Just when US share markets got excited on Wednesday after US President Trump told reporters at the United Nations that a US-China trade deal could come sooner “than you think”, comes a new Trump trade trap for investors, with reports saying the White House is toying with the idea of delisting Chinese stocks on US exchanges!

Who would have expected that? But wait there’s more from this investment curve ball ‘machine’ from Washington.

At the same time we learnt that there could be limits placed on US investment into China, which underlines why this trade war is curtailing business investment.

CNBC says an un-named source close to the initial discussions about these possible investment restrictions explained that it was early days for the controversial subject but they were on the Trump table for consideration.

Not surprisingly, market gains of 130 points on the Dow turned to losses into a 71-point loss. And the popular stocks such as Alibaba and Baidu saw hefty drops in their share prices. The former gave up 5% to $166.10 but that’s living and investing in the world according to Trump!

The continual game of ping pong on trade-related issues created the first down-week for stocks after a three-week run higher for US market indices. This comes with the revelation that the important trade talks that have been helping stocks trend up will take place in Washington on October 10-11.

Away from the market anxiety and the Yanks got a less than positive reading on the all-important US consumer and this should be a stimulus for the President to expedite a trade truce. Well, at least in a more rational world, it would.

US household spending went from a 0.5% rise in July to a 0.1% increase in August. To date the trade war has not spooked consumers in the States, who drive two-thirds of US economic growth and this coincides with a 2% number for growth which was only released over the past week.

The Trump team can’t ignore the economic indicators which are suggesting that this trade war is not good for the economy. You have to hope that, aside from what is said to the media, their frank discussions are based more on reality. If they are, a trade deal before year’s end would have to be the goal and if this happens, stocks will surge into Christmas.

At home we registered the first loser-week after a four-week winning streak. This AFR chart nicely captures the week’s story.

Despite the five-day fall for stocks, the consensus feeling was that geopolitical risks were easing with the trade war, also with Brexit and even Hong Kong looked less explosive. On top of this, there was good news on Iran, with Tehran saying the US offered to remove sanctions which took oil prices down. The Americans denied the story but they would, wouldn’t they?

Reinforcing this better geopolitical vibe was the fall in gold price by $US10 which closed on Friday at $US1506.88 an ounce. However, the threats to China investment mentioned above, if verified, could reverse that trend next week.

It’s been another big week for Afterpay, with the tech-stock gaining 10.5% after a Goldman Sachs upgrade. Copy-cat stocks such as Zip Co rose 18.3% to $4.24 and Humm from Flexigroup spiked 23.5% after the company announced new businesses are now using their buy now-pay later service.

These valuations look crazy but these huge spikers will cop it if a trade deal does not happen and tariff escalations result.

Other winners for the week were IDP Education up 9.57%, Premier Investments up 8.7% and the Houdini company IOOF, which put on 8% despite its ugly brush with the Royal Commission earlier this year.

Individual company stories aside, the next two weeks could be crucial to the US-China impost on the overall stock market.

Next week the RBA decision on interest rates, the latest purchasing managers numbers, home prices, car sales, building approvals and retail trade should sketch a decent economic picture of how our economy is faring. The rate cuts and the post-Budget inflated tax refunds need to be showing some positive trends or both business and consumer confidence will continue to slide and predictions of a 0.5% or lower cash rate could become a reality!

But the big focus will be the October 10-11 trade talks in Washington. October is sometimes seen as a bad month for stocks because of the history of big crashes, as in the cases of 1929 and 1987, however the stats tell a different story.

Investopedia says “The average return in October is positive historically, despite the record drops of 19.7% and 21.5% in 1929 and 1987…So, a trader may consider getting into the equity market in a big way in September, when prices tend to fall, to be ready for the October bump-up.”

In fact, September was an up-month with a rise around 1% but a really bad trade talk outcome could bring on a crash. I’m rooting for this October to be more consistent with history but as we’ve learnt since November 2016, when Donald became President, we’re in the Trump trade trap until he says we’re not!

What I liked

• Employment rose by 64,200 in the three months to August. Over the past 12 months, 315,100 people have found jobs. A record 13 million Aussies are employed.
• The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.7% to 110.1 points, up from 2-year lows of 109.3 points in the previous week. But sentiment remains below the average of 114.4 points held since 2014 and the longer term average of 113.1 points since 1990.
• The ‘flash’ CBA/IHS Markit Services Purchasing Managers’ Index rose from 49.1 points in August to a 9-month high of 52.5 points in September. Any reading over 50 indicates expansion.
• Total household wealth (net worth) rose by 1.6% to a record high $10,455.3 billion in the June quarter after rising by 0.2% to $10,289.6 billion in the March quarter. Over the year to June, net worth rose by 0.5%.
• The US annual GDP growth rate rose by 2% (survey forecast: 2%) in the June quarter. (The reading could have been better but it was OK considering the trade war pressure.)
• US new home sales rose by 7.1% (survey: +3.8%) to 713,000 units in August.
• MBA Mortgage applications fell by 10.1% over the week to September 20.
• The ‘flash’ IHS/Markit Manufacturing Purchasing Managers’ Index (PMI) rose by 0.7 points to 51.0 points (survey: 50.4 points) in September.
• The ‘flash’ Services PMI rose by 0.2 points to 50.9 points (survey: 51.4 points) in September.
• Shares of footwear company Nike jumped 4.2% to a record high after the company’s first quarter results beat analyst expectations.(Not a bad result for a trade-affected company.)

What I didn’t like

• Job vacancies fell 1.9% in the three months to August. Vacancies are also down by 1.9% on a year ago – the biggest annual decline in 5½ years.
• The measure of whether it was a ‘good time to buy a major household item’ in the ANZ consumer confidence survey fell by 3.8% to 18.0 points – the lowest level since May 23 2009.
• The ‘flash’ CBA/IHS Markit Manufacturing Purchasing Managers’ Index fell from 50.9 points in August to 49.4 points in September – the first contraction in factory activity in over 3 years.
• German factory activity shrank at its fastest pace in a decade in September and growth in the services sector softened to 9-month lows.
• US Consumer confidence fell from 134.2 to 125.1 in September (forecast 133.5).
• Personal consumption or household spending in the US rose 0.1% in August but was down from July number of 0.5%.
• Impeachment talk is another uncertainty factor Wall Street would prefer not to be considering.
• MBA Mortgage applications in the US fell by 10.1% over the week to September 20.
• The Richmond Federal Reserve manufacturing index fell from +1 point to -9 points in September (forecast -11 points)

Have I got my priorities right?

With the Giants hoping to steal a grand final win from the great Richmond side today and my beloved Roosters having to deal with might of the Melbourne Storm tonight, I’m still more focused on the upcoming run of economic data and the trade talks over the next two weeks.

Sport is one thing but money and my reputation as a market caller rates a tad higher nowadays. It’s a tough gig but someone has to do it!

The week in review:

• The first company to sit my test: Would Warren Buffett buy this stock? is Link Administration Holdings (LNK), a former market darling caught out by the Brexit drama.
• Here’s Paul Rickard’s 4 step guide to developing an investment strategy. Does your strategy stack up well against this?
• This isn’t the time in the equity market cycle or economic cycle to give into FOMO, and Charlie Aitken believes losing discipline now could lead to years of losses in the wrong investments.
• Here are 5 stock opportunities that offer value for experienced investors according to Tony Featherstone.
• The biotech sector can potentially turn world-class research and biochemical discoveries into big dollars and should be on the radar of any investor, in the speculative, high-risk area of the portfolio. These 4 candidates all come with their standard “beware”, writes James Dunn.
• Michael McCarthy’s hot stock of the week was A2 Milk and Julia Lee’s hot stock was Smart Group.
• In the first Buy, Hold, Sell – What the Brokers Say of the week, FNArena registered 5 upgrades and 7 downgrades. In the second edition, there were 10 downgrades and 4 upgrades.
• For Questions of the Week, Paul answered questions about what a broker target price is, if the ATO will think an SMSF is diversified and whether to participate in two entitlement offers.

Top Stocks – how they fared:

The Week Ahead:

Australia
Monday September 30 – Private sector credit (August)
Tuesday October 1 – Reserve Bank Board
Tuesday October 1 – Speech by Reserve Bank Governor
Tuesday October 1 – AiGroup & CBA purchasing managers
Tuesday October 1 – CoreLogic Home Value index (September)
Tuesday October 1 – Building approvals (August)
Thursday October 3 – AiGroup & CBA purchasing managers
Thursday October 3 – New vehicle sales (September)
Thursday October 3 – International trade (August)
Friday October 4 – Retail trade (August)
Friday October 4 – Financial Stability Review
Friday October 4 – Speech by Reserve Bank official

Overseas
Monday September 30 – China purchasing managers (September)
Tuesday October 1 – US ISM manufacturing gauge (September)
Tuesday October 1 – US New auto sales (September)
Wednesday October 2 – US ADP survey of private-sector payrolls (Sep)
Thursday October 3 – US ISM services sector (September)
Thursday October 3 – US Factory orders (August)
Friday October 4 – US Non-farm payrolls (September)
Friday October 4 – US Exports & imports (August)

Food for thought:

“In the short run, the market is a voting machine, but in the long run it is a weighing machine.” – Benjamin Graham, as quoted by Charlie Aitken this week.

Stocks shorted:

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table shows how this has changed compared to the week before.

Chart of the week:

Foreign ownership of Australian shares rose to 31.5% during the June quarter, which CommSec noted is the highest level in 6 ½ years:

Source: ABS, CommSec

Top 5 most clicked:

• Would Warren Buffett link himself to this stock? – Peter Switzer
• Take a look at these 5 neglected small caps and mid caps! – Tony Featherstone
• Is your investment strategy up to scratch? – Paul Rickard
• It may be time to take some of the WAAAX off! – Charlie Aitken
• 4 biotech candidates – James Dunn

Recent Switzer Reports:

Monday 23 September: Would Warren Buffett buy this stock?

Thursday 26 September: Ditch FOMO and check out these 5 small caps

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.