Market Briefing For Monday, Oct. 14

A 'rear-guard' action is what President Trump has been fighting with his demands upon China for 'redressing' the exploitation of the US, for a very long time (and for that matter, though unintended, on behalf of the EU too, as they have every right to insist on comparable treatment) and that's years if not decades after the optimum times to address it.

  

Trade headlines have generally been faded; in either direction; and for sure Friday's achievement with China (though notably 'not' in writing as yet) matters, and backtracks from overt further confrontation.  

That's of course good, and given that the United States surrendered so many issues usurping jobs and business from the US for decades, the President has been trying persistently to walk-back; I'd say persistence is paying-off for the U.S. (and indirectly for China's continued growth at an acceptable pace); given that Trump has been fighting a rear-guard engagement, against an expansionist China (Belt & Road Initiative). So we'll see; but there is progress on Intellectual Property; currency; and it seems it's generally as anticipated by everyone for Agriculture.   

 

Doesn't mean it will happen; but that's the stock market, and that's the bet. Hence also why option premiums (for Calls speculators wanting to limit risk if approval doesn't come) are so high further-out. One reason I quipped it should be (o.k. it is guardedly) is that it's a single-drug firm (a risk itself); and that also means if hugely successful 'price' goes up; and takeover possibilities ramp-up. It's an Irish company (NY listed) so know that; and I haven't been thrilled by the low insider-holdings (they actually exercise options and sell; so it's been a bit of an ATM for them it seems); so that was a big part of my bearishness on the shares for a drop from the 20's. Well it consolidated and that was then; this it now.

  

Bottom line: the stock market was projected to break out and did. The initial phase was a bit of a short-squeeze even before formal mentions were forthcoming. A late fade was related to stories Turkey 'may have inadvertently' attacked U.S. troops embedded with Kurds. 

Brexit will help reduce the 'cloud of uncertainty' further if a deal's made there. And I'm not requiring (as are some) a total reverse of structure in China; so believe a 'truce' is sufficient for now provided follow-on is as both sides (that makes it more believable) contend. That's not to say it is going to reverse economic slippage (a year and a half into it); but it will help. That's part of why we've projected declines not catastrophes for the market this year; and allowed for a breakout if we got a deal as relates to China. We need more and might just be in a high level range for a short while; with earnings and geopolitics at the fore. 

Daily action was up with a solid short-squeeze thru much of Friday. A late Fed 'may' be intraday squaring but also response to Newsweek having a story suggesting Turkish artillery apparently shelled Kurdish forces in which US Troops were embedded.  

This is unconfirmed, but if it happened, that explains the sanctions as outline structured (identified) but not implemented, on Turkey. And the warning about any ISIS escapees. Mnuchin said it was 'complicated', and that's an understatement. So is the curiosity of the missile assault on an Iranian tanker in the Red Sea, which is close to Saudi Arabia of course. Time will tell that story; and 'why' more US Forces are going over there (air defense primarily) while policy pronouncements seek disengagement or so they've recently said. (The Pentagon and others have walked back some of the President's statements about Turkey and the perceived green-light for Erdogan to move into North Syria.)

  

Again there's no 'written' deal with China; but it's said forthcoming, as well as probably another meeting in Santiago Chile and then meeting with Xi and Trump thereafter. We'll see how that all unfolds.

For the new week, probably limited upside progress; with some shifts in both directions, as everyone wants more specificity clarified. But a sense of relief prevails; which may mitigate some otherwise cautious guidance from many companies as we move into the heart of earnings reporting season.  

We have the S&P breakout; it's not a fake-out, but limited upside does makes sense; along with reactions to earnings reports. While this week has seen promising developments on trade with Japan and now China in the works, and on Brexit by the way, it is all still a work-in-progress.  

  

It's all a bigger deal than is probably appreciated (and Trump won't let us forget that, and he deserves accolades for his tenacity on this; with a lot of chutzpah since he could tell the Chinese 'wanted' this given his remarks on Hong Kong and so on, which they took and didn't divert the negotiations as some feared... heck of a way to gauge an opponent).   

President Xi will be at the Chilean 'summit', so that matters. But again lots of this is 'in the market' near-term at least; so stay tuned. It's really a 'course correction' (rather than a deal) trying to get relations back on a constructive path, and we'll see how that evolves.