Trade, Trade, Trade....

What You Need to Know Today

  • Trade, trade, trade

  • And while it feels good – it ain’t over til the ‘fat lady’ sings

  • Lots of eco data to digest

Here we go again….stocks surged on Tuesday as the expectation of a ‘trade deal’ heats up……so far it is only the ‘B’ team that is meeting to try and narrow the gap – the ‘A’ team is due to enter the room on Valentine’s day… – but the mkts are telling you that a deal is in the offing….Futures pointed higher in the pre-mkt session yesterday morning and then shot higher once the opening bell rang at the NYSE – by the end of the day – all 5 of the indexes had notched impressive gains on only the expectation of a deal…......The Dow + 1.49%, S&P +1.3%, Nasdaq +1.46%, Russell +1.27% and the Transports added 1.37%....and futures are higher this morning again……

The idea is that Donny (T),  Bobby (Lighthizer) and Stevey (Mnuchin) – the ‘A’ team -  along with their Chinese counterparts want this deal to happen – and so what gets leaked is that they are ‘making progress towards a broad outline of a trade agreement’  and then Kellyanne Conway (someone that we have not heard from recently) suddenly throws her two cents into the conversation saying that ‘The President WANTS this deal to happen’    and that was enough to cause all of the ‘algo driven black boxes and quant driven strategies’  into a frenzy…. Leaving nothing behind…..every sector  - even the ‘defensive’ sectors – think utilities, consumer staples and healthcare surged….as traders/investors/analysts and strategists cheered and as I also pointed out – Donny is ready (apparently) to move the March 1st date to reflect his willingness of wanting to get a deal done and if they are negotiating in good faith – then he is happy to offer some relief by being flexible……Now – not that I want to throw water on the fire – but….Have we seen this movie before?  Isn’t this what I described in my note yesterday? 

Does it feel ‘slightly’ rigged?  – “One day they talk it up and the next day they talk it down – money can be made when people have ‘information’ (that the rest of us do not)  and it just feels like everyone is DC is cleaning up – knowing that the algo’s respond EVERY time they say something…..so they go long the mkt and boom – suddenly a deal is within reach, then after the mkt runs up they sell their position and go short the mkt – then suddenly ‘we’re far apart’ and the mkt collapses…Is it me?”

Well – WE are about to find out……because the way the mkt acted and the way the media spun the story – anyone would be hard pressed to suggest that we are now going to hear the phrase    ‘We’re still far apart’.  That ain’t happening now – and so like I have been saying – its about the framework of the deal, it’s the broad strokes and once those are in place then the balance of the trade deal can be worked out and that is the clarity that the mkt and investors needed.   If the tone changes radically from here – meaning if we get the BS now that talks have stalled – you can expect the mkt to react swiftly in the other direction and  then there should be a lot of questions around who is responsible for ‘leaking those headlines (positive or negative)’.

So does the deal have to get signed, sealed and delivered by March 1st? Is that really the requirement?  I don’t think so, but what I do think is that there better be a real working outline that identifies and resolves the major issues – barring that – we are not really any further along – because if this fails in the 11th  hour – then tariffs on $200 bil of Chinese goods will rise by another 15% - taking the total tariff to 25% - a move that the Chinese do not want to happen and a move that raises costs for some of the very companies that are expressing nervousness over a global economic slowdown….and so the clock ticks……as we wait for the announcement of the Donny/Xi Xi rendezvous at Mar-A-Lago sometime in March.

So while the focus was and is on politics and policy – the rest of the week will be accented by the eco data that today includes:  Mortgage Apps, CPI – exp of +0.1%, Ex Food and Energy of +0.2% m/m and CPI of 1.5% and ex Food and Energy of +2.1% y/y along with Real Avg Weekly earnings y/y and Real Avg Hourly Earnings y/y.   Tomorrow brings us PPI – exp of +0.1% m/m and +2.1% y/y,  Ex food and Energy of +0.2% and +2.5% y/y, Initial Jobless Claims exp of 225k, Continuing Claims of 1.74 mil, Retail Sales +0.1% , Ex autos and gas of +0.4% and Friday brings us Industrial Prod, Capacity Utilization and Empire State Manf. 

Overnight mkts surged – taking their cue from the US action yesterday as the prospects of a trade deal are now more realistic than they were last week.  And the fact that Donny said he was ‘open to postponing the March 1st deadline’ only added fuel to the fire and while it is all good yesterday – do not discount the possibility of a ‘snap back’ in the agreement.  In this case – a snap back means that if the end agreement does not show improvement in IP (intellectual property) protections – then the tariffs can be re-imposed – to what extent?  Well that is one of the questions….and if that happens then the mkt reaction will be swift….Just sayin’  Japan + 1.34%, Hong Kong + 1.16%, China surged by 2% while the Australians lost 0.26%

European mkts are all in the green in early trading – but are not ‘surging’ – and while there is optimism that a deal is close – the Europeans are not getting sucked in just yet.  Autos in Europe – that have heavy exp to China are racing ahead – while the rest of the mkts are being more cautious. The UK reported January inflation numbers – which were inline – no surprises – m/m slight fall while y/y was unchanged and the Eurozone is set to announce December Ind Production figures.  FTSE +0.41%, CAC 40 + 0.21%, DAX + 0.14%, EUROSTOXX + 0.19%, SPAIN + 0.09% and ITALY + 0.65%. 

US futs are up again today – currently +2 pts on continued excitement over a trade deal.  Like I said yesterday – while the eco data is important – the focus right now is on this trade deal – and while they also tell you that the border funding issue and possible gov’t shutdown is playing a role in the excitement – that is not so much the case – because in the end – they did not give Donny what he wanted so it is not really a completely positive outcome (for Donny) from that perspective – but Donny will not be held hostage – and has made it clear that he will get the money he needs from somewhere – so either way – that conversation is far from over

Yesterdays surge took the S&P right back to long term resistance at 2743 – a level it has challenged now 3 times in the past 2 weeks….last nights close pushed it just above that trendline at 2744 signaling a ‘technical breakout’ – Yes…but a substantial breakout – No.  My sense is that she struggles here for today and maybe tomorrow as the ‘A’ team moves into position.  Further positive headlines will help the mkt find support at this level but until there is more clarity on terms and conditions – I don’t’ think the mkt moves very much.  Once they announce that a deal is done and the terms are acceptable to the negotiators it still needs Donny’s stamp of approval – so sit tight – 2800 here we come!

Oil is rallying today – currently up 1% on a weaker dollar,  production cuts and excitement over trade ….  The Saudi’s announced that OPEC cut January production by 800k barrels/day and sanctions on Venezuela caused further supply issues as that nation spins out of political and economic control.   The move now puts oil back at $53.68/barrel  - leaving it still within the $50/$55 range. 

Gold has not done much in the past month…remaining in the $1,310/$1.325 range.  This morning it is up 60 cts at $1,314 as the dollar weakens a bit- (there’s that dollar/commodity thing again).

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