The Dow Jones Industrial Average closed 200.23 points lower, driven by the ECB President Mario Draghi who said that the central bank cut its growth estimate to 1.1 percent, from the 1.7 percent GDP forecast for the EU in December. This report by the ECB head points to a slowing economy and with the US, China and now Japan seeing slower expansion, the short to mid-term equity sell-off in the US and Germany is starting to materialize.
To address the weaker growth discussed by the ECB, the new targeted longer-term refinancing operations (TLTRO-III) stimulus program will start in September of this year and run until March 2021. TLTRO loans are made by the ECB and are targeting the European Banks at a low rate. This is the third stimulus injection by the European Central Bank since 2014.
Classiarius has focused on the US trade talks as a reason to predict the sell-off of the US S&P 500 stocks. Both the S&P 500 and the German DAX are likely to break down for a 2 to 3 week period. We maintain that the trade talks and the US drive to block China in some technologies will, in the end, force China to capitulate but keep in mind that China growth is slowing and the economy could drop below the 6.0 percent forecast by Beijing in 2019 and 2020.