The U.S. stock edged up Thursday on hopes & hypes of U.S.-China trade war truce and Fed rate cuts in Dec 2019. Dow jumped almost +100 points early Wednesday on hopes of Fed rate cuts by Dec’2019 amid soft U.S. core PCE inflation, which plunged to +1.0% in May from prior +1.80% (revised upwards from +1.30%), lower than the expectations of +1.30%. The U.S. Q1 GDP (2nd revision) also revised down to +3.1% from prior +3.2%, right on the expectations of +3.1% (q/q). But the overall impact was limited on the higher revision of core PCE for April.
The market was also under stress on falling US bond yields and increasing inversion amid safe-haven flows and the concern of synchronized global recession amid Trump global trade war, be it with China, EU or Mexico. The US10Y bond yield made a low of 2.211% on Thursday and made a session and multi-month low of 2.163%, much below the present EFR of +2.40%.
On Thursday, Dow slumped almost -60 points and moreover skids over -150 points after the U.S. VP Pence warned that the U.S. can “more than double” tariffs on China, if necessary. Pence also added: “We have been clear that we consider Huawei to be incompatible with security interests of U.S. and allies as the legal framework in China gives the government access to data collected by Huawei”.
But Dow also got some boost on renewed hopes of U.S.-China trade truce as Pence said: “President Trump and I likely to meet with Xi at G20 in Japan, in June. I am hopeful that Trump and China's Xi will make progress on trade at G20, but China must agree to make reforms”.
Dow was also buoyed by another report that Trump may trigger some legislative process to accelerate Congressional vote on USMCA in a direct challenge to Pelosi and the high probability that Pelosi & Co may not go for an impeachment of Trump just before the 2020 election on a fragile & controversial ground of obstruction of justice by President Trump amid allegation of Russian collusion in the 2016 election.
On early Thursday, Trump again tried to jawbone Dow, which corrected by over -5% in May (till now) on Trump’s bellicose China trade /cold war policies.
Trump said: “China would love to make a deal with us. We had a deal and they broke the deal. I think if they had it to do again they wouldn’t have done what they did. China is subsidizing products, so the United States taxpayers are paying for very little of it. And there is little impact of tariffs on U.S. inflation. I think we’re doing very well with China”.
China, on its part, is open to selling rare earth in limited quantities to other countries but halted US soybean purchases as China continues to take tit-for-tat stance again U.S. “bullying”. China’s commerce industry/MOFCOM repeated the pledge to “fight till the end” if the U.S. keeps escalating tensions. And China will firmly defend its own national interests. There is no indication of more talks as China said: “US sincerity is in doubt”.
In addition to the usual narrative, the MOFCOM also said China is willing to meet reasonable demand for rare earth from other countries. Though, it would be unacceptable that countries using Chinese rare earth to manufacture products would turn around and suppress China. Also, there was another report that China has halted U.S. soybean purchases already. Government data indicates China bought about 13 million metric tons of US soybeans since December. While there is no cancellation of previous orders, there are no further orders to continue the so-called goodwill buying.
China also accused the U.S. of provoking trade dispute is “naked economic terrorism, economic homicide, economic bullying”. It seems that the Chinese ruling Communist Party is preparing the nation for the “new long march” in lingering Trump trade/cold war.
On Thursday, the Chinese Vice Foreign Minister Hanhui said: “We oppose a trade war but are not afraid of a trade war. The U.S. is deliberately provoking this kind of trade disputes is naked economic terrorism, economic homicide, economic bullying. This trade clash will have a serious negative effect on global economic development and recovery… We will definitely properly deal with all external challenges, do our own thing well, and develop our economy… At the same time, we have the confidence, resolve and ability to safeguard our country’s sovereignty, security, respect and security, and development interests”.
China’s state-run Daily newspaper said on Thursday: “It would be naive to think that China does not have other countermeasures apart from rare earth to hand. As Chinese officials have reiterated, they have a tool box large enough to fix any problem that may arise as trade tensions escalate, and they are ready to fight back at any cost”.
The Chinese state-run Daily newspaper added Thursday, accelerating state-led media effort to bolster the nation's position in what now looks to be a prolonged trade/cold war between the world's two biggest economies. The state-run paper wrote, referring to Wednesday's threat from the People's Daily newspaper that the government could ban the export of rare earth materials to the US: “It would be naive to think that China does not have other countermeasures apart from rare earth to hand. As Chinese officials have reiterated, they have a tool box large enough to fix any problem that may arise as trade tensions escalate, and they are ready to fight back at any cost”.
On Thursday, the blue-chip Dow Jones Industrial Average (DJ-30) edged up +0.17% to close around 25169.88, near the mid-levels of session low-high of 24938.24-25231.46 in a day of volatile trading. The broader S&P 500 (SPX-500) inched up +0.21% to close around 2788.86, almost at the mid-point of session low-high of 2766.06-2792.03 in a day of moderate volatility. The tech-heavy Nasdaq Composite inched up +0.27% to close around 7567.22, near the session low-high of 7527.66-7595.90 in a day of volatile trading.
Overall, the US market was helped by selected techs, boosted by the software company Keysight Technologies on an earnings beat. Banks and financials dragged on lower bond yields and inversion, negative for their business/lending model. Also, the market was helped by industrials, consumer staples, and healthcare, while dragged by energies (lower oil on smaller than expected crude inventory drawdown) and telecoms. Intel (NASDAQ:INTC), Apple (NASDAQ:AAPL), Coca-Cola (NYSE:KO) and McDonald’s (NYSE:MCD) helped, while AMD, Verizon (NYSE:VZ), Chevron (NYSE:CVX) and Walgreens Boots Alliance (NASDAQ:WBA) dragged. Dollar General (NYSE:DG) jumped.
On early Friday, Dow future tumbled over -250 points on escalating Trump trade war as “tariff man” intends to use tariff against its southern neighbor Mexico to stop illegal immigrants flood.
Trump tweeted late Thursday: “On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied, at which time the Tariffs will be removed. Details from the White House to follow”.
Later, in the more detailed announcement by the White House, Trump said he was invoking the authorities granted to him by the International Emergency Economic Powers Act Starting June 10, 5% tariff will be imposed on all goods imported from Mexico. If the crisis persists, tariffs will be raised to 10% on July 1, then 15% on August 1, 20% on September 1, and 25% on October 1.
Trump further warned: “If Mexico fails to act, Tariffs will remain at the high level, and companies located in Mexico may start moving back to the United States to make their products and goods. Companies that relocate to the United States will not pay the Tariffs or be affected in any way”.
Statement from the President Regarding Emergency Measures to Address the Border Crisis
“As everyone knows, the United States of America has been invaded by hundreds of thousands of people coming through Mexico and entering our country illegally. This sustained influx of illegal aliens has profound consequences on every aspect of our national life—overwhelming our schools, overcrowding our hospitals, draining our welfare system, and causing untold amounts of crime. Gang members, smugglers, human traffickers, and illegal drugs and narcotics of all kinds are pouring across the Southern (NYSE:SO) Border and directly into our communities. Thousands of innocent lives are taken every year as a result of this lawless chaos. It must end NOW!”
“Mexico’s passive cooperation in allowing this mass incursion constitutes an emergency and extraordinary threat to the national security and economy of the United States. Mexico has very strong immigration laws and could easily halt the illegal flow of migrants, including by returning them to their home countries. Additionally, Mexico could quickly and easily stop illegal aliens from coming through its southern border with Guatemala”.
“For decades, the United States has suffered the severe and dangerous consequences of illegal immigration. Sadly, Mexico has allowed this situation to go on for many years, growing only worse with the passage of time. From a safety, national security, military, economic, and humanitarian standpoint, we cannot allow this grave disaster to continue. The current state of affairs is profoundly unfair to the American taxpayer, who bears the extraordinary financial cost imposed by large-scale illegal migration. Even worse is the terrible and preventable loss of human life. Some of the most deadly and vicious gangs on the planet operate just across our border and terrorize innocent communities”.
“Mexico must step up and help solve this problem. We welcome people who come to the United States legally, but we cannot allow our laws to be broken and our borders to be violated. For years, Mexico has not treated us fairly—but we are now asserting our rights as a sovereign Nation”.
“To address the emergency at the Southern Border, I am invoking the authorities granted to me by the International Emergency Economic Powers Act. Accordingly, starting on June 10, 2019, the United States will impose a 5 percent Tariff on all goods imported from Mexico. If the illegal migration crisis is alleviated through effective actions taken by Mexico, to be determined in our sole discretion and judgment, the Tariffs will be removed. If the crisis persists, however, the Tariffs will be raised to 10 percent on July 1, 2019”.
“Similarly, if Mexico still has not taken action to dramatically reduce or eliminate the number of illegal aliens crossing its territory into the United States, Tariffs will be increased to 15 percent on August 1, 2019, to 20 percent on September 1, 2019, and to 25 percent on October 1, 2019. Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory. Workers who come to our country through the legal admissions process, including those working on farms, ranches, and in other businesses, will be allowed easy passage”.
“If Mexico fails to act, Tariffs will remain at a high level, and companies located in Mexico may start moving back to the United States to make their products and goods. Companies that relocate to the United States will not pay the Tariffs or be affected in any way”.
“Over the years, Mexico has made massive amounts of money in its dealings with the United States, and this includes the tremendous number of jobs leaving our country”.
“Should Mexico choose not to cooperate on reducing unlawful migration, the sustained imposition of Tariffs will produce a massive return of jobs back to American cities and towns. Remember, our great country has been the “piggy bank” from which everybody wants only to TAKE. The difference is that now we are firmly and forcefully standing up for America’s interests”.
The risk-on sentiment was also under further stress on China’s unofficial warning tweet from the influential Global Times editor: “Based on what I know, China will take major retaliative measures against the US placing Huawei and other Chinese companies on Entity List. This move indicates Beijing will not wait passively and more countermeasures will follow”.
Dow future slips on further signals from China that the prolonged Trump trade war continues to take a toll on the world's second-largest economy as manufacturing PMI again slid below boom/bust line of 50.0 in May and flashed as 49.4 from prior 50.1, lower than the expectations of 49.9
Technical Outlook: SPX-500, DJ-30, NQ-100:
Technically, whatever may be the narrative, SPX-500 now has to sustain over 2800 for a rebound to 2820/2855*-2875/2900* and further rally to 2930/2950-2965*/2990 and 3020/3050*-3080/3135 in the near term (under bullish case scenario).
On the flip side, sustaining below 2790, SPX-500 may fall to 2750/2735-2705/2690 and could further plunge to 2665/2635-2600/2560 in the near term (under bear case scenario).
Technically, whatever may be the narrative, DJ-30 now has to sustain over 25250 for a recovery 25500/25750*-25850/26000* and further rally to 26100*/26300-26550/26705* and further 26850/26955*-27050*/27400 in the near term (under bullish case scenario).
On the flip side, sustaining below 25200, DJ-30 may further fall to 25100*/24850-24500*/24250 and 24150/24000-23700/23300 in the near term (under bear case scenario).
Technically, whatever may be the narrative, NQ-100 now has to sustain above 7300 for a recovery to 7380/7455*-7515/7585 and further rally to 7640*/7700-7765/7880* and 7955/8050*-8125/8195 in the near term (under bullish case scenario).
On the flip side, sustaining below 7270, NQ-100 may fall to 7215/7150-7050*/7000 and further plunge to 6785/6700-6600/6520 in the near term (under bear case scenario).
US 500
Technically, whatever may be the narrative, SPX-500 now has to sustain over 2800 for a rebound to 2820/2855*-2875/2900* and further rally to 2930/2950-2965*/2990 and 3020/3050*-3080/3135 in the near term (under bullish case scenario). On the flip side, sustaining below 2790, SPX-500 may fall to 2755/2745*-2720/2695* and could further plunge to 2665/2635-2590*/2565 in the near term (under bear case scenario). 
Pivot:2800Support:275527452720Resistance:282028552875Scenario 1:Strong above 2800 and sustaining above 2820/2855*-2875/2900*, SPX-500 may further rally to 2930/2950-2965*/2990 in the near termScenario 2:Weak below 2790 and sustaining below 2755/2745*-2720/2695*, SPX-500 may further further plunge to 2665/2635-2590*/2565 in the near termComment:Short term range:2720/2590-2800/2900
US 30
Technically, whatever may be the narrative, DJ-30 now has to sustain over 25250 for a recovery 25500/25750*-25850/26000* and further rally to 26100*/26300-26550/26705* in the near term (under bullish case scenario). On the flip side, sustaining below 25200, DJ-30 may further fall to 25100*/24850-24500*/24250 and 24150/24000-23700/23300 in the near term (under bear case scenario). 
Pivot:25250Support:251002485024500Resistance:255002575025850Scenario 1:Strong above 25250 and sustaining above 25500/25750*-25850/26000*, DJ-30 may further rally to 26100*/26300-26550/26705* in the near termScenario 2:Weak below 25200 and sustaining below 25100*/24850-24500*/24250, DJ-30 may 24150/24000-23700/23300 in the near termComment:Short term range: 23700-25250
US Tech 100
Technically, whatever may be the narrative, NQ-100 now has to sustain above 7300 for a recovery to 7380/7455*-7515/7585 and further rally to 7640*/7700-7765/7880* in the near term (under bullish case scenario).
On the flip side, sustaining below 7270, NQ-100 may fall to 7215/7150-7050*/7000 and further plunge to 6785/6700-6600/6520 in the near term (under bear case scenario).
Pivot: 7300 Support: 7215 7150 7050 Resistance: 7380 7455 7515 Scenario 1: Strong above 7300 and sustaining above 7380/7455*-7515/7585, NQ-100 may further rally to 7640*/7700-7765/7880* in the near term Scenario 2: Weak below 7270 and sustaining below 7215/7150-7050*/7000, NQ-100 may further plunge to 6785/6700-6600/6520 in the near term Comment: Short term range: 6600-7300