Fed Hikes Rates, Yield Spread Shrinks to 10 bps
The Federal Open Market Committee read its tea leaves and decided that the economy could handle another 25 basis-point hike in overnight interest rates, bringing the target range to between 2.25-2.50%. The interest rate paid on excess reserves was pushed down another 5 basis points relative to the effective federal funds rate, now at 2.40%, so the two rates now have a 10-basis-point buffer between them. The 10Y-2Y yield spread is now at new lows, just above 10 basis points and falling.
Markets promptly sold off on the rate hike, which was expected to be accompanied by a extra-dovish press statement but the indication of two more rate hikes planned next year was not dovish enough so everything sold off again. There seems to be a bit of a bounce in futures this morning but it is week. Meanwhile the S&P 500 (NYSEARCA:SPY) has broken through 52-week lows reached on Volmageddon February at 2,530. We are currently at 2,507. However, the strange thing is that the Vix (^VIX) has been strangely silent, even after yesterday’s selloff and remains subdued at just under 25. This could mean there is a selling climax ahead of us, as the Vix usually spikes above 40 or higher by the end of waterfall decline. We haven’t seen anything close to that yet. (NYSEARCA:VXX)
Tilray Teams Up With Budweiser on Cannabis Drinks
Tilray (NASDAQ:TLRY), one of the larger midcap stocks in the cannabis drinking space, has signed a research partnership with Anheuser-Busch InBev SA (NYSE:BUD), maker of Budweiser and other well-known beers. The deal is a joint venture tha will run through subsidiary Labatt Breweries in Canada with a total investment of $100 million split evenly. “For us, it’s early days in this industry and research feels like the right place to start,” Tilray Chief Executive Brendan Kennedy said on the phone Wednesday morning. “At Tilray, we’ve been performing research and development for almost five years on lots of different aspects of cannabis and cannabinoid delivery.” Stoners and other health-related beer fans – this Bud’s for you. Tilray is up 11% in premarket trading.
Tariffs Causing Hoarding Among Retailers, Exacerbating Trade Deficit
In yet another example of how government accomplishes the exact opposite of what it generally intends, tariffs against China, which are designed to ease trade deficits by making imports less attractive, are actually encouraging more imports for fear that the tariffs will jacked up even higher. Retailers are stockpiling record amounts of goods from China in anticipation of the worsening of the trade war, especially if the economy turns south and China is blamed for some reason. Imports surged to 2.04 million containers in October, and all time record. Plus, China has been decreasing its holdings in US Treasuries lately, the funding for which it gets from trade surpluses with the United States, which means that the surpluses, which until now have been reinvested in the US, will be less so in the months ahead, which should push interest rates higher. (NYSEARCA:XRT)
FedEx Crashes, Spooks Markets, Stocks Recession Fears
FedEx (NYSE:FDX) had a really bad day yesterday, down 12.16% in one day, now deep into bear market territory down 40% from highs. FedEx slashed its profit forecasts and notes particular weakness in Europe, the continent most dependent on zero, actually negative interest rates, and about to experience a no-deal Brexit which will undoubtedly make things much worse. The company says it has to cut costs by about $275M annually, which means jobs will be lost among other things. The company employs close to half a million people around the world, and still stays it will have a very strong holiday period. After that though, it’s a big question market and depends on economic growth and the resolution of trade disputes.