Friday, November 30, 2018

December depends on the Trump-Xi meeting this weekend

This week closes with a strong rebound of all Wall Street indices, starting with the most important one, the S&P500 SPX, which recovered 5% since last Friday, at its last pullback, reaching again its crucial SMA200 average, and also the lower part of the Ichimoku cloud. Attention to these two important resistances because if it exceeds them, it can be the starting point to the traditional Christmas mini-rally. It is known that December is, seasonally, the best month in the stock markets, not only in the US but globally. But... wait for Trump -Xi meeting...


Technically, important week for the SPX facing the two resistances indicated in the circle. However, with an event as crucial as the Trump-Xi meeting, any analysis loses relative value today, until Monday.


Factors


What factors have originated this bullish week? I see several. Perhaps the main one is the change of tone in the messages of the FED, recently hawkish, encouraging more Rate Hike adducing were necessary to boost the economy, to the completely dovish image of Powell this week, now announcing that the i-rate is in levels "just below neutral", that is, 'if I raise the i-rate I could cool down the economy and if lower it, I could heat it too much.' Clear message that the Rate Hike can be stopped for a time, and the decisions will be taken exclusively as indicated by the economic indices in the short term. Even the Rate Hike that was taken for granted in December, today may seem somewhat distant.

Another key factor, as I mentioned in the previous post, is the drop in the price of Crude Oil /CL. Brutal, impressive, for almost two months, reaching below the $ 50 level. And regardless of the crisis it generates in the sector, this has immediate consequences for the world economy: inflation will stop, or slow down at least for a while. The dollar /DX will begin a correction to the downside, for Trump' happiness who wants it that way, and sadness for the banking sector XLF. Another key consequence of lower inflation is given in the bonds: this week bonds TLT went up, and so, the rate of the 10-year T-Bond TNX, the benchmark, reached down the psychological level of 3%. This causes that an inverted yield curve is very close, with all the consequences I mentioned in this earlier post.


Crude Oil /CL: ranging at the $ 50 level a few days ago, awaiting decisions by the Trump-Putin-Bin Salman trio in the G20, and in a lesser degree the OPEC decisions.
US Dollar /DX: after its powerful rise, it can change course after the dovish tone assumed by Powell and the FED.
10-year US T-Bond TNX: closing the month at the $ 3 level, it will also be affected by the reduction in inflation. Predictions failed, including mine, which put them in ranges of $ 3.25
Finance Sector XLF: they do not like the recent dovish tone of the FED. Technically it will be difficult to get out of the lateral range in which it has been since April. Also, there is a bearish "death cross" in the short term between its SMA50 and SMA200 averages.



December Outlook


Given the sensitivity of the market today, it is clear to everyone that the likely historical Trump-Xi meeting this weekend in Argentina, on the occasion of the G20, will be decisive for the short term of the stock markets. At the moment there are many news, opinions, rumors, and few certainties: Trump, true to his style, throwing critical tweets against China, and on the other hand, officials auguring a success in the meeting. Wall Street expects decisions of the type "we will reduce tariffs, or we will agree in some areas or topics". Any other unclear decision can lead to a red session this Monday 3 that open markets. And good news could mean a big jump in global markets and a happy Christmas for all!

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