Hopes for Korean nuke deal torpedoed, China PMIs interrupt growth rally, and Ray Dalio cuts odds of a U.S. recession. Here are some of the things people in markets are talking about today.
Know when to fold ’em
President Donald Trump’s talks with North Korea ended with his abrupt exit after the two sides couldn’t agree on a deal to relieve Pyongyang of U.S. sanctions in exchange for giving up much of its nuclear-weapons program. Kim Jong Un’s offer to dismantle the nation’s main nuclear facility was too small of a concession to trade for a full lifting of sanctions, according to Trump. “Sometimes you have to walk,” he said at a news conference in Hanoi after negotiations ended early. The president showed he “knows when to walk away” in the White House situation room with House Speaker Nancy Pelosi last month.
Bullish market bets on a Sino-driven rebound in global manufacturing may be wishful thinking. China’s latest purchasing managers index, the first official gauge for February, showed activity slumped further below the 50 mark that signifies contraction to 49.2, while new export orders also slid. All that underscores fears that optimism in financial markets appears at odds with the real economy. Copper, often used as a growth barometer, declined as did mining shares in Europe.
Wall Street loves you, Jay
Praise for Jerome Powell’s dovish pivot continues to roll in, with the latest vote of confidence from billionaire Ray Dalio. The head of the largest U.S. hedge fund firm said the chance of a U.S. recession before the next presidential election is about 35 percent compared with odds at more than 50 percent about 18 months ago. In a LinkedIn note, Dalio said the Fed can manage a “big sag” in the U.S. economy with a return to quantitative easing. Powell told lawmakers Wednesday that he’ll soon announce a plan to stop shrinking the $4 trillion balance sheet. Post-Fed pivot, Scott Minerd of Guggenheim Partners scaled back fears over an imminent contraction while Kyle Bass of Hayman Capital Management projects a mild one in 2020.
Overnight, the MSCI Asia Pacific Index dipped 0.7 percent as China data and geo-political fears weighed on sentiment. In Japan, the Topix index closed 0.8 percent lower. Europe’s Stoxx 600 Index sank 0.4 percent at 5:55 a.m. led by miners. S&P 500 futures pointed to a drop at the open, the 10-year Treasury yield was at 2.67 percent and gold was up.
Investors will get a sense of how the market meltdown in the fourth quarter hit U.S. business activity and consumer confidence with the delayed GDP print at 8:30 a.m. In central-bank land, Fed officials including Robert Kaplan, Richard Clarida, Raphael Bostic and Patrick Harker are all due to make pronouncements at various economic gatherings.