Much Ado About Trade Talks with China

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Tuesday, January 8, 2019

We awake today with pre-markets back strongly in the green, including a 200-plus climb on the blue chip Dow Jones index . Obviously, we’re still a ways off from the heady days of last summer/fall when major U.S. indexes were hitting all-time highs of robust labor, strong consumer confidence and trade-war headwinds that had yet to reach our shores. However, when we look for reasons why market sentiment is up again this morning, there’s not much to see.

Certainly, a rebound in oil prices is playing its part, complete with a new tightening initiative from OPEC helping buoy the West Texas Intermediate (WTI) price per barrel to the high $40s and the Brent Crude benchmark to the high $50s. U.S. production, however, continues to keep the market awash in black gold, producing more than (or, according to one oil consultant, “significantly above”) 12 million barrels per day, foiling much of the attempts of foreign producers to hike oil prices.

Oil prices, like the market indexes, are finding higher levels of equilibrium partly because of such deep sell-offs in late 2018, which have brought value traders to the table and other investors making plays out of cash following tax-related selling in December. The Brent index had lost a third of its value at near-term lows, and the WTI had been down 38%. Saudi Arabia is eyeballing $80/barrel prices on the horizon, but we’re not seeing a straight route there, based mostly on the huge North American production presently.

Economic data is light today and for most of this week, partly due to the normal calendar and partly due to the government shutdown, which is delaying International Trade numbers for November. This adds to a growing number of unreported econ figures as the partial shutdown of the U.S. government grows longer – currently at 2 1/2 weeks, without much hope for a resolution in sight.

Much Ado About Trade Talks

Speaking of resolutions, we don’t have a clear one regarding trade talks between the U.S. and China, but rhetoric on the subject has retained a sunny tone, by President Trump and others. Both sides appear to be hopeful a meeting of the minds will result in new, fair terms of trade between the top two economies on earth, although the shadow of trepidation will likely be over investors’ shoulder until a deal is finally inked. This may be days or weeks from now… or it could be months (or years).

Thus, it’s tough to consider this recent “happy talk” on China/U.S. trade to be justified, but at least it’s better than the alternative. Perhaps it’s wise to just sit back and enjoy the near-term rally.

For now, consider this a “filling of the gap” from oversold territory for many of your favorite stocks. Otherwise, Q4 earnings results is where we’ll see concrete numbers determining the health of the market overall. And although the big banks, like JPMorgan JPM and Citigroup C , don’ t report until next week, we shall see a few choice reports coming in the next few days.

Mark Vickery

Senior Editor

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