Stocks rallied Friday morning as news of a trade deal hit the tape, futures surged. Asian markets were up 2+%, European market ended the day up 0.5% – 1%, and US markets ENDED the day flat. It was all good, at 9:30, the bell rang and it was off to the races. By 10:05 am, the indexes were at their highs with the S&P up another 12 points at 3182 and by 11:30 they were at their lows, with the S&P down 10 pts at 3156, suffering a 26-point swing in 90 minutes, as the chatter over the trade deal dominated the airwaves. By the end of the day, the indexes settled flat, with the Dow +3 points, the S&P flat, the Nasdaq +17 and the Russell – 6 points as we waited for more clarity as initial reports yielded few details.
Then on Sunday, we heard from Trade Rep, Bobby Lighthizer, as he appeared on Face the Nation.
“TOTALLY DONE”! That is what Trade Representative Bobby Ligthizer tells us. “It’s totally done and it will nearly double US exports to China over the next two years.” China has agreed to $50 billion worth of ag (agriculture) purchases over TWO years, not the one year that was suggested on Friday. People in the know called it out and said that it was mathematically impossible for the Chinese to buy $50 billion of ag products in one year. Not happening…
Now in return for these purchases: the US did not impose that new round of tariffs yesterday, as so many had feared. In fact, I would give more credit to the New Trade Representative and Apple CEO Timmy Cook for helping to draw the line and make it very clear to Donny that any imposition of new tariffs on Dec. 15 would hurt his US company much more than hurt the Chinese while rewarding the South Korean company Samsung, not affected by US/China tariffs. (But that is another story) Did you see that Apple rallied by 1.4% on Friday on the news?
Now, a couple of things: in addition to no new tariffs, we are giving reductions on $200 billion worth of products from 15% to 7% reductions which will take place 30 days AFTER the deal is signed. And while this all seems good, don’t kid yourself, the details are still murky. The agreement supposedly includes changes on intellectual property, technology transfers and financial services, none of which have been defined… yet. Lighthizer went onto say that:
“Ultimately, whether this whole agreement works is going to be determined by who’s making the decisions in China, not in the US. If hardliners are making the decisions, we’re going to get one outcome. If the reformers are making the decisions, which is what we hope, then we’re going to get another outcome.” (So we don’t even know who’s in charge over there…)
Which really means that there is a deal (in principle) but not in writing, at least not yet. And if there is pushback in China over what the deal is, then expect more pushback of this deal in the days ahead.
In any event the deal was not signed yesterday, but don’t worry. Lighthizer told us “this is totally done, Absolutely.”
The other trade news last week was the historic US/Mexico/Canada agreement, which was a re-write of the 1994 NAFTA trade agreement, another trade agreement that was 25 years old and needed to be modernized, done. Although this morning we hear that Mexico is not so happy and is sending a trade rep to DC to discuss “language.” Language that says the US will send a trade ambassador to Mexico to make sure that everyone is “coloring inside the lines.”
On the geopolitical side, the landslide victory for the Conservative Party in the UK, with current PM BoJo winning a huge majority in the British House of Commons, all but guarantees a Jan. 31 exit from the European Union. Now what was interesting in those elections is Jeremy Corbin — the opponent representing the Labour Party — is the UK’s version of Lizzy Warren and Bernie Sanders. And he got his clock cleaned in the race — so much so that he is hanging up his hat as leader of the Labour Party. The voters overwhelmingly rejected the far left liberal, tax, tax, tax, and nationalization of industry platform that he pushed, which led the media to draw similarities about the US far-left psychology that those two are pushing in the coming US presidential election, now just 11 months away.
This morning we wake up and find that Japan and Hong Kong digested Friday’s 2+% move higher ahead of the announcement settling in a bit lower on Monday. China economic data: Industrial Production rose 6.2% versus the expected 5% and Retail Sales rose 8% versus the expected 7.6% in November coming in stronger than expected helping to boost that market as the week began and offering proof that the Chinese economy is NOT falling apart at the seams.
Japan -0.29%, Hong Kong -0.65%, China +0.49%, and ASX +1.43%.
In Europe, markets are rising, as they too digest the trade and election data. On the economic front, IHS Markit reports Eurozone Flash PMIs Service PMI’s came in at 50.6 while Manufacturing PMI coming in at 45.9.
And in the UK, the FTSE continues to celebrate – +1.9%, CAC 40 +0.73%, DAX +0.49%, EUROSTOXX +0.63%, SPAIN +0.7% and ITALY +0.36%.
US futures are UP, making up for the flat performance on Friday. Dow futures are up 38 points, S&P +9, Nasdaq +28 and the Russell +6 points. The market wanted a deal, skinny or not, and they got one, BUT so many of the details remain unclear. Technology? Intellectual Property etc. Now while both sides are walking the official line, are the KEY points being lost in translation? We will see. Bobby Lighthizer then goes onto say that Phase Two, parts A, B, & C will begin to be negotiated after Phase One gets signed. Look, the Chinese have not yet confirmed anything, no hard targets, no dates etc. because they are concerned about national pushback. So as of this morning we are still waiting, no matter what Stevey Mnuchin or Bobby Lighthizer says. So don’t get emotional just yet, stay the course, harvest gains where you should, and re-allocate according to the plan. Do not let the headlines drive an emotional decision.
The S&P closed at 3168 on Friday, leaving it in territory that many thought was a 2020 number. But there are two weeks left in the year, and if the trade deal does not fall apart then expect to see a final push higher into year-end as the safe haven money moves out of treasuries and into stocks. Barring any negative news, the range appears to be 3140/3200. If we get some pressure, then look for trend line support at 3064.
Oil ended the week on its high, which should be no surprise as news of the trade deal and the UK elections created lots of excitement. WTI pierced and closed above $60 barrel, the first time it’s done that since the Sept.16surge, caused by the bombing of the Saudi oilfields by the Iranians, which took it up to $61.48/barrel before falling $11 to $50 barrel by Oct 2. Recall that after oil hit $50 barrel, rumor that OPEC was going to announce further production cuts at their semi-annual OPEC meeting in Vienna, Austria in December and then the back and forth over a trade deal kept the strategists suggesting that once a deal was done. Demand would surge, and we saw oil slowly creep back up to the mid-50s. And then as expected, OPEC and OPEC + announced production cuts of another 1 million barrels a day, bringing the daily cut to 2.1 million barrels. At the same time that the Saudis launched their Saudi Aramco IPO, and you couldn’t help but get excited about oil. The energy ETF – XLE ($60.31) surged by 7% from the December lows and has pierced both short and intermediate term trend lines. The next resistance level is the long term trend line at $61.73, a push up and through here could see that stock approach $65 barrel.
Overnight Oil bounced around and is currently trading around the flat line as investors continue to sift thru the news.
Take good care
Veal Shank “Osso Bucco”
What a great dish – This is meaty, delicious… if done right – it falls right off the bone and melts in your mouth……..Osso buco is a specialty in Milan. It is made with carrots, celery, onions, garlic, S&P, lemon zest, red wine, beef broth and tomato paste. I will tell you that this is one of my favorite dishes. Great for a Saturday night dinner party during the winter as it is a hearty and full bodied dish. You prepare it in the afternoon and then let is slow roast in the oven for hours try it… it is wonderful.
First rinse the shanks and pat dry… dredge in seasoned flour – (here you can use GF – gluten free – flour) and then brown in a frying pan with heated olive oil… making sure that you keep the heat on high to sear the outside while trapping all of the juices inside… After you have browned the meat – place in a roasting pan – making sure not to crowd them too much… At this point – chop (not dice) chop, the carrots, celery and onions… crush 4-5 garlic cloves and spread the garlic and veggies over the meat. Add lemon zest on top – not too much – but enough so that you know it’s there.