Volatile days until Trade War meeting this Friday

After multiple downbeat economic reports earlier in the week, the SP500 SPX finally recovered little to finish the week down only 0.3%, thanks to Friday Jobs Report. Early week, poor numbers out of the manufacturing and services sectors, pushed the SPX down more than 1% for consecutive sessions for the first time this year. Friday’s jobs report showed that the U.S. economy added 136,000 jobs in September which was slightly below expectations, and the jobless rate dropped from 3.7% to 3.5%. This marked a 50 year low in the figure.

ISM index drive the markets

We already knew that the manufacturing sector has been struggling. Still, the ISM came in at 47.8, which is worse than expected. It’s the lowest number in more than 10 years, but not yet a recession (comes below 45). But last week it seems there was a "contagion". The ISM Non-Manufacturing Report was also below expectations. The reading was 52.6, which was the lowest in three years. Wall Street had been expecting 55. Since it’s above 50, we know that the Non-Manufacturing is still expanding, but it challenges the theory on Wall Street that the consumer is holding up the economy while the factory sector is in a recession.

This ISM Services number initially sent stocks sharply lower, but then quickly rebounded to finish higher on the day, when the SP500 touches its SMA200 average. Some felt that the recent data was bad enough to induce the Fed to lower rates twice by the end of the year (thanks to this week’s news, the odds of a rate cut are now up to 88% from 40%) making the bizarre case that Wall Street rallies on bad news.

According to Nomura Bank, usually very accurate in their technical analysis, the action level for the algos in the SP500 chart is setting this week in 2,970 for buy orders and 2,858 for sell orders and open shorts, that's near the SMA200 average. Today SPX is dropping 0.8% but is still ranging between those levels, waiting Trade War decisions, likely on Thursday.

Trade War: key to defining a future recession

The markets will be patiently awaiting the results of the US-China trade negotiations on Thursday and Friday. And it is all very clear, it is now up to Donald Trump to decide what will happen with the trade agreement, with the exchanges, and with the economy.

The Chinese have changed their attitude and now they see Donald Trump in a weak position, because his economy is already affected, because financial markets threaten to give problems, because they know he may have re-election problems if a recession is reached before the elections, and of course because he has many political problems (impeachment).

The Chinese Trade Minister has made it clear that they will not make any concessions. Without any doubt, they will not accept any of the great reforms that the United States poses. He has even expressly said that intellectual property laws will not change, one of the most conflicting points. But on the other hand, they have made it clear that they are willing to sign an interim or a "mini-agreement" immediately.

So, the definition is clear: Trump admits a "mini agreement" or there will be nothing. And evidently, the Chinese will stop buying agricultural products. If Trump accepts it, Wall Street will rally, but if Trump does not accept we can get into another descent of great proportions as much as he responds aggressively to all this.