25/02/2019 – Weekly: New week, same game: China in particular is moving courses. Will the USA and the Middle Kingdom end the Trade War or not? The positive signals are accumulating, and the coming days will be particularly exciting for Wall Street and the DAX in view of the ceasefire that is actually coming to an end. A second mega topic is on the agenda in the currency market, as Fed Chairman Jerome H. Powell will speak before the Congress.
Praise from Wall Street
Investors in New York were already giving praise to the potential imminent China deal: For the first time since November, the Dow Jones index overcame its stubborn resistance at 26,000 points. The leading index closed 0.7 percent higher at around 26,032 points. On a weekly basis, the index posted a plus of 0.6 percent – the ninth weekly gain in the past nine weeks. The Nasdaq 100 even advanced by 0.9 percent to 7091 positions, which is also the ninth weekly gain in a row. The market-wide S&P 500 bid farewell on Friday with a gain of 0.6 percent at 2793 points – the eighth white weekly candle was on the horizon in nine weeks.
DAX Climbs Upwards
The DAX had also achieved a plus on Friday. Although the Friday gain of 0.3 percent to 11,457 points does not seem very impressive at first, the DAX had a positive effect on Friday. However, the German benchmark index closed just under the three-month high. At times, the leading index also managed to break above the 11,500 mark, suggesting a breakout from the latest sideways range. The first investors are already looking again at a sustained conquest of the December highs at 11,550 to 11,600 points.
Optimism in the Trade War
Investors were encouraged by the meeting between US President Donald Trump and Chinese Vice Prime Minister Liu He. Trump told journalists at the Oval Office that there was a deal with China on currency manipulation, but he did not give any details. Washington accuses Beijing of undervaluing the yuan to boost exports. The likelihood that there will be an agreement is now higher than the likelihood that there will be none, Trump added on Friday evening after the talks. Liu He also spoke of “clear progress”: China was prepared to make great efforts to reach an agreement. Trump added that he would probably meet China’s head of state Xi Jinping in Florida in March.
And it gets even better: As the US channel CNBC reported on Friday, Beijing agreed in the negotiations to buy goods worth up to 1.2 trillion dollars from the United States. That’s a nice stimulus package. And, of course, a boost for Wall Street, but also for the shares in Shanghai.
Yuan, Soy and Copper in Focus
Further positive news: The Middle Kingdom wants to buy an additional ten million tons of soybeans from the USA, as US Secretary of Commerce Wilbur Ross twittered. The US farmers are pleased, agricultural traders are looking at the contract. In addition to soya, a tariff agreement for copper is also likely to bring further movement, as the production of electrical appliances of all kinds is likely to pick up with a revival of bilateral trade – and the red gold is processed in cables. China is the world’s largest consumer of this industrial metal. No wonder that the price of copper has been rising for about seven months now.
So, all this looks as if the USA will extend the ceasefire and not increase the punitive tariffs for Chinese goods worth 200 billion dollars from 10 to 25 percent on 1 March. Apparently, the talks had made sufficient progress to justify the delay, so it was said. More and more experts on the stock market believe that the US will not increase its punitive tariffs at all in view of the increasingly dripping positive news.
And thus, the fall height rises with a disappointment, particularly since the support of the Chinese state-owned enterprises and the technology theft remain important, last still important open points. A “sell the fact” could also possibly occur, as the recent recovery of Wall Street since Christmas has been largely driven by hopes of an agreement with China. Only one thing is clear at the moment: every half-sentence from the negotiations will move the stock market strongly.
National Activity Index, BASF and Bayer
Otherwise, analysts on and off the big media stage keep an eye on the following events: On Monday evening at 7.30 p.m. German time the National Activity Index will start, which should move both the US stock indices and the dollar pairs. The index is calculated by the Chicago Fed and provides a monthly assessment of the general economic activity and inflationary pressure in the United States.
For retail and food stocks the wholesale turnovers become interesting on Monday, they are announced 15.00 o’clock American east coast time.
On Tuesday, German investors will focus their attention on the balance sheet of the DAX heavyweight Bayer. BASF will also present its figures. On the same day, traders who invest in DAX and German shares will again look at the GfK consumer confidence index, which is to be reported at 1 p.m.
Fed Chairman Powell in Front of Congress
It will be particularly interesting from Tuesday, 16:00 Central European Time: US Federal Reserve Chairman Jerome Powell will address the Financial Services Committee of the US House of Representatives. The Lord of the Dollar will explain his monetary policy and thus potentially move the Greenback, but also US bonds and Wall Street. Stock market participants expect Powell to continue the monetary policy strategy of its predecessor Janet Yellen and gradually raise interest rates in an economic boom. The report in Congress will continue on Wednesday.
Also, on Wednesday at 16:00 German time, the EU Business and Consumer Surveys are scheduled, which should have an influence on stocks from the EuroStoxx 50 and the Euro.
Traders in the crude oil market look on the same day from 16.30 o’clock of German time at the change of the US storage quantity with crude oil. Small footnote: According to a report by the Ministry of Energy, the USA was the first country ever to crack the production mark of 12 million barrels per day. US production has thus more than doubled since 2013, so the USA has made itself independent of any blackmail by the OPEC cartel thanks to fracking and cross-drilling. And, by the way, entire regions have been led into an economic boom.
The gross domestic product of the USA on Thursday at 13.30 local time will be interesting for Wall Street and the dollar.
And on Friday, the top currency guardian will again take action – with possible effects on everything and everyone. In other words: Dollar, Wall Street, US bonds, world stock markets. At the Citizens Budget Commission 87th Annual Awards Dinner in New York, Fed Chairman Powell talks about the latest economic developments and long-term challenges. You can assume that journalists will also be present.
So, we are once again facing an interesting week on the stock markets, in which it seems clear that apart from volatility, little is guaranteed.
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