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Wall Street inched up Tuesday on hopes of an imminent U.S.-China Phase One trade deal; Dow inched up early Wednesday

calendar 27/11/2019 - 07:20 UTC

The U.S. stock market inched up Tuesday on hopes of an imminent U.S.-China Phase One trade deal amid Trump’s optimism. On Tuesday, as a part of his daily ritual (to keep Dow at elevated levels), Trump said in a White House presser (bytes) that US-China in 'final throes' of Phase One trade deal, but again declining to say if he would sign a Hong Kong human rights bill that was approved by the U.S. Congress, while stressing that a trade deal is also subjected to satisfactory resolution of Hong Kong peace process. Dow is getting a boost not only from China trade deal optimism but also from the power of central bank unlimited liquidity as Fed is now on QE-Lite in the disguise of POMO in the repo/money market since Sep turmoil. Similarly, ECB is also now running an open-ended QE-2

On Tuesday, Trump reiterated that he has a ‘very good relationship’ with Chinese President Xi and that the two sides are close to the Phase One trade deal. Trump said:

“I have a very good relationship, as you know, with President Xi. We’re in the final throes of a very important deal; I guess you could say one of the most important deals in trade ever. It’s going very well but at the same time, we want to see it go well in Hong Kong. I think it will-- I think President Xi can make that happen. I know him, and I know he'd like to make it happen”.

Later on, Tuesday Trump said in another interview that he is holding up the China trade deal to ensure better terms for the U.S. Trump clarified: "I'm personally holding it up because it's got to be a good deal. We can't make a deal that's like, even. We have to make a deal where we do much better because we have to catch up”.

Trump also confirmed that he has been watching the results of the weekend Hong Kong elections, where pro-democracy candidates won big. His message to Hong Kong voters: "We are with them”. Trump raised points about his commitment to standing up to defend freedoms in Hong Kong in August when he described the mass street protests there as ‘riots’ that China must address, but he has also urged China to handle the protests humanely while warning repeatedly of their impact on trade negotiations.

China also warned the U.S. about interfering in Hong Kong and urged the U.S. to have a clear picture of the situation, immediately prevent the bill from becoming a law, stops interfering with Hong Kong affairs and meddling with China's internal affairs. China said it had summoned U.S. Ambassador Branstad on Monday to protest the passage in the U.S. Congress of the Hong Kong Human Rights and Democracy Act, saying the bill amounted to interference in a Chinese internal matter.

Now, all focus will be on Trump’s action on the Hong Kong bill (legislation), was passed by the U.S. House and now awaiting Trump’s approval or veto. But the bill will automatically become law on 3rd Dec if Trump chooses to do nothing.

On Tuesday, in a presser, the U.S. Secretary of State Pompeo asked whether he expected Trump to approve the legislation-Pompeo said he did not want to ‘get out in front of what he will do before too long’, but added that the State Department would comply with whatever it was required to do by statute.

On early Tuesday, Dow was almost flat on hopes & hypes of U.S.-China interim trade deal. There was a report that U.S.-China negotiators reach consensus on solving issues. As usual, China's Vice Premier and top trade negotiator Liu He discussed core issues of common concern with the USTR Lighthizer and Treasury Secretary Mnuchin late Monday concall. But details of the phone call, however, remained unclear as the USTR office failed to expand on the conversation, apart from confirming that it took place.

But later a statement from the Chinese MOFCOM suggested that over the phone, the two sides reached consensus on how to resolve each other's concerns and agreed to stay in contact over remaining issues to work toward implementation of the Phase One agreement. And a number of other Chinese officials also joined the concall, including Commerce Minister Shan and PBOC Governor Gang.

Further, an influential Chinese media (GT) said China and the U.S. have reached a broad consensus, but tariffs rollback issues remain to be resolved:

The latest phone call between Chinese and US officials sends a positive signal that a phase one deal is still within reach, but the ball is in the US' court to make reasonable compromises on tariffs and other issues. China, U.S. has reached a broad consensus on the Phase One trade deal, including the removal of tariffs but China and the U.S., differ on how much tariffs should be rolled back. China, the U.S. may have discussed agricultural purchases, face-to-face meetings in the call. The mood in Beijing these days is quite different from in late spring when it’s only the U.S. side that was trumpeting optimism. Talks collapsed then. The stake is even higher now.

Elsewhere, the White House Adviser Conway said in an interview Tuesday: "We're getting really close to deal with China on trade, but some sticking points remain. President Trump wants to do this in phases, in interim pieces because it’s such a large, historic trade deal. We continue to negotiate. But those forced tech transfers, the theft of intellectual property, the trade imbalance of a half a trillion a year with the world’s second-largest economy, China - this makes no sense to people. But President Trump wants a deal and always waits for the best deal”.

Also, the U.S. Senate Finance Committee Chairman Grassley said on Tuesday that he believed the initial deal with China could be done before year-end. He said China had invited Lighthizer and Mnuchin to visit Beijing for in-person talks and they were willing to go if they saw ‘a real chance of getting a final agreement’. Although, the USTR office is non-committal about China’s invitation for face-to-face talks, there are reports that U.S. trade officials (Lighthizer and Mnuchin) could go to Beijing next week after the weekend Thanksgiving holiday.

Market Wrap:

On Tuesday, the blue-chip Dow Jones Industrial Average (DJ-30) edged up +0.19% to close around 28120.15, near the session high of 28145.74; earlier it made a low of 28043.43 in a day of rangebound trading. The broader S&P 500 (SPX-500) inched up +0.22% to close around 3140.52, near the session high of 3142.69; earlier it made a low of 3131.00. The tech-heavy Nasdaq Composite (IXIC) also edged up +0.18% to close round 8647.93, near the mid-levels of session low-high of 8625.62-8659.70 in a day of rangebound trading.

On Tuesday, the broader U.S. market was helped by China trade savvy industrials, materials and techs to some extent as-well-as domestic savvy consumer discretionary, consumer staples, real estate, communication services, and utilities, while dragged by energies, financials, and healthcare to some extent. Out of 11-major SPX-500 sectors, 9-were in green. And out of 30-Dow blue-chips 13-were in red led by Apple and AMD.

Overall, the U.S. market was also boosted by Disney on upbeat reports about its streaming services coupled with solid report cards (earnings and guidance) from retailer Best Buy as same-store sales rose 2% driven by the surging digital business (appliances, headphones, tablets, services, and computing). Another retailer Dick's Sporting Goods soared on upbeat report cards amid soaring e-commerce business. But Dollar Tree tumbled after the discount retailer said it expects fourth-quarter earnings to take a hit due to tariffs.

On early Wednesday, Dow slips from the session high on mixed U.S. economic data amid upbeat U.S. Q2 GDP and terrible pending home sales, one of the barometers of U.S. economy and soft spending growth. Also, Boeing dragged on reports 777 fuselages split dramatically during the stress test. But later Dow recovered on China trade deal optimism and Fed’s QE-Lite boost

On U.S.-China trade talks, there are no fresh reports, but a Chinese mouthpiece tweeted early Wednesday that both sides are now finalizing the text of a Phase One trade deal: It's often designed that way -- things happen when few are paying attention. Sources told me that there is a major push to get a deal done and both sides are finalizing the text of a Phase One agreement now. Let's see if they can make it to the finishing line.

Bottom Line:

Looking ahead, the Phase One trade deal may not be signed in Dec. And by Jan’20, Trump will decide about the China tariffs rollbacks as per his domestic political compulsion and then may go ahead with an interim trade deal in Feb, when he and Xi could meet on the sideline of a regional/global summit in Vietnam. But the Dec proposed Trump tariffs will be postponed on ‘progress of Phase One trade deal, although suspense remains about the fate of Hong Kong bill.

Technical Outlook: SPX-500, DJ-30, and NQ-100

Technically, whatever may be the narrative, SPX-500 now has to sustain over 3145 for a further rally to 3165/3200*-3230/3255* and further to 3285/3305*-3330/3350* in the near term (under bullish case scenario).

On the flip side, sustaining below 3135, SPX-500 may fall to 3095/3070*-3050/3025* and further to 3005/2985*-2960/2920* in the near term (under bear case scenario).

Technically, whatever may be the narrative, DJ-30 now has to sustain over 28350 for a further rally to 28615/ 28800-28955*/29100-29300/29555* in the near term (under bullish case scenario).

On the flip side, sustaining below 28300-28250 DJ-30 may fall to 28150/28000*-27700*/27500 and further to 27300*/27000-26700/26550* in the near term (under bear case scenario).

Technically, whatever may be the narrative, NQ-100 now has to sustain above 8405 for a further rally to 8455/8510*-8575/8645 and further to 8705/8795-8880/8925* in the near term (under bullish case scenario).

On the flip side, sustaining below 8385, NQ-100 may fall to 8275/8220*-8120/8050* and further to 7955*/7895-7800/7700* in the near term (under bear case scenario).



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