CN escalated tensions with Japan over Prime Minister Sanae Takaichi's Taiwan remarks. CN state media warned of "substantive retaliation," including sanctions and trade curbs, and Beijing advised against travel to Japan. At the same time, Japan moved on today to cool the dispute after Takaichi told lawmakers that a CN attack on TW threatening Japan's survival could trigger a military response. China is also slow walking United States soybean purchases as stockpiles hit multi year highs, undermining Trump's claims around the trade deal.
Equity futures made a marginal higher high overnight, led by Tech, but are off their overnight highs. Mag7 are mostly higher, led by GOOG up about 5%; NVDA is flat with earnings due Wednesday after the close. Government data releases return this week, with the focus on Thursday's NFP release for September.
As I wrote in the weekend notes, equities were exceptionally strong on Friday, leaving a potential double bottom formation. It was also the second test of the trend line for many key indices in a relatively short time, and they managed to close back in bull territory. However, I advise caution as a slew of economic data and the bellwether of this bull market are scheduled to release earnings this week.
There are many bull narratives that could support another leg up into year end: a resilient macro environment that is showing signs of a growth reboot; positive earnings growth as the SPX is poised to complete its 4th consecutive quarter of double digit earnings growth; and a thawing trade war that will continue to lower the average effective tariff rate. Additionally, we think the resumption of the Fed easing cycle, both rate cuts and the likelihood of a return to QE, plus corporate buybacks, provide extra tailwinds to the market. I side with the bulls, as I do not think the AI bubble has reached its peak. As I wrote before, we should see more record round tripping deals between these firms, more signs of cash running dry, and more clearly deteriorating balance sheets, and it would be even more fitting if the Fed is the one that pops the bubble, meaning we should see several months of QE and a meaningful increase in inflation at least before the Fed can reverse course. I could be wrong, as it is extremely hard to call the top; the top is a process, while the bottom is an event. For the bears, there is no need to rush into opening short positions. If the bubble is popping, there will be plenty of opportunities down the road to open or add.
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