Trade Talks Breakdown, Technical Warnings Follow

Were you paying attention to the headlines in the after hours trading session on Wednesday? If the answer is no, you're probably no worse off and as multiple, conflicting trade headlines proliferated across media outlets. Dow Jones equity futures fell some 300 points Wednesday evening as a report via the South China Morning Post revealed that the U,S. and China made no progress on key trade issues in two days of deputy-level talks, according to sources. What was worse, as the report notes, “the high-level talks are expected to last for only one day, with Liu He and his team now planning to leave Washington on Thursday.” This negative sentiment was later reversed. Read on... 

China’s Vice Premier Liu He will be leading the Chinese delegation. Ahead of the report by the SCMP, there had been tentative evidence that China was willing to make a partial deal that would include buying more agricultural products, although leaving no room for negotiation in other sensitive issues.

About a half hour after the initial SCMP headlines broke, the White House pushed back on its reporting, suggesting it was a false narrative as outlined in the following tweet by a CNBC reporter:

Later Wednesday night, according to Bloomberg, the White House was reportedly looking at rolling out a previously agreed currency pact with China as part of an early partial deal that could also see a tariff increase next week suspended. The currency accord, which the U.S. said had been agreed to earlier this year before trade talks broke down, would be part of what the White House considers to be a first-phase agreement with Beijing. It would be followed by more negotiations on core issues like intellectual property and forced technology transfers, the people said. 

In addition to the former headlines, the New York Times reported Wednesday night that President Donald Trump had green-lighted issuing licenses to some U.S. companies to conduct business with Chinese telecom giant Huawei Technologies. The U.S. blacklisted Huawei earlier this year and allowing sales of non-sensitive products could help defuse trade tensions.

From Dow equity futures falling some 300 points late evening Wednesday to Thursday early morning down only 20 points; it has been a wild and hairy ride over the last 12 hours. The one thing investors know for certain, regarding trade, is that nothing is for certain. Goldman Sachs, after all the mixed signals on trade, offers the following assumption:

"Despite mixed trade policy headlines in recent days, a delay in the tariff increase planned for October 15 still looks slightly more likely than on-schedule implementation, in our view. While the obstacles to a major agreement are significant, Chinese purchases of US agricultural products, along with a few additional policy changes, appear sufficient to lead the White House to delay the tariff increase."

It was only Wednesday morning that China officials confirmed that they were narrowing their focus for a trade deal of sorts, but still negotiating in earnest and with optimism. That sentiment found equity markets in rally mode ahead of the Fed meeting minutes release. When it was all said and done for the Wednesday trading day on Wall Street, the S&P 500 finished higher by roughly .9% on very light Holiday volume. Yom Kipor is highly followed Jewish holiday for Wall Street participants.

There is a trader's adage, "Sell Rosh Hashanah, Buy Yom Kippur". Many in the Wall Street community are Jewish, staying out of the stock market during the Jewish high holidays may make some sense. Jewish traders and investors wind down at Rosh Hashanah, the Jewish New Year, and return after Yom Kippur, the Day of Atonement, which was yesterday. Indeed, this year's market weakness began just around Rosh Hashanah. Moreover, the market's decline was halted yesterday right at trend line support and rallied today.

The Fed's latest meeting minutes were released on Wednesday and they suggested a varied view on rate cuts going forward. The “dot plot” of member expectations released at the meeting showed that five members favored the Fed not approving any additional cuts this year after the most recent move, five more seeing an increase ahead, and seven wanting an additional cut.

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