Market Direction: BULLISH alert issued 10/24/2019
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Market Direction Week Review: This
week, President Trump said he would be welcoming “high level representatives”
from China to the White House on January 15th, to sign the “very
large and comprehensive” phase one trade deal. Soon after, he said he would be
traveling to Beijing to immediately begin talks on phase two. While the
diligence is seen as a positive by investors, trade experts have expressed
doubt that even the terms of the phase one deal may be difficult to maintain.
Of particular concern is the enforcement process regarding the dollar amount of
U.S. farm products China has agreed to purchase. The phase one agreement calls
for the US and China to hammer out the details in subsequent rounds of talks.
But those talks, which are expected to cover long-standing issues relating to
intellectual property violations, forced technology transfer, and subsidization
of Chinese industries, are likely to drag on for many months. If a dispute
arises in the interim, US Trade Representative Robert Lighthizer has indicated
the US could re-impose recently lifted tariffs on China.
Separately,
early Friday morning (1/3), President Trump ordered a US airstrike that killed
one of Iran’s most powerful generals. While citing very few details, Secretary
of State Mike Pompeo stated that the move was based on reliable US intelligence
sources, and was intended to thwart “an imminent attack” against Americans. The
news caused a negative reaction in many premarket futures contracts. Initially,
S&P 500 futures were -1.6%, West Texas Intermediate Crude prices (WTI) were
+3.6%, Gold futures were +3.0%, VIX futures were +23%, and interest rates on the
10-year Treasury were -3.2%; all recovered from their extremes by the time
equities opened at 9:30 AM ET, and even further as the day went on.
Adding
further fuel to the rallies in both Chinese and US equities, on Thursday (1/2)
the People’s Bank of China (PBOC) announced that it would lower the reserve
requirement for commercial lenders, an economic stimulus that should add well
over $100B to China’s financial system.
Separately,
protests in Hong Kong continued into the new year, where as many as 400
citizens were arrested by mainland police. This matter is likely to continue to
be a hot-button issue for the marketplace in 2020.
This
week China also announced a suspension on the proposed linking agreement
between the Shanghai and London Stock exchanges; a move seen largely as a
warning message to Prime Minister Boris Johnson that China disapproves of
London’s pro-democracy stance in support of Hong Kong protestors. While the
(largely hands-off) support is understandable given Hong Kong is a former
British colony that was turned back over to Chinese rule in 1997, it does
present a dilemma for Johnson, as he seeks to strengthen trade relations with
countries outside of the European Union, to cushion the economic impact of the
impending Brexit.
How
the market finished last week, the S&P 500 down 0.2%, the Nasdaq up 0.2%, and
the Dow flat 0.0%.
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Market Direction This Week: We track the stock market based on our Bullish and Bearish Alerts a new Bullish Alert recently started on 10/24/19 and we suggested to our followers they can trade any new long positions based on are model. We will continue to provide you the current stock market conditions as they develop. The current stock market environment is in an uptrend (see Market Direction Mid Week Update: Trading Strategies).
“The
renewed surge in US-Iran tensions has pushed geopolitical risk back up the list
of things to worry about in 2020,” Capital Economics wrote in a note Jan. 3.
“But with the US no longer a net importer of oil products, the economy is
likely to be resilient even if oil prices spike.”
Iran has
said it will retaliate against the assassination, and thus market reaction this
week will be closely monitored following new developments.
In addition, market watchers will get a pulse on
the labor market Friday when the Labor Department releases the final jobs
report of 2019. Economists surveyed by Bloomberg expect that the economy added
166,000 jobs in December, down from 266,000 positions added in November.
Meanwhile,
J.P.Morgan economist Daniel Silver warned of much softer-than-expected payroll
additions for December. “We forecast that nonfarm employment increased by
125,000 in December. This would be one of the weakest months for job growth in
recent years, but we think that this softness was due in part to seasonal
issues and that job growth will pick up in January.”
“The
four-week moving average for initial claims filings hit its highest level in
almost two years in the latest weekly report, reaching 233,000. We normally use
this measure as a guide to the underlying trend in the labor market, but we
think that conditions are healthier than implied by the recent claims readings
because we believe that the claims data are distorted by seasonal adjustment
issues related to the timing of Thanksgiving,” Silver added.
The U.S.
labor market is looking rather solid in 2020, according to Capital Economics.
“A range of evidence suggests that prospects for the labour market remain solid
heading into 2020. After declining earlier in 2019, temporary help employment
has rebounded, which has been a good leading indicator of overall payroll
growth in recent years,” the economic research firm outlined in note Jan. 2.
“The turnaround in both the ISM and Markit composite employment indices is
another clear positive.”
Economic Calendar: International Trade (1/7), ISM Svcs Index (1/7), Consumer Credit (1/8), Employment Report (1/10)
Some of the major earnings announcements on deck: BBBY, STZ, LEN, WBA, KBH.
$tockMarketDirection proprietary model is currently BULLISH. We strongly encourage you
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