Tuesday, September 18 2018, 9:40 AM EST
- NASDAQ Composite +0.56% Dow +0.34% S&P 500 +0.36% Russell 2000 +0.42%
- NASDAQ Advancers: 1360 Decliners: 563
- Today’s Volume: -0.74%
Today the news is all about China after the Trump administration announced additional tariffs on $200 billion of Chinese goods. China has already responded by imposing tariffs on $60B of U.S. goods effective next Friday, threatening unspecified countermeasures and likely cancelling next week’s trade talks. Stocks fell about 100 Dow points yesterday afternoon when the White House signaled there would be an announcement about China trade, so markets are taking this new salvo in stride so far today, filing it in the “coulda been worse” category. Risk on sectors including Consumer Discretionary and Tech are outperforming in the early going, with Materials also leading despite the trade talk. Defensive sectors like Utilities and Real Estate are lagging. Oil is higher on a headline that Saudi Arabia prefers crude to be above $80, helping Energy stocks lead all sectors.
- The Trump administration announced 10% tariffs on $200B in Chinese goods with the rate to rise to 25% at year end. The delay in going to the maximum rate will presumably give U.S. businesses the chance to find alternate supply sources but is still not positive for business or stock sentiment. China will convene a meeting to discuss a response and has threatened unspecified retaliatory action while stating "The U.S. side insisted on imposing tariffs, which has brought new uncertainty to the bilateral negotiations. We hope that the U.S. side will recognize the negative consequences of such acts and take convincing measures to correct them in a timely manner."
- Piling on, the Senate will introduce a bill to reinstate the sanctions against China’s ZTE. Recall that the U.S. Commerce Department originally punished ZTE with a seven year ban on American firms that sell the company parts before Trump lifted the sanctions in lieu of a heavy fine. The new bill would re-impose sanctions if ZTE violates the conditions of the deal it made with Trump’s administration, including exporting phones to Iran or North Korea.
- In Bank of America Merrill Lynch's latest Fund Manager Survey, cash levels are at an 18-month high as investors anticipate Fed actions and a trade war. Long “FAANG+BAT" was again the most crowded trade for the eighth consecutive month, though down from levels reported between June and August. The U.S. continued to outperform global equities with the outlook on the global economy the worst December 2011 - 24% of investors expect global growth to decelerate in the next 12 months. Allocations to US equities climbed 2% to 21% overweight, while cutting Eurozone equity allocation by 6% to 11% overweight, and cutting emerging market equities by 9% to 10% underweight.
Technical Take: The SCHOMP Holding Key Support Amidst Escalating Trade War
The trade war between the US and China is escalating following fresh levies on Chinese products announced late yesterday by President Trump. Trump has previously stated he will impose additional tariffs on all imports if China retaliates, which China has already announced it intends to do. In somewhat surprising fashion the Shanghai Composite Index (SHCOMP) had its best day in nearly a month with a gain 1.8%. The SHCOMP was rebounding off YTD lows, a decline of 26% from its January high, and a clearly defined support level which we highlighted in last month’s MID BLOG. However one day does not make a trend and the SHCOMP still has plenty to prove before a “bottom” can be declared. While momentum is improving as evidenced by the daily and weekly RSI’s, price is chipping away clearly defined support at the 2,625 – 2,700 range. It remains to be seen how much of the bad news is already baked in, and the impact it has on other assets like the US dollar and commodities. Since the early stages of this escalating trade war in Q1’18, the US has vastly outperformed China. It seems that performance gap needs to narrow, but time will tell if that is from US weakness or a Chinese rebound.
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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.
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