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Wall Street closed in the green on trade truce hopes and Powell's easier looking 2019

  • Wall Street marches on, this time fuelled by the U.S. and Mexico reaching a bilateral deal that will replace the North American Free Trade Agreement, (NAFTA).
  • The risk here is that the U.S. is once again playing its protectionist hand by scraping the North American Free Trade Agreement.

We have both the S&P 500 and the Nasdaq closing at records for a second straight session while the DJIA added an impressive 259.29 points, or 1%, to close at 26,049.64 after crossing the psychologically-important 26,000 mark for the first time since February earlier this year. The S&P 500 index added 22.05 points, or 0.8%, to 2,896.74 while the Nasdaq Composite Index climbed 71.92 points, or 0.9%, to end at 8,017.90, (adding 1000 points over the past 164 days of trade).

However, the moves may be more to do with the herd mentality following Powell's dovish delivery on Friday that put 2019 rate hike expectations into question - (Equity markets prefer easier monetary policy in general). The risk here is that the U.S. is once again playing its protectionist hand by scraping the North American Free Trade Agreement and the subsequent prospects of a full-on trade war could well come back to the fore in the very near future should the Trump administration keep putting off negotiations with China.  

Analysts at Natixis are a lot less optimistic than investors are right now  - You can read their options on how Trump is weakening the United States - Natixis there. 

However, on the flipside to that, the door has been left open for Canada to rejoin (albeit now with less leverage) and Mexico has been quite clear that Canada should now be incorporated into the deal. Trump has said that if Canada wants to negotiate fairly, the U.S. will call Canada soon. Should the U.S. and Canada engage in trade talks immediately and find a quick resolution, that should spur up an upbeat outlook for global trade relations in general and leave a window of optimism open for US and Chinese relations - A potential truce would be risk positive for the indexes.

There are still many uncertainties

However, specifically for global stocks, there are still many uncertainties out there and it is hard to see the indexes making much more upside from here given how long this market has been in a bull trend, a trend that was built upon artificial stimulus that is now nullified by monetary normalisation starting to work its way through. Things from here will now be very much data dependent and should there be a turn in sentiment, while the indexes retreat, stock picking may be the way to play any potential correction in the benchmarks.

DJIA technical outlook 

Valeria Bednarik, chief analyst at FXStreet, explained that the daily chart for the Dow shows that the index settled near its daily high, with the upward momentum accelerating as the index is further above bullish moving averages.

"Technical indicators picked up, reaching fresh 3-week highs and maintaining their upward slopes. Shorter term, and according to the 4 hours chart, the index is also bullish as technical indicators maintain their upward strength within overbought territory, while the 20 SMA accelerated its advance, well below the current level."
 

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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