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Capital Wave Forecast: Week of October 14, 2019
Welcome to the New Trade Rally! Kind of…
Dear Wall Street Insights & Indictments Reader,
The Dow and S&P 500 both broke three-week losing streaks last week, and the Nasdaq Composite was up for the second week in a row.
We’re heading back up closer to all-time highs.
The Dow’s only 582 points or 2.12% from Olympus and the S&P’s only 1.9% from its all-time highs. On the other hand, the Nasdaq Comp, the index that’s been higher for two weeks, is 3.5% from Magicland.
So why do I say this is just a “kind of rally” with all this seemingly good news?
Clearly last week was an otherwise down week if not for the one positive lifting market on Friday: trade talks.
This was good news, until it was stripped down and re-rated by market judges.
The reason that the Dow was up more than 500 points but ended up on Friday only 242 points higher was the whole judgement thing.
The U.S. looked like it scored a victory because China agreed to purchase $40 billion to $50 billion in U.S. agricultural products, at least according to President Trump, but the time frame of any purchases wasn’t immediately clear.
Also, China agreed to open its market to international financial services, again according to Mr. Trump, potentially allowing U.S. banks and insurance companies to expand in China: no timetable there either.
China looks like it scored on account of the U.S. not moving forward on Oct. 15 with a planned increase in tariff rates to 30% from 25% on about $250 billion of Chinese goods.
But that’s not all…
Trade Talk Won’t Finish Any Time Soon
This news woke up markets, but they sold off into the close, on account of what was revealed that wasn’t even discussed.
Tariffs of 15% are still scheduled to be imposed on $156 billion of Chinese imports on Dec. 15, barring further progress in the talks.
The U.S. didn’t announce any relaxation of restrictions that it’s imposed against Chinese telecommunications giant Huawei. The U.S. said that China would agree to better protections for U.S. intellectual property. President Trump said this would be addressed later.
The U.S. wants China to agree to a pact not to manipulate its currency. Treasury Secretary Steven Mnuchin said a pact was “almost complete.” But it’s been on the table for months already, and nothing’s happened.
The U.S. wants China to restrict the practice of requiring American companies to share technology with Chinese partners in exchange for access to the market. Mr. Mnuchin said they had made “good progress” but hadn’t reached a deal: more of the same positivity without possibility.
The U.S. had hoped that China would take actions to rein in state-owned companies, but no progress was cited, and won’t happen, probably, ever.
U.S. negotiators have pressed China to change rules on information security, cross-border data flows, and high-tech sectors such as cloud computing, but no progress was cited.
Existing tariffs from both sides remain in place with no mechanism to unwind them.
Both sides have said that they want a way to ensure compliance. The U.S. said there will be a consultation process, but no details have been announced.
That’s a kind of long list, right? That’s why the rally is just a kind of rally.
To see specific trade strategies for this week’s market and read the rest of the Capital Wave Forecast, Money Zone subscribers can read on here.