Nice movements overnight on U.S, definitely at an interesting cross section of Macroeconomics. No-one really is capable of knowing every variable, risk and movement on a macro level so it pays to just look at the chart and understand what the overall market/trend is saying.
DOW found major support of 200EMA, almost 800 points off the intraday low. DOW futures tested lows 3 times now and rejected well off. See if it can push towards DTP over the next week.
VIX coiling near a dangerous zone but sold off, now tinkering ST support.
Tech stocks did most of the heavy lifting Apple, Microsoft, IBM namely.
XJO, XEC both on ST trendline which makes for a low risk entry back into markets. Still has work to do to get back into the next wave.
At the same time for fundamentalists, position builders (like myself) it does help understanding risks, knowing the narratives and what's going on at a political level to try be one step ahead.
Markets originally sold of on flattening bond yields, with LT yields catching up. Wasn't much of a worry to me, bear markets usually happen from a combination of flat bond yields + rapid monetary tightening (When rates pushing 2.5%+) or when bond yields are inverted.
The actual concern for me is Trade Wars, its not a zero sum game and just has losers in both side and increasing unemployment. Great depression was off the back off a trade war. Although its economically inefficient, reason tariffs "work" is specific sectors producers benefit hugely. While the burden (which is greater than benefit) is spread thinly between consumers.
Issue with steel tariff (and major reason why it doesn't work at all) is although it benefits domestic producers, consumers are quite un-diversified so the burden isn't spread thinly and few big players with plenty influence are hit hard.
Market is a lot smarter than I am, and I think its priced a few things in:
- Trump came in with Steel Tariffs making it clear he will be flexible.
- Kudlow calmed things down intraday saying they don't want a trade war, its all part of the process and markets are over-reacting. They want to solve things with minimal pain in markets. Kudlow also is a major advocate for Free-Trade, so I doubt he would stand silent if trades were going into full blown turmoil, I think this guy has a plan.
- This has all the hallmarks of a Trump negotiation, enters hardline (bullying first, solve later) then proceed to make compensations.
- Trump although as erratic as he is, he'll hold up his ego until the market disagrees. His main selling point is the DOW and I think if markets truly began falling he would pull out and move into a passive stance. He's also business minded, takes big risks for rewards. Entertaining to watch, sometimes worrying.
- I'm sure Kudlow is also smart enough to realise they don't have a chance against China. From memory, $500B they import from China, $180B export to China. Trumps aim is to fix this deficit, but end of the day China has way too much ammunition, way too many directions of attack. Also considering how internalized domestically China's economy is they have much more leverage.
Conclusion; perhaps just a bullying negotiation tactic like the ones in the past. For now, chart says similar from overnight action.
(20min delay)