Despite a busy economic calendar in the US this week, including yesterday’s decent ISM Non-Manufacturing report, today’s ADP employment report, and Friday’s always impactful Non-Farm Payrolls release, US-China trade developments remain the dominant driver for US stocks.
Just as we saw with the negotiations around NAFTA and South Korea, President Trump appears more interested in signing a deal that he can pitch as a “win” than forcing China into contentious structural reforms. A Bloomberg report from earlier today supports this view, with sources indicating that the President is pressuring negotiators to make a deal with China “as soon as this month” because he’s “increasingly concerned that the lack of an agreement could drag down stocks.”
In other words, the market tail is once again wagging the policy dog.
Given the S&P 500’s massive 20% rise of the Boxing Day low, it’s clear that the market has started to price in an agreement already, setting the stage for a potential “buy the rumor, sell the news” result if and when the two global heavyweights agree to a deal.
In the short term, traders will be watching Monday’s range for near-term direction. A break above the 78.6% Fibonacci retracement of the Q4 2018 drop at 2813 could open the door for a move up toward the upper-2800s, while a break below rising channel support could expose the early February low near 2700 next. With both the RSI and MACD indicators starting to roll over, weak economic data could be the catalyst for a breakdown in US stocks.