The US stock market (Dow) slips almost 100 points early Wednesday on lack of China trade deal progress details in Trump’s SOTU speech and higher USD. The market is concerned about the risk of the two warring sides (US-China) will fail to reach an agreement by Trump imposed March 2 deadline. The US Treasury Secretary Mnuchin said there was progress in the US-China trade talks, but a lot of work still needed to be done ahead of another round of meetings next week to push for a deal before the March deadline. Mnuchin said “talks between the two countries have been very productive so far. We're putting in an enormous amount of effort to hit this deadline and get a deal. That's our objective”.
Earlier there was a report that Trump may announce his 2nd trade summit with China’s President Xi in his SOTU speech, which could coincide with his summit with the North Korean leader Kim on 27-28th February in Vietnam. But, although Trump announced his North Korean summit (Kim) in Vietnam as reported earlier, he was silent about the date of his next summit with China’s Xi. But Trump could announce it later and he could meet Xi on his Vietnam trip after/before meeting with Kim.
All these will depend on further progress in the forthcoming meeting by the USTR Lighthizer and Mnuchin, who will travel to China next week (after the Lunar New Year holiday) to resume talks with Chinese counterparts for the so-called “structural” issues. If there is any real progress, Trump will meet Xi for a conclusive structural trade deal with China; otherwise, Trump may extend the March deadline (as he can’t afford another Dow meltdown despite his China phobia).
Regarding China, Trump said in his SOTU (State of The Union) speech late Tuesday: "We are now making it clear to China that after years of targeting our industries, and stealing our intellectual property, the theft of American jobs and wealth has come to an end. I have great respect for President Xi, and we are now working on a new trade deal with China. But it must include a real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs”.
In his 90-minutes long SOTU address late Tuesday, the US President Trump appealed for greater unity among Americans. Trump also touted a strong economy, again emphasized his call for border security and played the bipartisanship card, while sticking with his bellicose demands to build a border wall and calling for an end to “partisan investigations”. But Trump stops short announcing a national emergency as there was no announcement he’ll use emergency powers to get funding for the wall, which may increase the chances of another shutdown in 10-days should Trump force the issue again.
Trump said: "Together, we can break decades of political stalemate; we can bridge old divisions, heal old wounds, build new coalitions, forge new solutions, and unlock the extraordinary promise of America's future”. In the Democratic response to Trump’s SOTU address, DNC’s Abrams blamed the government shutdown entirely on Trump calling it a "stunt engineered by the president of the United States”.
Overall, Trump’s reference to the Feb. 15 deadline for a budget deal also reminded the market that a second shutdown was not fully off the table in this epic game of US politics.
In his SOTU speech, Trump confirmed that he will meet North Korea's Kim in Vietnam on 27-28th February. As per reports, the lead US negotiator with North Korea is set to meet with his North Korean counterpart Wednesday in Pyongyang to map out "a set of concrete deliverables” ahead of Trump’s summit.
Trump said his relationship with North Korea's leader is "good" and progress has made in his admin's efforts to achieve peace on the Korean peninsula. Trump, however, said much work remains to be done and gave an unusual warning about the risks of heightened tensions with North Korea, going so far as to claim that the US and North Korea would be at war if he had not been elected president. Trump warned: "If I had not been elected President of the United States, we would right now, in my opinion, be in a major war with North Korea”.
Apart from politics, the US market was also under stress on subdued guidance from videogame maker Electronic Arts (NASDAQ:EA) and Take-Two (NASDAQ:TTWO), while chip makers were helping the market to some extent as the analog semiconductor maker Skyworks (NASDAQ:SWKS) Solution announced a $2B share buyback. The communication service sector slips Wednesday as-well-as techs like Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google-parent Alphabet (NASDAQ:GOOGL).
The Wall Street is also volatile on mixed earnings. General Motors (NYSE:GM) surged and Snap soared after reporting better-than-expected report card, while Walt Disney (NYSE:DIS) slips despite upbeat earnings and guidance as its direct-to-consumer push comes with risks- it's hard to turn a profit on streaming services, which usually entail high content and technology costs but offer lower prices than traditional cable to attract subscribers. Eli Lilly (NYSE:LLY) and Cummins (NYSE:CMI) slid after lower-than-expected earnings.
Looking ahead, the Wall Street is not very much concerned about the December quarter (Q4) earnings, but concerned about the Q1/Q2-2019 earnings growth after a deluge of subdued guidance amid China slowdown, Trump trade war, higher raw material costs (Trump tariffs), higher wages, higher borrowing costs and cross currency headwinds. The market is now discounting almost zero growth in earnings (EPS) for Q1/Q2 against around 15% EPS growth forecast a few months ago (Q3-2018).
The US stocks are also undercut by higher US dollar index (DXY), surged +0.20% on stress in EUR after subdued economic data from Germany, the largest Eurozone economy. This is also negative for the synchronized global growth narrative and the market is now bracing for synchronized global contraction rhetoric, thanks to Trump’s bellicose trade policies and lingering EU political jitters.
The USD surged almost +0.70% in February (till now), whereas the US 10Y bond yield edged up almost 20 bps from its January low of 2.543% amid the Fed’s patience and flexibility. Dow jumped almost 9% in January and February (till now) primarily on Fed’s patience/flexibility narrative and hopes of the US-China trade deal by March.
Technical Outlook: SPX-500, DJ-30, NQ-100:
Technically, whatever may be the narrative, SPX-500 has to sustain over 2710 for a further rally to 2735/2755*-2790/2825 and 2875/2900-2950/3020 in the near term (under bullish case scenario).
On the flip side, sustaining below 2700, SPX-500 may fall to 2665/2635*-2605/2590 and 2575/2555-2535/2515 in the near term (under bear case scenario).
Technically, whatever may be the narrative, DJ-30 has to sustain over 25100 for a further rally to 25200/25650-25900/26100 and 26275/26555-26685/26815-27000 in the near term (under bullish case scenario).
On the flip side, sustaining below 25050, DJ-30 may fall to 24775/24650-24450/24350 and 24150/24000-23700/23500 in the near term (under bear case scenario).
Technically, whatever may be the narrative, NQ-100 has to sustain above 6875 for a further rally to 6975/7135-7235/7375 and 7455/7550-7725/7925 in the near term (under bullish case scenario).
On the flip side, sustaining below 6850, NQ-100 may fall to 6750/6690-6630/6590 and 6550/6485-6390/6315 in the near term (under bear case scenario).
US 30
Dow surged Tuesday on hopes of China trade deal summit announcement by Trump in his SOTU speech:
The US stock market (Dow) jumped Tuesday on hopes of China trade deal summit announcement by Trump in his SOTU speech later in the day. The market was also boosted by earnings optimism and hopes of a soft conciliatory SOTU (State of The Union) speech from Trump contrary to an earlier perception of “fire & fury” and the threat of imposition of “national emergency” to fund his border wall rhetoric.
The risk-on sentiment was boosted by a report that Trump could announce details for upcoming summits with Chinese and North Korean leaders in his much-awaited SOTU speech late Tuesday. Trump’s SOTU address to Congress promises to be the most dramatic in years, with the report that Trump may stop short declare a national emergency to secure funding for a border wall. While the border wall and shutdown issues are likely to dominate the SOTU speech, Trump may also make proposals on drug prices and some other issues.
The risk-on trade was also boosted after an unscheduled dinner meeting late Monday between the US President Trump and Fed Chair Powell, which have fueled Fed’s pause and patience stance. The subdued ISM manufacturing PMI also supported the Fed’s patience and flexibility and boosted the stock market sentiment on Tuesday.
As per reports, Fed Chair Powell met Trump at an informal dinner meeting for around 90-minutes at the White House late Monday to discuss the economy and the US Treasury Secretary Mnuchin and the Fed VC Clarida was also present. The Fed said in a statement that the meeting was in Trump’s invitation. The purpose was to discuss recent economic developments and the outlook for growth, employment, and inflation.
The Fed confirmed that Powell’s comments were consistent with his remarks at his press conference last week. And he did not discuss his expectations for the US monetary policy. Powell also emphasized that the path of monetary policy will depend entirely on incoming economic information and what that means for the outlook. Powell also told Trump that he and his colleagues at Fed will set monetary policy for the mandated dual objective of maximum employment and stable prices based solely on careful, objective and non-political analysis on incoming data and its future outlook thereof.
As per report (White House source), “Trump had extended the invitation on Friday and the meeting was cordial, two on a side-no pitchfork. It was much more casual than an Oval Office meeting. They had a very good exchange of views”.
The statement from the Fed about the meeting:
Statement on Chair Powell's and Vice Chair Clarida's meeting with the President and Treasury Secretary
“At the President's invitation, Chair Powell and Vice Chair Clarida joined the President and the Treasury Secretary for an informal dinner tonight in the White House residence, to discuss recent economic developments and the outlook for growth, employment, and inflation”.
“Chair Powell's comments in this setting were consistent with his remarks at his press conference of last week. He did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook”.
“Finally, Chair Powell said that he and his colleagues on the FOMC will set monetary policy in order to support maximum employment and stable prices and will make those decisions based solely on careful, objective and non-political analysis”.
On Tuesday, the blue-chip Dow Jones Industrial Average (DJ-30) surged +0.68% to close around 25411.52 (+172.15), near the session high of 25427.32; earlier it made a session low of 25287.65 in a day of moderate volatility. The broader S&P 500 (SPX-500) jumped +0.47% and closed around 2737.70 (+12.83), almost at the session high of 2738.98; earlier it made a session low of 2724.03 in a day of rangebound trading. The tech-heavy Nasdaq Composite (IXIC) soared +0.74% to close around 7402.08 (+54.55), just short of the session high of 7408.69; earlier it made a session low of 7355.36.
Overall on Tuesday, the US market was helped by techs, communication services and consumer discretionary amid China trade deal and earnings optimism, while Google Parent Alphabet slips on subdued guidance (higher capex) despite upbeat earnings. Techs/Chipmakers such as Apple (NASDAQ:AAPL), Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT) helped, while AMD dragged as its peer Seagate issued subdued guidance despite upbeat earnings.
China-savvy cosmetic maker/fashion company Estee Lauder (NYSE:EL) and Ralph Lauren (NYSE:RL) jumped on blockbuster earnings and guidance, primarily driven by China strength and boosted the overall sentiment negating the China “doomsday” story. Boeing (NYSE:BA) soared on significant investment in supersonic business jet developer company Aerion.
Energies dragged on lower oil amid subdued US economic data and signs that Venezuelan President Maduro may blink on increasing diplomatic pressure from the EU and the US and called for an imminent general election, paving the way for political stability in the country.