the largest websites in China and streamed its games, until this week.
For perspective, China is one of the most important markets for the NBA's global expansion. It's been operating in that country for more than a decade, and several Chinese companies are partners with the NBA and its teams. The league's business in the country is worth more than $4 billion as of 2018, or $133 million to each NBA franchise, according to Forbes.
The Los Angeles Lakers and Brooklyn Nets are set to play a preseason game in Shanghai on Thursday, followed by a rematch in Shenzhen on Saturday. Some social media users in China have been calling for boycotts of the NBA events.
While basketball is only a game, the business of sports is massive, and sensitivities are heightened right now.
image courtesy abcnews.com  Fed Expands Balance Sheet...Again
Don't call it quantitative easing...at least Fed Chair Jerome Powell doesn't want us to. In a speech earlier today, Powell reiterated that the Federal Reserve will start to increase its purchases of short-term Treasury securities in order to avoid any recurrence of the unexpected strains experienced in money markets last month.
In September, as CNBC reports, the overnight repurchase markets, or repo markets, as they are called, experienced a shortfall due in part to funding constraints caused by money getting pulled out of the system as banks made tax payments and the Treasury Department settled bond auctions. Cash levels that the U.S. banks hold on reserve at the Federal Reserve, had fallen to $1.5 trillion, which sounds like a lot until you realize it was as high as $2.7 trillion in 2014.
The lack of funding caused repo rates to spike as high as 10% and the Fed's benchmark funds rate, which banks charge each other for short-term borrowing, to go above its targeted range by 5 basis points.
If this all sounds complicated, it's because it is. In very basic terms, banks are required to hold a certain level of cash that is housed inside the Federal Reserve so that they can settle lending transactions with one another, and have enough cash on hand in times of crisis. While we are not in a liquidity crisis now by any means, the September shock to the repo market was a warning to banks and the Fed that more capital on hand is necessary to prevent more shocks to the system.
The Fed can expand its balance sheet by buying U.S. Treasuries, which Powell said it would do. He also said the Fed will be revealing a broader, more organized plan to expand its balance sheet in the coming days.
This chart from the Federal Reserve shows how the Fed has been expanding its balance sheet over the past several months after reducing it for the better part of the year.
chart courtesy: https://fred.stlouisfed.org/series/WALCL 
(chart courtesy YCHARTS)  In an overall poor day for the markets, some stocks managed to eke out gains. American Airlines Group posted a 1.8% gain after posting its best on-time arrival rate in nearly 2 years. Other stocks rising above today's doldrums were communications equipment maker Motorola Solutions, which rose 1.8% and mining company Newmont Goldcorp which gained 1.7%.  It was a bad day for anyone involved in operating or manufacturing products for medical laboratories. Medical diagnostics company LabCorp dropped 7% today, while lab equipment manufacturers Waters Corp and PerkinElmer fell 6.9% and 6.1% respectively. Biotech product developer Thermo Fisher Scientific dropped by 5.8% and medical device manufacturer Boston scientific fell 5.7% Word of the Day A blacklist is a list of persons or organizations that are penalized because they are believed to engage in unfavorable or unethical activity. A blacklist can be a database maintained by any entity, ranging from a small business enterprise to an inter-governmental body. Depending on the scope of the blacklist, it can be made public or kept confidential and only accessible by select organizations. Inclusion on a blacklist can affect an individual or company's ability to travel, purchase goods and otherwise conduct their affairs.  photo source: Getty/Corbis
Today in Financial Crime History October 8, 2004 : Martha Stewart is sentenced to five months in prison and five months of home confinement in addition to a $30,000 fine, and was sent to the minimum-security facility in West Virginia—known as "Camp Cupcake." Stewart was convicted in March of 2004 for lying to investigators about why she sold ImClone stock in December 2001, just before the stock price plunged. Stewart's crime was obstruction of justice, and not insider trading.
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Tuesday, October 8, 2019
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