US stocks continued to move higher after the White House suggested a pause in the trade war with China pending talks that are scheduled for October. Chip stocks and agriculture commodities were higher on the news. At the close the Dow gained 45 points to 27,182. Trading volume was off a bit. Once again, the daily market driver appears to be mainly the US China trade talks and whether they are on the upswing or downswing.
In an effort to boost the sagging European economy the ECB today took action to inject money into the economy by restarting QE. The ECB will continue to buy bonds and it lowered its main deposit rate to a negative 0.5%. The idea is to get institutions to pull savings, make more loans and get money out of unproductive reserve accounts and bonds and into loans and investments. Europe faces many issues which include the transition of the car business to electric vehicles, competition from Tesla, effects of the US China trade war and Brexit uncertainty. First Trust economist Brian “Mr. Sunshine” Wesbury commented on negative rates saying the ECB is in effect trying to push on a wet noodle and the problem is not idle bank reserves but excess regulations and a lack of innovation preventing investors from putting money to work. The move by the ECB also puts pressure on the US Federal Reserve to lower interest rates.
After the ECB rate cut, US Treasury interest rates initially fell and then reversed and bolted higher. The implication of this move is that US markets appear to be breaking out to the upside as investors seem willing to take more risk. Couple this with the fact that bonds are trading at a PE equivalent of nearly 50 (more than 2X the market) and you can see that stocks appear to be a good value compared to bonds.