Bill Gunderson’s Daily Market Observations for Tuesday Oct. 8, 2019

Tuesday 10/8/19=DJIA -315 NASDAQ -130 U.S. 10yr=1.54%
More Chinese Companies Added to U.S. Blacklist.
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Minnesota Oct. 15, 16, & 17-Bill Gunderson and his team will be at the Radisson Blu-Mall of America. Call (855)611-BEST or visit our website to make an appointment.
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Daily Wrap: The market started out on bad note and it ended on an even worse note. It was all about the trade negotiations going on with China. The day started out with news that more Chinese companies were added to the blacklist and we really did not hear any encouraging news today from any of the trade negotiators.
Trading: I sat on my hands and did not do any buying or selling today.
Tweets: I was active on Twitter and StockTwits today. I sent out tweets on TNK, SDC, RNG, NAT, KRNT, FRO, CHD, CDW, BLD, AU, ANGPY, ACAD, and LABD.

The mood was not very good as we began a new trading day.

European stocks slide ahead of U.S.-China trade talks
• Japan +0.99%.
• Hong Kong +0.28%.
• China +0.29%.
• India closed.
• London -0.10%.
• Paris -0.59%.
• Frankfurt -0.55%.

Futures slip as U.S. expands China blacklist
• The economic war against China is moving in a new direction, though the Trump administration said it's unconnected to trade negotiations set to resume in Washington in the coming days.
• 28 Chinese entities have been added to an export blacklist due to Beijing's repression of Muslim minorities, a move that will bar them from buying American components without government approval.
• U.S. stock index futures fell 0.5% following the decision, as China signaled it would hit back over the measures and "urged the U.S. side to immediately correct its mistake.

We have heard this rumor before. There must be something to it. Chinese stocks sold off today.

White House looks at limiting Chinese stocks in government pension funds
• The Trump administration's talks on potential restrictions on capital flows into China will focus on investments made by U.S. government pension funds, Bloomberg reports, citing people familiar with internal deliberations.
• Late last month, the administration was reportedly considering a range of limits, which later White House adviser Peter Navarro labeled "fake news". Now they're looking at how the prevent the U.S. government retirement funds from financing China's economic growth, the people said.
• One of the specific areas they're looking at is further scrutinizing index providers' decision to add Chinese companies they consider a material risk for American investors, Bloomberg reported, though it's unclear if the White House can legally force major indexes to drop certain Chinese companies.
• In response a number of U.S.-listed Chinese companies are falling in premarket trading -- Alibaba (NYSE:BABA) -2.6%, JD.com (NASDAQ:JD) -2.6%, Baidu (NASDAQ:BIDU) -2.4%, HUYA (NYSE:HUYA) -1.9%, Luckin Coffee (NASDAQ:LK) -2.5%, and TAL Education (NYSE:TAL) -1.6%.

Not even a hint of inflation.

Core PPI unexpectedly fall in September
• September Producer Price Index: -0.3% M/M vs. +0.1% consensus, +0.1% prior.
• +1.4% Y/Y vs. +1.8% consensus, +1.8% prior.
• Core PPI -0.3% M/M vs. +0.2% consensus, +0.3% prior.
• +2.0% Y/Y vs. +2.3% consensus, +2.3% prior.

God bless the U.S. consumer

Chain store sales start off strong in October
• Chain store sales increased 5.5% for the week ending October 5 to slightly drop from the prior week's 5.8% pace, according to the latest report from Johnson Redbook.
• Sales tied to the fall season trailed slightly due to warm weather across parts of the U.S.

Our government really knows how to spend also.

CBO estimates federal deficit at $984B
• The federal budget deficit for 2019 is estimated at $984B, a hefty 4.7% of gross domestic product and the highest since 2012, according to the Congressional Budget Office.
• Unsustainable path? The deficit, which has grown every year since 2015, is $205B higher than it was in 2018, a jump of 26%.
• Higher levels of debt increase borrowing costs, making it hard for the government to battle economic downturns and increase the share of future spending allocated to paying off interest costs.

Finally!

Unexpected rise in German industrial output
• German industrial output rose unexpectedly in August, providing a shimmer of hope that an expected contraction in Europe's largest economy in Q3 would not be steep.
• Industrial output rose by 0.3% on the month (vs. expectations of a 0.1% drop), driven by a positive impetus from the production of intermediate and capital goods.
Ouch. You have to give them a toaster!

German banks start passing negative rates to retail clients
• Now that Germany's second largest cooperative lender has started charging retail customers to account for negative interest rates, other German banks are warming to the idea, Bloomberg reports.
• Berliner Volksbank is applying a -0.5% rate on deposits of more than EUR 100,000 ($110,000).
• Deutsche Bank (DB -1.9%) and Commerzbank (OTCPK:CRZBF) indicate they're considering similar moves.
• Germany's banks, which have resisted passing on negative interest rates to retail clients, have running out of ways to offset the effect on earnings.
• The rate policy costs German lenders EUR 2.4B a year, the country's banking lobby estimates. Last month the European Central Bank cut the deposit rate to -0.5% from -0.4%.
• ETFs: EUFN, IXG, EUFL, DFNL

No wonder gold prices are holding up right now.

China gold purchases top 100 tons amid trade war
• China has added more than 100 metric tons of gold to its reserves since it resumed buying in December, as the country continues to buy gold to diversify its reserve assets away from the dollar amid strained relations with the U.S.
• September's increase of 5.9 mt by the People's Bank of China follows the addition of 99.8 mt through August.
• Russia also has been adding substantial quantities of bullion; central banks worldwide have snapped up more than 450 mt during the first eight months of 2019, helping push total gold demand to a three-year high, the World Gold Council has said.
• Central banks have been major buyers of gold and likely will continue to do so as protectionist policies and geopolitical concerns add to demand, says Suki Cooper, precious metals analyst at Standard Chartered Bank.

One analyst’s take on forward EPS estimates.

The drumbeat against Facebook continues.

AG group probing Facebook could expand to 40
• About 40 state attorneys general will participate in an antitrust investigation of Facebook (NASDAQ:FB) led by New York Attorney General Letitia James, according to The Washington Post.
• In September, James had announced a probe with seven other states and the District of Columbia into whether the social media giant has "endangered consumer data, reduced the quality of consumers' choices, or increased the price of advertising."
• Facebook, which owns one-time rivals Instagram and WhatsApp and has 2.4B monthly users, agreed in July to pay a $5B FTC settlement for various privacy violations.

DO NOT VAPE!

Study ties vaping to cancer in mice
• E-cigarette vapor causes lung cancer and potentially bladder cancer in mice, according to researchers at New York University. Out of 40 mice exposed to e-cigarette vapor with nicotine over 54 weeks and 22.5% developed lung cancer and 57.5% developed precancerous lesions on the bladder, while none of the 20 mice exposed to e-cigarette smoke without nicotine developed cancer.
• The finding back up a separate vaping study by the University of Southern California on the molecular change in the oral tissue that causes cancer.
• Related stocks: Altria (NYSE:MO), Philip Morris (NYSE:PM), British American Tobacco (NYSE:BTI), Vector Group (NYSE:VGR), Imperial Brands (OTCQX:IMBBY) and privately-owned Juul (JUUL).
I agree with all of them. Now, if we could get China behind us.

Jefferies boosts Microsoft in cautious software look
• Jefferies is shaking up coverage with a caveat on software -- a sector where it's still bullish, but is pursuing a more selective approach.
• It's upgrading Microsoft to Buy and raising its price target to $160 from $93, implying 17% upside.
• Jefferies likes Amazon.com (NASDAQ:AMZN) as an infrastructure play, and aside from Microsoft, top picks include Salesforce.com (NYSE:CRM), Adobe (NASDAQ:ADBE) and Intuit (NASDAQ:INTU).

The stock is stuck in neutral while the trade talks drag on.

AMD unveils new gaming graphics card
• AMD (AMD +0.6%) announces the Radeon RX 5500 series graphics products. The company says the RX 5500 series harnessing groundbreaking RDNA gaming architecture to deliver the ultimate in high-performance, high-fidelity 1080p gaming.
• HP and Lenovo are planning to offer Radeon RX 5500 graphics cards in their high-performance desktop gaming PCs beginning this November, and Acer is planning to offer systems with the cards beginning this December.
• With the newest additions to the Radeon family, AMD says it's bringing its advanced RDNA gaming architecture and industry-leading 7nm process technology to mainstream gamers worldwide.

Bill Gunderson

Bill Gunderson

Bill Gunderson is a wealth manager, syndicated financial talk show host, and author of the Best Stocks Now -- one of the top 10 best selling financial aps in the world.

He is a frequent guest on local and national media, including CNBC, Fox Business, Fox News, Bloomberg, Barron's, Forbes, and others.

His wealth management business caters to high net worth individuals clients all over the world. He would be happy to look at your portfolio.

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