Are Investors Still Hoping For A Trade Deal?

WSJ Thursday Dec 5:

“US Stocks Rise as Investors Peg Hopes on Trade Deal” (Is anyone else exhausted?) The article goes on to say that “US stocks advanced Wednesday on fresh optimism over US and China trade talks.”

The latest rally is being driven by comments out of China (of all places). They said “No worries, talks are proceeding just fine, no matter what Donny says. Investors, traders, and algos should not be paying any attention as he talks ‘off the cuff!’” Hmmm, either that is true or both sides continue to make a mockery of the process. And to me it sounds like a convenient way for people in the know to take advantage of the moves that they know will be created by such rhetoric (does the word manipulation mean anything to you?). I am convinced that if the market was not driven by AI (artificial intelligence) and algos, this foolishness wouldn’t exist (but that is a whole other story…).

But what this does tell us is how much any trade deal headline influences the algorithmic action, because it is the “smart logic” (AI) that is built into these algos that creates the noise and the (outsized) moves from one day to the next, no matter if we have a deal or not.

Now I say this because (recall what happened on Tuesday) Donny makes a supposedly “off the cuff” comment while in London, attending the NATO conference. And BOOM, the algos go into SELL mode. Then the Chinese come out yesterday and contradict it and the algos go into BUY mode. Are you following me here?

So now the conversation is turning to the possible delay of the December tariffs to in order to move this deal along. This would allow both sides to save face as they appear to be working that Phase One agreement. But you have to ask, would it really? I mean the December date was announced way back in September, specifically to give both sides time to work towards an agreement and now December is here. So, would a delay actually help the process or just “kick that can down the road yet again?” (I vote for kick the can…) Now while a delay will appear to send the message that they just “need more time” it will also put Donny in an interesting position. Will it look like he is compromising to make a deal or will it look like he is giving into Chinese demands?

So, did we get more trade headlines overnight that will dictate the direction? Well kind of…

CNBC runs with a story this morning that appears to contradict what the Chinese official said yesterday, as Evelyn Cheng writes:

“China Gives Little Indication US Trade Talks Are Progressing” WHAT??? WAIT, that is NOT what they said yesterday. It must be two different people talking here, like the “yes” parent and the “no” parent.

The article goes onto say that “we do not set a deadline for reaching an agreement or not.” Now that appears to mimic what Trump said on Tuesday when he said he feels no pressure to “have to make an agreement.” So, that’s a positive, no? Neither side feels any pressure. OK, Dec. 15 is only 10 days away or seven trading days. And since both sides are comfortable, then what are we worried about?

Overnight, markets continue to edge higher, as the excitement builds. While there was some other news to move markets in Australia, retail sales were unchanged versus an expected rise and the Reserve Bank of India left rates unchanged. Apparently investors were expecting a sixth rate cut for that country. The focus remains mostly on the tone of the headlines over trade.

Japan +0.71%, Hong Kong +0.59%, China +0.77%, and ASX +1.16%.

In Europe, markets are all green as everyone continues to monitor the trade talks and the mixed signals they are producing. NATO leaders ended their meeting and announced that they will stand together against threats from Russia and China! In the UK, the next PM election is on the 12th and all indications are that BoJo will remain firmly in place. In Germany, Industrial orders fell by 0.4% and in the Eurozone, third quarter GDP grew at the anemic pace of 0.2% – unchanged from the second quarter. So, nothing really new…

FTSE -0.13%, CAC 40 +0.77%, DAX +0.25%, EUROSTOXX +0.54%, SPAIN +0.55%, AND ITALY +0.53%.

The OTHER thing that is happening in Europe (Vienna, Austria) today is the OPEC and OPEC + meetings.  (OPEC + is the original OPEC members plus Russia and some of the other fringe non-OPEC producers)  This is important because it is widely expected that OPEC and OPEC + members will support even more production cuts in 2020 in order to avoid a “glut” but also in order to drive the price of oil up. Don’t forget, the Saudi Aramco deal was priced today and is expected to begin trading next week and they would like to see prices on the rise. This will have a direct impact on the US energy industry. Higher oil prices will help any struggling US producer. We know that 2020 is not going to be a good year for some US producers, laden with heavy debt loads. If prices get any weaker, talk of bankruptcies and difficulties for US producers that are carrying heavy debt loads is not helping that industry, but higher oil prices will serve to assist.

Yesterday WTI surged by 4.2% on the expectation that OPEC will support more cuts. Breaking up and through the 200 day “resistance” level of $57.29 to end the day at $58.43. This morning, oil is holding its own as this meeting gets under way. $57.29 is now support for oil while it appears that $60.50 would be trend line resistance. If OPEC announces larger cuts than they currently support, watch oil spike up just a bit! Take a look at the XLE (energy ETF), it is consolidating at the trend lines – $58.80/$59.30. Any move that causes oil to rise will clearly help this ETF break out of its malaise. Just sayin’…

US futures are moving up this morning. Dow futures are up 120 points, S&Ps are ahead by 13 points, Nasdaq is up 43 points, and the Russell is up by 7 points. If this holds then we are right back where we were on Monday, taking back all of that angst created in the past two days. Look, it may be difficult to eliminate the noise, but as a long term investor that is what you must do. The short term trader types love the chaos. It’s good for them, they want Donny to Tweet more!

In the end it makes perfect sense for both sides to make a deal. For China, it is important for them to be able to move on and for us. It is time to re-frame a trade agreement that was made more than 30 years ago that is out of date today. It is also important as Trump faces re-election. The last thing he needs is a trade war that causes the US to go into a recession in the months ahead of the election. Both sides know this, and so both sides will continue to play the game.

Take good care.

Kp


mussels

#3 Mussels Posillipo

This recipe comes to us from the suburbs of Naples – Posillipo is a well-to-do suburb of Naples; it was built during the 19th century by the very affluent –  high on a bluff with a view of that famous Bay of Naples. Posillipo is a recipe that you can use for both clams or mussels – I am suggesting that you use the mussels for the Christmas eve dinner.

You need: Mussels… 3 doz. thoroughly washed of any sand. White wine, Clam juice, garlic, olive oil, s&p, 1 28 oz can of imported Italian Plum tomatoes (Not in Puree), Fresh Basil

In a pot – heat the olive oil and sauté the garlic – until lightly browned – do not burn.

Add 1 1/2 cup of dry white wine – nothing fruity – stir and let come to a boil – after about 2 minutes…rough crush the tomatoes and add to pot with the juice.

(When you rough crush – you literally crush them in your hand – over a bowl to catch the juice. – you can also use the blender – but do it quick – do not puree) Add enough of the tomatoes to give it some substance and color – you do not need to add the whole can if you are not serving it over linguine.

Add the small bottle of clam juice and fresh basil leaves. Season with s&p. Turn heat down to simmer and cook for about 15 minutes or so. Now add the mussels to the pot and cover tightly. Cook until the shells open – should be maybe 8 to 10 minutes more… Discard any mussel that refuses to open.

Present this dish in a large bowl with the mussels bathing in the Posillipo sauce. This dish demands toasted garlic bread to dip in the sauce.

Buon Appetito.

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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