Market Update
(all values as of 10.30.2020)

Stock Indices:

Dow Jones 26,501
S&P 500 3,269
Nasdaq 10,911

Bond Sector Yields:

2 Yr Treasury 0.14%
10 Yr Treasury 0.88%
10 Yr Municipal 0.94%
High Yield 5.72%

Commodity Prices:

Gold 1,878
Silver 23.72
Oil (WTI) 35.71

Currencies:

Dollar / Euro 1.17
Dollar / Pound 1.29
Yen / Dollar 104.44
Dollar / Canadian 0.75
 

Does Russia Meddling Matter to the U.S. Markets

Not in the way the media is focusing on this topic.  Neither the Russian elections, the significant amount of no-shows at Russian “strikes” held in recent days, nor the allegations Russia meddled in the U.S. election and/or colluded with the Trump campaign will move the U.S. markets.  The Russians meddle in every election, worldwide where their interests are at stake.  Of course the U.S. is of interest to them, in fact our market strategist believe the Russians would love to bring down just about any U.S. administration, if it advanced their interests.  In his recent testimony, former FBI Director Comey stated that since 2015, there could be more than 1,000 entities in the U.S. which were targeted by Russian hackers.  So they hack, they hack the U.S. and this is not news.

Could the Russians have colluded with the Trump campaign?  Seems highly unlikely, for the simple reason it would have been extremely difficult and not typically how they operate.  As one analyst who has studied Russia for years told our market strategist, Russians lie about lying.  They spread disinformation at will.  They specialize in using third parties or as President Putin called them, patriotic Russians over whom he has no control, to spread disinformation.  And in the U.S. election, if they acted in ways to help get President Trump elected, they are on the other side of the table now and will try to manipulate him for their own interests, just as they would have done to a President Clinton.  Hackers are not that easy to co-ordinate and arranging them sufficiently to collude with one particular political party or another seems a big stretch, since hackers prefer to remain anonymous for their own protection.  In short, our market strategist think that Russia helped get Trump elected; however the investigation will turn out to be a non-story and a non-factor for the markets.

What may end up mattering to U.S. markets is how effective Russia is in stealing U.S. secrets, fouling up U.S. relationships with allies with disinformation and Russia’s progress in developing a trade/currency relationship with China.  The European Central Bank has sold a modest amount of Dollars ($500 million) and bought Chinese Renminbi during the first half of the year.  (1)  China’s economic importance to Europe will only grow now, for many years as Europe views the U.S. as weakening.  Russia will benefit from China’s continued growth along One Belt One Road (OBOR), while over the past twenty years of China’s economic ascent, we think it is fair to say Russia to some extent missed out on taking advantage of China’s economic boom.  But now that OBOR and mass construction of new cities moves into Western China, geographic proximity may help and China seems interested in developing new power transmission lines with Russia in order to tie the two country’s economies closer together.  Russia/China will grow closer together and that will affect U.S. markets.  Combining their financial/economic power with the Shanghai Cooperation Council countries will create an economic behemoth.  Does the U.S. have an economic plan for the next ten years to compete with the expansion of China/Russian influence on these different platforms- economic, technological, military, politics.

 

International Growth is Accelerating

Overseas, our market strategist has been saying that China’s economy is about to re-accelerate.  This was confirmed in a speech last week by a Vice-Minister on the State Council who said infrastructure spending would grow by 16% -17% during the second half of 2017.  Yes, this looks like the same old playbook.  But remember fiscal spending has worked in China  and will work until the Chinese system is choking on debt and interest rates are near zero, not 5%-6% where they are today.  The credit impulse in China has another 2-3 years to run before it stops working.

In Europe, business is improving.  2% growth is on tap and yes, fiscal spending will become more fashionable.   Lower taxes have seldom been the preferred European Union option, so our strategist would look for EU spending to grow with a new government in France and the turning of Germany’s focus to the East, growing German exports into the SPCO countries via the OBOR projects.