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Risk Is On As Trade Truce Increases Investor's Appetite For Equities


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Monday, December 3 , 2018, 12:25 PM, EST
  • NASDAQ Composite +0.99% Dow +0.62% S&P 500 +0.56% Russell 2000 +0.28%
  • NASDAQ Advancers: 1306 Decliners: 1065
  • Today's Volume +39.95%
  • Crude +2.47% , Gold +1.10%

Market Movers

  • U.S. November Manufacturing PMI came in at 55.3 vs consensus 55.4
  • November U.S. ISM Manufacturing 59.3 vs. consensus 57.5; November New Orders 62.1 vs. 57.4 in October
  • October U.S. Construction Spending (0.1%) vs consensus +0.4%
  • U.S. equity market will be closed on Wednesday in honor of former President George HW Bush

Charlie's Commentary

Before we get into today's action let's quickly summarize the week and the volatile month of November. Friday probably best symbolized the roller coaster month of November beginning the day in negative territory and then rallying in the afternoon after an unnamed Chinese Official said that "consensus was steadily increasing" in the trade talks.

All three indexes ended the day well into positive territory. The Dow registered its biggest one-week rise since November 2016, climbing 5.16 percent. The S&P 500 and Nasdaq Composite meanwhile, rose 4.85% and 5.6% respectively, their best weekly performances since 2011. For the month of November, the S&P 500 closed with a 1.8 percent gain, while the Dow rose 1.7 percent.

The Nasdaq Composite, meanwhile, eked out a 0.3 percent gain. So now we enter a month that has historically been a good one for stocks. Stocks have rallied over the course of December approximately three quarters of the time. But there still remains a lot of uncertainty that could alter historical trends.

As we turn our attention to today, the early buzz, quite understandably, is about the trade deal or no deal struck with China over the weekend. As the Midday and many other pundits predicted nothing definitive was agreed to with the exception of a kind of cease fire. The US said it won't impose 25% tariffs on Chinese goods in January, as it had planned, and China would agree to buy more U.S. agricultural goods.

China apparently also agreed to reduce and remove tariffs on American automobiles, currently set at 40%. This will open a 90 day window where American and Chinese officials will attempt to negotiate lingering disagreements over technology transfer, intellectual property and agriculture. If at the end of that 90 day period no agreement has been reached, then the 10% tariffs will be raised to 25%.

All of this progress has put a bid under equities. As the markets are forward looking we took a look at Asia and Europe to see if there was any "sell the news" potential but that is not the case. It does bear repeating however that nothing has been settled which could lead to some selling into strength down the road.

For now it's all ahead full with a risk on scenario that has all three indexes well into the green, but off of the highs earlier in the morning.

The economic calendar had a number of different reports out this morning highlighted by a manufacturing report. The ISM Manufacturing report for November increased to 59.3 from 57.7 as new orders picked up and companies added workers indicating that factories remained strong and healthy in the fourth quarter. This rise from a six week low also signaled that corporate tax cuts and consumer strength has continued to drive demand and expansion.

In other economic news Construction spending fell by 0.1% vs. the consensus which was 0.4%. Within the number private residential construction fell 0.5% which was the lowest level since November of 2017. Public construction rose 0.8%.

Commodities and specifically oil is also the center of attention today ahead of the OPEC meeting in Vienna this week. In addition to Saudi Arabia and Russia extending their pact to cut back production and manage the market, Canada's largest producing province, Alberta, will trim back its production by 325,000 barrels a day to support prices.

While this supported the optimistic feeling around the commodity, the news that Qatar was leaving OPEC to focus on its liquefied natural gas production kept that optimism in check. Qatar had been a member of OPEC since 1961. What was not mentioned was the strained relations with Saudi Arabia who has led a blockade against the country since 2017. The yield on the 10 year remains low at 2.995 while the VIX is also lower at 16.87.

From a sector perspective, eight of the eleven sectors are trading in positive territory led by Consumer Discretionary, Technology and Materials. Lagging the markets today are some of the more defensive sectors such as Consumer Staples, Utilities and REITs. That's it for now. Trivia answer below.  Have a great Monday!

Economic Calendar for the week of 12/3

Monday 12/3

  • November Markit Manufacturing PMI 9:45 am
  • November ISM Manufacturing Index 10:00 am
  • October Construction Spending 10:00 am

Tuesday 12/4

  • Motor Vehicle Sales (throughout the day)

Wednesday 12/5

  • US Equity markets closed to honor George HW Bush
  • November ADP employment 8:15 am
  • 3rd Qtr. Productivity 8:30 am
  • 3rd Qtr. Unit Labor Costs 8:30 am
  • Markit Services PMI 9:45 am
  • ISM Non-Manufacturing Index 10:00 am
  • Fed's Beige Book 2:00 pm

Thursday 12/6

  • Weekly Jobless Claims w/e 12/1 8:30 am
  • October Trade Deficit 8:30 am
  • October Factory Orders 10:00 am

Friday 12/7

  • November Non-Farm Payrolls 8:30 am
  • November Wholesale Inventories 10:00 am
  • November Consumer Sentiment Index 10:00 am
  • October Consumer Credit 3:00 pm

Sector Recap

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Brian's Technical Take

Leaders Trump and Xi sat down for a highly anticipated dinner at this weekend's G20 in Argentina.  While nothing official was inked, Trump wasted no time throwing farmers a bone by tweeting "they intend to start purchasing agricultural product immediately…. Farmers, I love you!"  One beneficiary are soybeans as China is the world's largest dominant importer using it as a protein in livestock feed.

The generic soybean contract gained as much as 3.2% intraday and more importantly broke out of a five month trading range.  Today's high stalled within 0.3% of the 200-day sma and is now seeing a modest pullback.

Today's breakout could mark a significant reversal as soybeans are coming off 10-year lows made in late September.  The next 90-days will be critical for this market.

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Trivia Answer. Larry Bird aka "Larry Legend" is the only person to be named NBA MVP, NBA Coach of the Year and NBA Executive of The Year

Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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