The US stock market jumped Friday on Trump and Xi’s optimism about US-China trade deal and further progress of trade talks. Although at the end of high level two days US-China trade talks, no definitive MOU was signed contrary to earlier reports of six MOUs, some definitive progress was made and talks were extended for two more days (till Sunday). However, critical issues such as IP protection, tech transfer remain sticking points in the months-long talks, which are expected to resolve in a face-to-face direct negotiation between Trump and Xi at a late March meeting at Mar-a-Lago, Trump’s famous Florida beach resort.
After the much awaited high-level US-China trade deal meeting, Dow slips briefly as both sides sounded non-committal about a deal and the market was also disappointed by the lack of details. Dow briefly pared earlier gains after the US officials briefed on the negotiations said more time is likely needed in the talks given China’s resistance to the US demands for specific steps to end alleged forced transfers of US techs and certain other structural issues.
Also, Trump’s apparent confusion at the presser whether a deal will happen or not may have affected the ‘risk-on’ sentiment. In another surprise for markets, Trump gave no definitive indication that an extension to the tariff deadline had already been decided, saying instead that an extension would depend on how the next few days negotiation would go. Trump often looked that he is talking on behalf of both sides to have a deal and undermined China trade hawk-like Lighthizer. But overall, it’s part of Trump’s bellicose style of negotiation to squeeze the maximum out of China in a trade deal and he may announce the March 1 deadline extension officially by Monday.
In any way, Dow bounced back on hopes of a definitive US-China trade deal on Trump’s optimism coupled with Xi’s optimistic letter, addressed to Trump, read aloud in his Oval office (under live telecast). Xi wrote in that letter: “Negotiators have made significant progress and I hope the two sides will redouble efforts to meet each other halfway”.
Trump said on Friday there was “a very good chance” the US would strike a deal with China to end their trade war and that he was inclined to extend his March 1 tariff deadline and meet soon with Chinese President Xi. Following a closed-door meeting with reporters where Trump was joined by senior administration officials and Chinese Vice Premier Liu He, Trump confirmed that he and Xi “would likely meet in the near future to hammer out the final details of the deal and that maybe they would strike a deal...and maybe not”.
Trump said “I think that we both feel there’s a very good chance a deal will happen” and Liu agreed there had been “great progress. From China, we believe that (it) is very likely that it will happen and we hope that ultimately we’ll have a deal. And the Chinese side is ready to make our utmost effort”.
In a letter sent from Xi to Trump that was cited loudly at the press conference by Liu, China’s President Xi praised the "significant progress" made during talks so far and said he hoped that both sides could meet one another "halfway." To try and overcome the remaining hurdles to a deal, Liu and his team have agreed to extend their visit by two days.
On proposed MOUs, Trump said “I don’t like MOUs because they don’t mean anything. Either you are going to make a deal or you’re not”. The USTR Lighthizer responded testily that MOUs were binding, but that he would never use the term again.
Earlier there were reports that the two sides were drafting the legal text for six MOUs covering the most difficult issues in the trade talks that would require a structural economic change in China. Negotiators (US-China) have struggled this week to agree on specific language within those MOUs to address tough the US demands. The six memorandums include cyber theft, IP rights, services, and agriculture and non-tariff barriers to trade, including subsidies.
An industry source (the US chamber of commerce) briefed on the talks said both sides have narrowed differences on IP rights, market access and narrowing a nearly $400 billion US trade deficit with China. But larger differences remain on changes to China’s treatment of state-owned enterprises (SOE), subsidies, alleged forced technology transfers and cyber theft of the US trade secrets.
The USTR Lighthizer pushed back when asked on forced technology transfers, saying the two sides made “a lot of progress” on the issue, but did not elaborate. As a reminder, the US has said foreign firms in China are often coerced (forced) to transfer their technology to Chinese firms if they want to operate there, an allegation China vehemently denied repeatedly. The US Chamber of Commerce on Friday urged the US government to ensure the deal was comprehensive and addressed core issues, rather than one based on more Chinese short-term purchases of goods.
Moreover, in Oval Office meeting, the Chinese team committed to buying an additional 10 million metric tons (MMT) of the US soybeans, thanks to consistent pressure by Trump on China, his bellicose negotiation strategy is now working for bringing China to the negotiation table rather than the old tit-for-tat tariff days. The commitment and action of China to buy more US soybeans/agri products also shows a good faith & gesture by China and indicating of the more good news of trade to come in such tensed “war of attrition” which is more like a “cold war” rather than a simple “trade war”.
China has pledged to increase purchases of agricultural produce, energy, semiconductors, and industrial goods to reduce its trade surplus with the US. China committed to buying an additional 10 MMT of U.S. soybeans on Friday, The US Agriculture Secretary Perdue said on Twitter: “The commitments are a show of good faith by the Chinese and indications of more good news to come”.
As a pointer, China was the top buyer of the US soybeans worth around $12B annually before the trade war, but Beijing’s retaliatory tariffs on the same slashed that purchase to almost nil, putting Trump’s political base (rural agri America) at stake. Now China may buy the US soybeans for around $20B in 2019.
After the 7th round of meeting, in a dramatic presser & interactions with both sides of the negotiators (US-China), Trump said in his Oval office:
“We expect to have a meeting with Chinese President Xi in the not-too-distant future and me and Xi will perhaps work out the final points and perhaps not. But there is a very good chance that a deal can be made and if there is a deal, tariffs will not have to go up. I and China's Xi will ultimately make the biggest decisions on trade. We are doing well for farmers, it will be the biggest farm deal ever made. And who knows whether a deal will be made, but the round of negotiations has been extended because of the progress being made. If we see progress being made it would not be inappropriate to extend the March 1 deadline and I would be inclined to do that”.
“It’s more likely than not that a trade deal will happen, but may or may not include Huawei and ZTE (HK:0763) in the deal with China. Although dropping charges on Huawei has not to be discussed, an executive order on Huawei, 5G is an option and I'll be discussing the issue with US Attorneys and Attorney General in the coming weeks”.
During China trade talks in the Oval Office, Trump openly disagreed with the USTR Lighthizer (on the live telecast) about using Memorandums of Understanding (MOU) for a trade deal. After back and forth, a visibly upset Lighthizer said: “From now on we’ll never call them MOUs again and use the term ‘trade agreement’, although MOUs are also binding contracts”. Trump said he doesn’t like MOU as they would be short term, while he wants a long-term deal.
Trump added: “We have a deal with China on currency manipulation and I and Xi both know there's a very good chance of a deal. We have made a lot of progress on tech transfers and any extension of tariff deadline doesn't need to be so long. The US and China are having very good talks on trade and progress being made on structural issues with China. My relationship with China’s President Xi has been good, but who knows whether a deal will be made. A meeting with Xi may take place in Mar-a-Lago and I may extend china trade truce a month or so if there is any (real) progress”.
China’s Vice Premier and chief trade negotiator Liu He said he is delivering a message from Xi to Trump: ‘Negotiators have made significant progress and I hope the two sides will redouble efforts to meet each other halfway’. Liu added that “from China's perspective, we believe it is very likely that a deal will happen”.
The USTR Lighthizer added: “There are some great hurdles left, but the US and China have made progress on some very important structural issues and purchases (trade). We have also made a lot of progress in technology transfers”.
The US Treasury Secretary Mnuchin said: “The Chinese Vice Premier Liu He has agreed to extend his trip by two days to continue talking. We have concluded a strong agreement on currency and depending on how the next few days to go; I may recommend President Trump a meeting with China’s President Xi in March”.
The US Commerce Secretary Wilbur Ross said: “There is a lot more that needs to be done to get a (comprehensive) deal on trade with China”.
On Friday, in a dramatic presser, in addition to questions on China trade deal, Trump also answered questions on various other subjects ranging from the recent arrest of Kraft, to the allegations against his Labor Secretary Bob Acosta, to election fraud, specifically the situation in North Carolina and rising geopolitical tensions between India and Pakistan.
Trump said, “Amazon (NASDAQ:AMZN)'s decision to pull out of New York City is a big loss for New York City” He also reiterated “the $3 billion in incentives wasn't a check but would have been doled out in the form of tax incentives”.
Trump also affirmed that the US won't be dropping charges against Huawei unless the attorney general signed off. He also said he doesn't want to use "artificial blocking" to stop "open competition" in 5G. Answering a question on his national emergency declaration, Trump said he would veto a resolution to terminate his national security that's currently working its way through Congress.
Commenting on the escalating tensions between Pakistan and India following the terror attack in Kashmir, Trump said “The US is very much involved in that situation and that the US wants to see it stopped—it’s a dangerous and bad situation. There’s a terrible thing going on right now between Pakistan and India. I stopped paying Pakistan $1.3B that we were paying them. We may set up some meetings with Pakistan”.
On the subject of North Korea: Trump said: "China has helped us a lot and we have had a great relationship with North Korea and the Singapore summit was a tremendous success”.
Again back to the trade deal, Trump said “both parties wanted to make a trade deal a meaningful deal-- once that will last for many, many years. This same agreement should have been made 20 years ago, not now...because the US has really been taking advantage of...and I'm not blaming China...we had presidents who didn't do their job”.
Trump added: I am never a fan of an MOU and we would be better off going into a document." After Lighthizer interrupted to offer a few clarifications about the difference between an MOU and a binding contract, Trump clarified that "We're doing a memorandum of understanding that will be put into a final contract”.
Overall, it now seems that the issues of Chinese SOE subsidy, China’s 2025 industrial policies are great hurdles for a resolution as China will never agree for such demands by the US, even for a trade deal as it involved China’s reform initiative. Thus, Trump has to blink and go for the China trade deal without being too greedy while the other issues of alleged IP theft, forced tech transfer and stealing of trade secrets may be resolved partially as China will never acknowledge such acts.
Trump will also not risking any Dow plunge like in December for lack of any definitive China trade deal, be it comprehensive or not. For China, Trump’s “love & affection” for Dow is great “leverage” in this “war of attrition” on trade everything being equal.
Thus, we could see an extension of March 1 deadline, a subsequent trade summit between Trump and Xi late March 1, a definitive/tentative trade deal and withdrawal of retaliatory tariffs (10%) from both sides, even if the so-called structural issues remain fully/partially unresolved. The yearlong US-China trade war may be very close to ending. Trump is also under immense pressure from the Wall Street as due to China slowdown, corporate earnings would be under immense pressure as evident from a deluge of subdued guidance of China-savvy US/global MNCs/exporters.
China is now a big consumption economy; especially for expensive luxury goods and a slowdown in China consumption may also mean a slowdown in the US as-well-as EU and also the Japanese economy. The US, China, EU, and Japan are now four vital pillars of the global economy, with China as the main “power-house”. The Chinese slowdown is already affecting the story of Goldilocks global expansion and the world is moving towards a synchronized global contraction as evident from the recent spate of soft economic data from Japan to the EU and also the US.
On the other side, a full-fledged trade war with China at 25% tariffs may be also devastating for the US economy as inflation could jump abnormally. Trump will not take such high risk even ‘to make America great again’ as it may invite backlash from the “Real Street”.
But as the market already rallied almost +20% from the December panic low on hopes of US-China trade truce and a dovish Fed, any significant surge from here may be limited considering lack of details on the structural issues (i.e. it may be another example of buy on rumor and sell on facts/news). All eyes will be now on Sunday, when the extended trade talks between the US and China will end and whether Trump officially declared the extension of March 1 trade deal deadline; i.e. whether Trump blinks or not.
Technical Outlook: SPX-500, DJ-30, NQ-100
Technically, whatever may be the narrative, SPX-500 has to sustain over 2825 for a further rally to 2840/2865-2900*/2925 and 2950*/2985-3020/3050 in the near term (under bullish case scenario).
On the flip side, sustaining below 2815-2800, SPX-500 may fall to 2760/2745-2730*/2700 and 2675/2650-2635/2610 in the near term (under bear case scenario).
Technically, whatever may be the narrative, DJ-30 has to sustain over 26300 for a further rally to 26555*/26685-28850/26955* and 27050*/27380-27750/28100 in the near term (under bullish case scenario).
On the flip side, sustaining below 26250-26100, DJ-30 may fall to 25700*/25600-25300/25100* and 25000/24750-24550/24200 in the near term (under bear case scenario).
Technically, whatever may be the narrative, NQ-100 has to sustain above 7155 for a further rally to 7235*/7375-7455*/7550 and 7685/7735*-7850/7925 in the near term (under bullish case scenario).
On the flip side, sustaining below 7135, NQ-100 may fall to 7055*/7000-6950/6915 and 6870/6825*-6790/6720 in the near term (under bear case scenario).
US 30
Dow flirting with 26K mid-Friday on an indication that the March 1 China trade deal deadline may be extended and Trump could withdraw his China tariffs:
Earlier Dow jumped almost +200 points to a high of 26052.90 mid-Friday on an indication that the March 1 China trade deal deadline may be extended for another 60-day amid progress on structural issues and Trump could withdraw his China tariffs of 10% in lieu of certain China trade concessions. Earlier there was a report that although, trade talks between the US-China are "positive", but still no clarity from Beijing on IP, technology transfer, and other structural changes. As per the latest report, China committed to buying $1.2T of US goods, while there are significant gaps remained on forced tech transfer and IP, but Trump, Xi discussing late March summit at Mar-a-Lago (as expected by the market).
Meanwhile, China's vice premier and chief trade negotiator Liu He is scheduled to meet with the US President Trump in the Oval Office later Friday as this week's round of trade talks winds down in Washington. The market is upbeat that as the meeting is going ahead, this is a good sign for progress, additionally bolstered by China’s proposal to purchase $30 billion more in the US agricultural products, mainly soybeans, which are now in excess production in the US.
There are reports that significant progress has been made between the two sides, with the very real possibility that next week's March 1 deadline for a trade deal could be extended. However, critical issues such as IP protection and currency manipulation remain sticking points in the months-long talks, which are expected to resolve in a face-to-face direct negotiation between Trump and Xi at a late March meeting at Mar-a-Lago, Trump’s famous Florida beach resort.
But Dow jumped on another report that the US chamber of commerce official said although gaps do remain in China trade talks, particularly around structural issues, they want an end to tariffs between the US and China as soon as possible as cost of tariffs continues to mount (for the US consumers as China recently allowed Yuan to strengthen against the USD).
The US Chamber official said they don't expect final trade deal to be done this week but they are seeing progress and the March 1 deadline is not as important as having comprehensive trade deal. The US Chamber official also added that they do not expect any further tariffs or an increase in current tariffs if talks are constructive, while they are expecting trade talks to go past March 1 deadline.
On Friday, the US market was helped by China trade savvy techs/chip makers (FAANG stocks, Intel (NASDAQ:INTC), AMD, and Microsoft (NASDAQ:MSFT)), while consumer staples were under stress on Kraft Heinz (NASDAQ:KHC) subpoena by SEC for its accounting practices. Industrials were mixed, although closed in green amid China trade optimism and US-EU growing trade skepticism. The EU may target Caterpillar (NYSE:CAT) if Trump imposes auto tariffs. Intel surged also on analysts’ upgrade. Energies also helped as oil surged on US-China trade deal progress while undercutting to some extent by the concern of higher US outputs.
On Friday, the blue-chip Dow Jones Industrial Average jumped +0.70% to close around 26031.81 (+181.18), near the session high of 26052.90; earlier it made a low of 25906.27 in a day of rangebound trade. Dow notched 9–weeks winning streaks and is up by almost +20% from the December panic low.
Pivot: 26300 Support: 25700 25600 25300Resistance: 26555 26685 26850 Scenario 1: Strong above 26300 and sustaining above 26555*/26685-26850/26955*, DJ-30 may further surge to 27050*/27380-27750/28100 in the near term Scenario 2: Weak below 26250-26100 and sustaining below 25700*/25600-25300/25100*, DJ-30 may further plunge to 25000/24750-24550/24200 in the near term Comment: SHORT TERM RANGE: 21450-26250
US 500
The broader S&P 500 (SPX-500) surged +0.64% to close around 2792.67, almost at the session high of 2794.20; earlier it made a low of 2779.11 in a day of rangebound trade. The SPX-500 is now almost +19% up from the December low, primarily caused by US-China trade tensions, hawkish Fed and Trump’s Fed tantrum.
Pivot: 2825 Support: 2760 2745 2730Resistance: 2840 2865 2900 Scenario 1: Strong above 2825 and sustaining above 2840/2865-2900*/2925, SPX-500 may further surge to 2950*/2985-3020/3050 in the near term Scenario 2: Weak below 2815-2800 and sustaining below 2760/2745-2730*/2700, SPX-500 may fall to 2675/2650-2635/2610 in the near term Comment: Short term range:2315-2825
US Tech 100
The tech-heavy Nasdaq Composite (IXIC) soared +0.91% to close around 7527.55, just at the session high; earlier it made a low of 7479.01 in a day of moderate volatility. Nasdaq also closed in the green for 9-consecutive weeks, while rebounded over 21% from the December low.
Pivot: 7155 Support: 7055 7000 6950 Resistance: 7235 7375 7455 Scenario 1: Strong above 7155 and sustaining above 7235*/7375-7455*/7550, NQ-100 may further surge to 7685/7735*-7850/7925 in the near term Scenario 2: Weak below 7135 and sustaining below 7055*/7000-6950/6915, NQ-100 may further plunge to 6870/6825*-6790/6720 in the near term Comment: Short term range:5815-7135