The Only Thing Left Is A Trade Deal - Why The Bear Is Still Coming...

[Guest]

Friday morning stocks rose as optimism over “trade” seemed to “trump” the ongoing antics in Washington as Democrats are once again trying to find a “smoking gun” to impeach the “Trumpster.” Then, the market tanked, as Bloomberg reported the White House is weighing limits on U.S. portfolio flows into China – which promptly tanked stocks. 

“The discussions are occurring as Washington and Beijing negotiate a potential truce in their trade war that’s rattled the world’s two biggest economies and investors for more than a year. They also come as China is removing limits on foreign investment in its financial markets. A U.S. crackdown on capital flows would therefore expose a new pressure point in the economic dispute and cause disruption well beyond the hundreds of billions in tariffs the two sides have levied against each other.

Among the options the Trump administration is considering: delisting Chinese companies from U.S. stock exchanges and limiting Americans’ exposure to the Chinese market through government pension funds. Exact mechanisms for how to do so have not yet been worked out and any plan is subject to approval by President Donald Trump, who has given the green light to the discussion, according to one person close to the deliberations.” 

FULL ARTICLE

https://www.zerohedge.com/markets/only-thing-left-trade-deal-why-bear-still-coming

@Gerry Maddoux  , the article may not 100% reflect the opinions of the thread starter   

 

With the Fed out of the picture for now, the market has become almost entirely dependent on “Trump tweets” for direction. As noted last week, despite the short-term disappointment, the bulls continue to remain in charge currently, as markets cling near all-time highs. As we pointed out last week: “The risk/reward does not favor the bulls short term. The market is back to very overbought conditions; the upside to the top of the bullish trend channel is about 1.9%. The downside risk is about 5.5%.” The chart below is updated through Friday’s close. The good news is the overbought condition has been reduced while the market held support at the 50-dma. This potentially sets the market up for a rally next week, providing we get a “tweet” over the weekend confirming a “trade deal” is in progress.

However, on an intermediate-term basis, a “sell signal” has been registered, which suggests there is downward pressure on stocks over the next month. The July and September tops are nearly identical suggesting a “double top” is in progress. This also increases the difficulty of the markets moving higher in the short-term. The good news is a break above resistance will support a move to 3300 as discussed previously. Currently, there is support at the 50-dma, which coincides with the January 2018 top, but a break of that level will put the 200-dma into focus. The negative divergence between large and small-cap stocks continues after a brief reversion week before last. Whatever that was, seems to be over for now.

On Friday, the Trump administration is putting a “review on investment limits” for China. This would potentially include: Delisting Chinese companies from U.S. stock exchanges, and Limiting Americans’ exposure to the Chinese market through government pension funds. This is a direct hit at China which has made huge strides in economic ambitions and technological advances on the back of American financing. 

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As noted above, this is all “talk” by the administration. While Trump has green lighted the discussion, there is reportedly no timeline for any action which suggests this is nothing more than “posturing” ahead of trade talks. While the markets didn’t like the news on Friday, this plays well into the strategy we believe Trump is setting up for the mid-October meeting with China to “negotiate a trade deal.”  This additional “threat” is being brought to the bargaining table in October, and is one Trump can easily back off of in exchange for greater market access for American companies in China. (This is something Trump has previously asked for, and China has already agreed to provide.) However, while the Democrats are busy trying to impeach President Trump over the latest White House scandal, Trump has continued to try and keep the markets happy by promising a “trade deal is coming,” just as he told the White House press pool on Wednesday: “They want to make a deal very badly… It could happen sooner than you think.” – Reuters.

I remain unconvinced as China responded immediately afterward. “China’s top diplomat hit back at U.S. criticism of its trade and development model in a speech on Tuesday after Trump spoke at the United Nations. Wang Yi, China’s foreign minister and state councilor, said Beijing would not bow to threats, including on trade, though he said he hoped the high-level trade talks next month would produce positive results.” – Reuters. If this all sounds rather familiar, it should, because it is the same thing they said a month ago. 

“Beijing’s latest ‘gesture’ has increased the prospects for a narrow trade deal with the US. But it’s a small deal. It means that there would be no escalation of tariffs as China has agreed to make more purchases. It could provide a certain level of comfort to US farmers and give Trump something to brag about.” – Hua Changchun, economist at Guotai Junan Securities, PRC

China is indeed making “small concessions” for things they need as a country. As we noted two weeks ago: “China, smartly, is using the opportunity to buy soy and pork products (which they desperately need due to a virus which wiped out 30% of their pig population) to restock before the next meeting. This is a not so insignificant point. China is out for “China’s” best interest and will not acquiesce to any deal which derails their long-term plans. In the short-term, they may “play the game” to get what they need as a country, but in the long-run, they will protect their own interests.”However, don’t mistake China’s move as “caving” into Trump. Such is hardly the case. 

While Beijing will allow Chinese businesses to purchase a “certain amount of farm products such as soybeans and pork” from the US, China has also cut a deal for soy meal from Argentina. “China will allow the import of soymeal livestock feed from Argentina for the first time under a deal announced by Buenos Aires on Tuesday, an agreement that will link the world’s top exporter of the feed with the top global consumer.” – Reuters. 

The pressure is on the Trump Administration to conclude a “deal,” not China. Trump needs a deal done before the 2020 election cycle; AND he needs the markets and economy to be strong. If the markets and economy weaken because of tariffs, which are a tax on domestic consumers and corporate profits, as they did in 2018, the risk of electoral losses rise.

Edited September 30, 2019 by Guest

[Douglas Buckland + 6,308]

DT,

I know I’m a dumbass, but what are you saying here? How do you think the trade deal will pan out? Just condense to layman’s terms for those of us who are mentally challenged re the markets.

(Best use stick figures for James...)

[Tom Kirkman + 8,860]

1 hour ago, Douglas Buckland said:

DT,

I know I’m a dumbass, but what are you saying here? How do you think the trade deal will pan out? Just condense to layman’s terms for those of us who are mentally challenged re the markets.

(Best use stick figures for James...)

 

[Douglas Buckland + 6,308]

I think James should be able to understand the visual....

[Guest]

5 hours ago, Douglas Buckland said:

for those of us who are mentally challenged re the markets.

Ignore the charts. Just thought it was interesting analysis regarding USA and China. A lot is hypothertical, just some things to ponder when trading.

The delisting of Chinese companies is still just an idea / Trump election (and now impeach nonsense) considerations / China's 'gestures' / the posturing ahead of trade talks / the notion that pressure is on Trump more than Xi / the fact that short term things look bullish but on a longer term basis they don't / that October may provide clarity (as the stalemate article suggested), etc.

Just a lot of things to watch and be weary of basically mate. Stay tuned. 

Edited September 30, 2019 by Guest