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RoboStreet – May 31, 2018
Trade Tariffs and Italian Bond Turbulence Stymie Rally
This morning President Trump made good on his promise to impose tariffs on steel and aluminum if there was no progress on fair trade talks with Europe, Canada and Mexico. The Trump administration ratcheted up the brinkmanship Thursday by announcing new duties on steel and aluminum imports from the European Union, Canada and Mexico after failing to reach deals with them to address national security concerns related to the imports.
Mexico quickly announced it would impose penalties on a list of U.S. goods. European Commission President Jean-Claude Juncker also said the EU would respond with penalties of its own on U.S. exports. The three allies were previously given temporary exemptions from the duties — 25% on steel imports and 10% on aluminum.
In the case of Canada and Mexico, the U.S. had hoped to address its national security concerns in the context of ongoing efforts to renegotiate NAFTA, but those talks have taken longer than expected and there is now no precise end date in sight. Talks with the European Union made some progress, but not enough to warrant a permanent exemption or another temporary exemption, according to Commerce Secretary Wilbur Ross.
The United States’ trade deficit with China grew by $28 billion in 2017 and by $14 billion with its two NAFTA partners. Its trade deficit with China of $375 billion dwarfs the $71 billion trade deficit with Canada and the $18 billion deficit with Mexico. So, one would expect further proactive measures by the Trump administration regarding China in the near future if China stonewalls the U.S. similar to Europe, Canada and Mexico.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
As to the highly fluid political crisis in Italy, there is some breaking news that helped calm a major sell off earlier this week. The bond markets stabilized somewhat on Wednesday following the major moves on Tuesday that were largely sparked by fears of a political impasse which could lead to new elections- serving as a de facto referendum on euro membership. Hopes that a vote can be avoided emerged after media reports said a populist trio of the 5 Star Movement, the League and Brothers of Italy was pushing to form a coalition government.
At a somewhat inconvenient time for the Italian Treasury, the government on Wednesday held a bond auction, selling a total of 5.571 billion euros ($6.44 billion) in government debt. Following the recent political turmoil, the funding costs in the auction surged, with yields jumping to their highest since 2014. But investors said the sale saw decent appetite from investors, helping to arrest the recent selloff.
Italy leaving the euro currency would essentially dispose of any future fiscal support by the ECB and thus is not likely in my view. The chart below of the Italian sovereign 10-yr Note shows how quickly the fear of systemic contagion has on bond yields and with Italy’s bond market being fourth largest in the world and the largest in Europe. Italy’s debt of $2.45 trillion dollars is 135% of GDP and thus Italy can ill afford to see rates spike as the cost to carry interest soars.
In the wake of the panic selling that swept through the financial sector, shares of JP Morgan (JPM), a current holding of the RoboInvestor Portfolio, pulled back to test key technical support at $105 on Tuesday, held and pushed off that level on high volume. The stock is trading around $107 and is truly the highest quality name in the entire bank sector. For those looking for a bullish investment in the financial sector, it doesn’t get any better than JP Morgan. I think the Italian bond scare will blow over and blue-chip bank stocks will regain their upward bias.
My Tradespoon Stock Forecast Toolbox shows JP Morgan with a six-month high-target price of $129.67 or +21.3% higher than where the stock currently trades. With an FOMC meeting coming up on June 13 and the Fed expected to raise short-term interest rates by a quarter-point and then again in September, this brief discount in JPMorgan is an extremely attractive buying opportunity that simply doesn’t come along that often.
The power of my AI platform is what drives rational investment decisions within irrational markets. While we can’t control the volatility created by high-frequency trading desks which fuel the buy and sell programs that cause triple-digit swings in the Dow on an almost daily basis, we can gain an edge from stress-tested artificial intelligence that sees through the noise and identifies what to buy and when to buy it. JP Morgan is the what and when to buy it is now.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
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