Is the Treasury Considering Lifting Tariffs? 'Tell Me Something Good!'

What You Need to Know Today

• Talk of Trade relief sending global mkts higher

• Focus on the technical's now that we have pierced up and thru the 50 dma

• Gov’t shutdown drags on

And the singing continues…..”Because I’m happy, Clap along if you feel like a room without a roof….”  (a reference to yesterday’s note) as stocks advanced again on Thursday.  The Dow added 162 pts, the S&P added 20 pts, the Nasdaq surged by 50 pts and the Russell tacked on 12 pts.    Now – remember yesterday morning the mkt was looking lower in the pre-dawn hours and that made complete sense…after 3 or 4 days of advances and after the mkt tested and failed at the 50 dma – it made perfect sense for it to back off and re-group.   So when the mkt opened – it opened lower – down some 10 or so points…..testing the 2600 level on the S&P – we noted that overnight the futures tested even lower at 2595 and that this was nothing to become alarmed about….In fact not only was this ‘normal’ it was welcomed – so that it continues to build a base.  Well the weakness lasted for only about 10 mins and then – slow and steadily – the mkt clawed its way back to unchanged  - churned for a bit more and then advanced again….by 2:30 – the S&P had swung from minus 10 to plus 5 and was holding steady….and then at 2:45 ish The WSJ ran with a story that the treasury dept was considering ‘easing up’ or ‘rolling back’ on some of the Chinese tariffs to give Beijing  a reason to consider making bigger concessions in the ongoing battle between the two nations and THAT caused the algo’s to react – spiking up 20 pts in 10 mins – taking the mkt up and thru its 50 dma (resistance) at 2628, up thru the October/November lows of 2635 -  to a high of 2645 only to end the day at 2635 after the treasury dept denied any such story.  (You will see that 2635 is significant).    

Now here is another KEY fact – 2635 is the level that represented the lows during the April/May 2018 time frame and then again the late October, November and early December lows after the first leg of the selloff seen during the 4th qtr.  Now this is significant because it was a level that had real support during that time, it was a level that the buyers defended – until the selling overwhelmed the mkts in early December when the S&P suffered that ‘death cross’ – a technical indicator that occasionally signals more weakness ahead.  (And while I have mixed emotions about this indicator – the fact is – this time it was on point) sending the mkts into that late December tailspin…….taking us down another 235 pts or 10% in 2 weeks on top of the 10% losses already suffered off the highs of September. 

So the fact is that we penetrated TWO significant resistance levels on the same day is key - both technically and psychologically.  Now it’s getting exciting!  And the fact that the ‘rumor’ – and I say ‘rumor’ because the Treasury quickly denied the story – created this buzz only reveals what I have been saying all along….the MKT wants closure and clarity….it is just aching for something good to come of this – Reminding us of the 1974 Cash Box Top 100 number 1 hit by Chaka Khan and Rufus – “Tell Me Something Good”  – “I got something that will sure ‘nough set your stuff on fire……..Tell me something good…. Tell me that you love me, yeah….” . 

Next -  remember that – Stevey Mnuchin IS the Treasury Secretary and the WSJ story noted that the Treasury is considering easing up on tariffs and we all know that Stevey would take a slightly softer stance with the Chinese – he has opposed increasing tariffs all along – but his cohort – Bobby Lighthizer – who is NOT Treasury Secretary -  is of a different mindset…..and had been pushing Donny to impose add’l tariffs  – suggesting that anything other than ‘hard-nosed’ tactics would be a sign of weakness ………. they are the Ying and Yang of trade tariff policy…....but -  in my opinion – the WSJ doesn’t make a habit of running with rumors – where there is smoke there is fire…..as they say….so let’s all hope that something is getting done on this front and if it is – then watch how fast the algo’s go into overdrive!  Any real news of movement will cause the mkt to spike higher and test 2733…a level that is both resistance for the 100 and 200 dma’s! 

Overnight – mkts in Asia traded higher as they cheered the report in the WSJ suggesting that the US is considering easing up on Chinese tariffs in a bid advance the talks and the self-imposed deadline of March 1st is really a soft date – it is not cast in stone and if talks do advance – you can expect that the date will remain fluid allowing for more progress. Disappointing economic data in Japan did little to create any angst.  Japanese CPI was 0.7% vs. (E) 0.8%.  Japan +1.29%, Hong Kong + 1.25%, China + 1.82% and ASX +0.5%. 

In Europe – mkts are also excited about the possibility of US/Sino trade talks advancing.  Investors around the world are all excited about the possibility of lifting all or some of the US imposed tariffs on Chinese products.  Autos and basic resources are the big winners – think heavy exposure to China and the banking index is also a favorite today as a number of the investment banks are positive on the group.  Disappointing UK Eco data on Retail Sales is also doing nothing to ruin the mood.   There were no eco reports today across the balance of the Eurozone that have impacted the tone and nor was there any more talk of the breakdown in BREXIT negotiations so the focus is on trade…..and the mkts are celebrating.  FTSE + 1.25%, CAC 40 + 1.50%, DAX + 1.25%, EUROSTOXX + 1.45%, SPAIN + 1.45% and ITALY +1%. 

Futures are once again pointing higher…..S&P’s are up 9 pts, Dow futures up 120 pts and Nasdaq futures are gaining 24 pts in the early pre-dawn hours.  The gov’t shutdown drags on and neither side is making any concessions. (brilliant!).    In fact – House Speaker Nancy Pelosi – thought it appropriate to go on a boondoggle to the mid-east with a contingent of elected officials in a ‘good will’ tour…..at a time when SHE should remain in the US to help solve this building crisis.  Don’t you think?  Whatever!     Any perceived resolution on the gov’t shutdown would be positive and any perceived resolution on trade will surely be a big, mkt moving catalyst for stocks to rally and as you would expect – ‘tariff sensitive stocks’ which have gotten beaten up big time will be the ones to move the most.  As Blackrock CEO Larry Fink told CNBC  Squawk Box yesterday

“There will be a surge in investment sentiment if both sides call off tariffs on each other’s goods”.

Look for the S&P to find some support at 2635 – it’s still new – so it may not hold if they start pumping  negative stories but if they accentuate the positives then I’d be more interested about where to find resistance vs. support.  ……. So the tight range is 2635/2660 while the broader trading range should be 2600/2733.

Eco data today includes:  Industrial Production Exp of + 0.2% (would be down from +0.6% last month) This is the key as we want to see if “hard” manufacturing activity dropped as much as the manufacturing surveys in December.  We also get Capacity Utilization of 78.5% and Consumer Sentiment of 97.  We have one Fed speaker – NY Fed Pres Johnny Williams at 9:05 a.m.  Now He could help the mkts rally more if he talks about flexibility on balance sheet reduction and interest rate policy. 

Oil is up 65 cts/barrel to $52.72 as OPEC promises to start production cuts sooner rather than later  - the lasted report did show that OPEC production fell sharply m/m as they try desperately to cut the glut in supply.  In addition – you’ve got some of the strategists still pushing the ‘slowing global economy’ story…..oh boy………COME ON!  Enough about the slowing global economy…..(you’re killing me!)