President Trump tweeted about raising tariffs at 11:08 am CT on Sunday and S&Ps drop sharp in overnight trade, reports Bill Baruch, President of BlueLineFutures.com.
President Trump tweeted: “For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars.......of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”
(It is important to remind everyone that this is inaccurate as tariffs are not charged to China, but instead to U.S. consumers that purchase Chinese goods).
This certainly pours cold water over Friday’s rally and changes how markets will open tonight (as of 11:49 p.m. CDT the E-mini S&P 500 was down 58 points). Its likely that risk-assets (stocks, Crude, Copper, etc.) all open lower. Given Friday’s price action, longs are caught offside here and bears under-positioned. The dollar is likely to strengthen, and Treasuries should see a bid on fear. Traders need to keep an eye out for Chinese yuan weakness which leads commodities lower.
The tweet does throw a curveball, but our previous tradable events comments for this week are still very valid below:
Risk sentiment roared higher to finish the week. Nonfarm payroll again provided the green light for equity markets with wage growth coming in steady but below expectations at +0.2% accompanied by another strong month of job gains at 263,000. Traders and investors alike pared back risk Wednesday and into Thursday after Fed Chair Powell called dissipating inflation transitory at his post-FOMC meeting press conference. Thursday’s closing levels had the S&P 1.5% from a new record high set early Wednesday. Healthy pullbacks in U.S equity markets this year have provided tremendous buying opportunities and with the S&P and NQ gaining 1% and 1.7% on Friday, this pullback was just that. (Whether Sunday night’s weakness is the start of something larger or another opportunity is unclear. It all depends on whether the president walks back his comments or doubles down, and, of course, how China responds).
The economic calendar cools off a bit to start this week, but it finishes with maybe the most important data point of the month - CPI. As mentioned above, Fed Chair Powell on Wednesday signaled he expects inflation to pick up soon. His comments shifted the odds of a rate cut this year from about 65% to more of a coin flip. U.S Core CPI in March hit a 13-month low at 2.0% but is expected to firm to 2.1% for April. Seasonally, it’s typical for slow Q1 data to bottom-out in April and accelerate into the summer months. However, ignoring the bloated inventories, 3.2% GDP for Q1 was anything but slow. If inflation begins to poke its ‘ugly’ head again, there will be no choice but to price-out a rate cut altogether this year, reinvigorating the rate hike discussion. Something equity markets certainly would not like.
U.S and China trade talks continue this week in Washington. U.S Treasury Secretary Mnuchin said talks last week in Beijing were “productive”. (TRADERS WILL NEED TO SEE HOW CHINAS REACTS TO RECENT PROVOCATION).
Overall, the economic data from the U.S and around the world could be characterized as poor. Remember, ISM Manufacturing last week was the slowest since October 2016 and ISM Non-Manufacturing on Friday was the slowest since August 2017. It certainly justifies the Fed’s patient and data dependent approach so as long as inflation stays in check. In fact, Dallas Fed President Kaplan said on Friday the case for a rate cut remains if inflation doesn’t pick up in the second half of the year. Vice President Pence on Friday called the economy booming but reiterated President Trump’s narrative that now is the time to provide additional fuel through rate cuts. This week, we will get comments from no less than eight Fed officials including Chair Powell on Thursday. Chicago Fed President Evans, Philadelphia Fed President Harker and NY Fed President Williams are all scheduled Friday.
Things we will be watching closely this week include an RBA policy meeting Monday night. German Factory Orders and Industrial Production Tuesday morning. JOLTs Job Openings on Tuesday is expected to set another record, signaling there is more job growth on the horizon. Chinese Trade Balance data Tuesday evening. U.S 3-year, 10-year and 30-year auctions Tuesday, Wednesday and Thursday. ECB Minutes and a speech from President Draghi Wednesday. Chinese inflation Wednesday evening. U.S PPI and Wholesale Inventories Thursday. German Trade Balance and regional European Industrial Production data Friday morning. Lastly and certainly not least, U.S CPI also Friday.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com
