Dinner is a winner!? Stocks surged on the heals of continued Fed happiness and reports surfacing that a deal for China was prepped and ready. All major equity indices traded up late in Friday’s session ending November on a positive note. The move represented a convergence of positive drivers, chief among them was Chairman Powell’s alleged change of heart towards R-star. Traders were also hopeful that, Trump, now under considerable pressure from US companies, will seek some sort of path to ending the trade war which has begun to have an effect on the bottom line. Hopes were raised further as mysterious reports began to emerge that the Administration was ready to propose a truce. Traders were also keenly focused on December. Yes, December, that magical month for markets which, statistically, is a good month for stocks. Seems like a good opportunity to buy if you are a speculative trader. Well, the market may have gotten its Christmas wish early this year as Trump and Xi came to an agreement at the G20 summit over the weekend. Well, kind of. As expected, the two sides agreed on a 90 day cease fire in which the US agreed not to let the tariff’s on $200 billion in imports go from 10% to 20% on January 1st, of course with the caveat that they can be raised at any time in the interim if no progress on talks is being achieved. China will cut back on the automobile tariff, buy a bunch of American stuff, try hard to figure out what to do about intellectual property theft, and classify Fentanyl as a controlled substance. Sound like the trade war is over? The stock market thinks so as stock futures soared in Asia and Europe overnight with the Dow Jones futures up over +2.%, S&P 500 futures up +1.83%, Russel 2000 futures up +1.56%, and NASDAQ 100 futures up +2.58%. The VIX index has dropped below the important 18 level and 10 year yields are up about +4 basis point to 3.03% after closing with a 2 handle on Friday (remember that “handle” is a fancy Wall street insider term for the number before the decimal). Clearly the early indications are that the market is relieved, and whether or not one believed that the trade war has ended (and it surely hasn’t), Saturday’s dinner agreement is certainly progress in the right direction. All equity indices made positive progress on Friday with the S&P 500 closing right on its 200 day moving average, the Dow well above its 200 SMA, and Russell 2000 and NASDAQ still below the key level. I won’t get into details because so much has changed in the futures markets and today’s day of trade will surely change many key levels. It is also important to note that over the weekend, WHILE YOU WATCHED FOOTBALL, OPEC members were hard at work wrangling and releasing “leaked” statements of their positions ahead of this week’s meeting in Vienna. Many members have been hinting toward cuts to stave off further declines in prices. As one might expect, crude oil futures have been trading up as well, which should help the struggling energy sector.
Today traders will have a chance to debate the goodness of the trade truce on the trading floor and on the television. A little hint: the trading floor is more important as the actual market is the ultimate arbiter in any debate of economy or policy. As if that debate is not enough we will also be faced with a dense calendar of economic releases this week, many of them germane to that other big debate: Fed policy. Equity markets will be closed on Wednesday in honor of President George HW Bush, who passed away over the weekend, which will serve to add additional logistical challenges to the trading week. On tap for the week are PMI numbers, the Beige Book, Factory Orders, Durable Goods Orders, and finally the hallowed monthly employment situation on Friday (see attached weekly calendars for weekly economic and earnings releases). First on deck we get Markit Manufacturing PMI, which is expected to be at 55.4, flat from last month. Also up today we get construction spending which has likely grown at +0.4% month over month after being flat last month. Finally we are due to receive the ISM Manufacturing Index, which is projected to be 57.5, down slightly from last month’s 57.7. The industrial spending numbers that are due out this week will add further fuel to the discussion over trade war related drag as companies have shown recent signs of a slowdown in capital goods spending due to economic uncertainty. To add to the raging debate, Fed Chairman Jerome Powell, of last week’s fame, will be making another appearance this week as he heads to Capital Hill to testify during which he will be grilled thoroughly on rate policy. If you are betting that the week ahead will be volatile with large moves, you are probably correct. In fact that is the only real certainty that can be assumed. Please call me if you have any questions.