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The Untradeable Trade Farce

11-21-2019

The tragicomedy of U.S.-China trade negotiations dominated the overnight news, as the market reacted to the fact that the president is expected to sign legislation supporting the protests in Hong Kong. After a decent-sized dip, however, the SPOOs recovered based on Chinese vice premier Liu's suggestion that he was optimistic about doing a deal. Never mind that, while that headline hit last night, his speech had been given quite a number of hours earlier, as near as I could tell.

Nonetheless, that helped essentially eradicate the early loss in the SPOOs, and various other stories and rumors -- e.g., perhaps the U.S. would defer tariffs -- also impacted trading. The bottom line is that this trade farce is virtually untradeable because, first of all, both sides are making stories up, although I think we are far more guilty of that than the Chinese, and second, there is not going to be a deal of major significance. In fact, there probably won't be a deal of minor significance either.

Ninety Percent of Nothing Anyone who is halfway intellectually honest with themselves can see that it is very unlikely that anything of substance will happen, but this is a great example of how, for a time, the market can "trade the news" in any way that it wants. In this case, the market, or the algos, or whoever, is behaving as if these headlines and stories will actually get us somewhere when, as I noted, the whole process is just a bad joke. What's more, it is entirely possible there will be no resolution until after the election.

In any case, the net of all that noise was that through midday the market was modestly lower. In the afternoon, it essentially went sideways. Away from stocks, green paper was a little higher, fixed income was weaker, while the metals were hit to the tune of a bit less than 0.5%.