 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Monday's Headlines 1. Markets Slip as Investors Digest Phase One Trade Agreement 2. Commodities Price in Phase One 3. Banks to Report Earnings in Low Rate Environment 4. WeWork Must Choose its Backer 5. Nobel Laureates Win with Poverty Research Markets Closed
 Image: Getty Images Markets Today
U.S. markets traded lower today as investors looked at the details, or lack thereof, of Friday's Phase One trade agreement with China. The U.S. bond market was closed for Columbus Day, as it always is. President Trump announced a 50% tariff on Turkish steel imports, and an immediate halt to negotiations with the country in retaliation for Turkey's attack on Kurdish forces in Syria. Last week, Trump ordered the withdrawal of all U.S. forces on the Turkish/Syrian border.
Side note: The Bond market closes on all Federal holidays because its regulators are part of government departments, and the Federal Reserve, which is also closed, doesn't auction off government bonds, which impact the rest of the market. The stock exchange is more decentralized and does not require government departments to operate.
Phase One Indigestion Friday's Phase One trade talk enthusiasm dampened on Monday when the official version of the preliminary agreements started coming to light. Today we learned:
While the White House was celebrating the fact that China agreed to purchase $40-$50 billion in U.S. agricultural products, it appears that there were not a lot of details on the other matters, and those do matter.
Here's how Morgan Stanley's Chief Equity Strategist, Michael Wilson, characterized it in a research note today:  Wilson points out that last Friday's "agreement", was similar in tone and substance to the "agreement" from the G20 meeting in Argentina on December 1, 2018. The markets celebrated on December 1st, and then... you remember last December, right?  What's past is not necessarily prologue, but it's worth paying attention to. A key difference between 2018 and 2019 is the Fed's stance on monetary policy. In the Fall of 2018, the Federal Reserve raised interest rates just as the tariff war was heating up. President Trump chastised Chairman Powell for doing so and hasn't stopped since. When the Fed reversed course in early 2019, U.S. markets stage a 20% rally. But Wilson's point is that the ebullience of investors around the G20 summit trade talks lasted about 48 hours. He and his team, in addition to several other market watchers, don't anticipate a real trade agreement until well into 2020, if it comes at all.
Commodity Reaction As for the agricultural purchases China has agreed to make, investors may have been betting on this outcome all along. Both soybean and cotton futures have been rallying all fall, and they have been among the most susceptible to the trade war.
Here's cotton futures for January delivery since the beginning of the year. They bottomed in early September.  And here's soybean futures with December delivery since the beginning of 2019. It's harvest season, but it also looks like the phase one outcome was, 'priced in', as they say.  Here Come Bank Earnings Earnings season unofficially begins tomorrow when some of the world's biggest banks report third quarter results. JPMorgan, Citigroup, and Goldman Sachs are among the majors reporting results tomorrow.
We know that lower interest rates have impacted their net interest income, which is basically the income they earn by lending money at higher rates than they borrow it.
Put another way, a typical bank's assets consist of all forms of personal and commercial loans, mortgages, and securities. The liabilities are interest-bearing customer deposits. The excess revenue that is generated from the interest earned on assets over the interest paid out on deposits is the net interest income.
While low interest rates have dampened margins, they haven't hurt their lending activities, since there is more borrowing when rates are low. Mortgage activity has also been strong for the same reasons.
Banks have been trying to right-size their operations, especially in Europe. There have been some 60,000 job cuts at global banks in 2019, according to Bloomberg. Most of those have been at European banks like Deutsche Bank and Commerzbank, but a contracting global economy and less banking activity may cause some reckoning for U.S. based banks. We'll be listening for any news on that this week.
Banks, as seen through the XLF ETF (the purple line), have basically performed in line with the broader market all year.  WeWork Must Choose a Life Raft The We Company, or WeWork, as most people know it, has gone from golden unicorn to man overboard, as its cancelled IPO leaves it in a cash crunch.
According to the WSJ, the company is deciding whether to let SoftBank, its biggest investor, give it a cash infusion that would also give it control of the company, or take debt financing from JPMorgan Chase, one of its principal bankers.
Softbank has already invested $10.5 billion in WeWork, and had high hopes of seeing one of its largest investments go public. It was in line to receive a $6 billion payout once WeWork became a public company. Now that the IPO is shelved indefinitely, SoftBank is trying to salvage its investment, and show potential investors in the $100 billion technology fund it is trying to raise, that it hasn't lost its touch.
The Journal reports that We had $2.5 billion in the bank as of June 30, but needs $3 billion to get through the year. photo courtesy Reuters
(chart courtesy YCHARTS)  IT firm Hewlett Packard Enterprise is up 4.1% after an Evercore ISI analyst raised its rating from "underperform" to "in-line." Medical device maker Abiomed rose 4% while utility company Alliant Energy rose 3.7%.  Laser maker IPG Photonics fell 7.7% today after being downgraded from "buy" to "hold" by a Needham & Company analyst. Fertilizer manufacturer CF Industries Holdings fell 3%, while fellow fellow fertilizer maker Mosaic Co dropped 2.9%. Word of the Day Development economics is a branch of economics that focuses on improving fiscal, economic, and social conditions in developing countries. Development economics considers factors such as health, education, working conditions, domestic and international policies, and market condition with a focus on improving conditions in the world's poorest countries.
:max_bytes(150000):strip_icc():format(webp)/ScreenShot2019-10-14at6.55.37AM-c43e1fde1ffe43bc9b8955d43df7a598.png "Image") Today in History October 14, 2019 Today we're all lucky enough to see history being made in real time. The Nobel Memorial Prize in Economics was awarded to Esther Duflo, Abhijit Banerje, and Michael Kremer for their work in developmental economics. Their work showed how large, complicated problems, such as improving public health, could be broken down into specific proposals that can be tested with randomized controlled trials. Duflo is the second woman to win a Nobel Prize in economics. The first was Elinor Ostrom, for her work studying how to manage shared resources. https://www.investopedia.com/mit-harvard-economists-working-on-alleviating-poverty-win-nobel-prize-4773093
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Monday, October 14, 2019
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