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(Temporary) Trade Truce Celebration

12-03-2018

By now I'm sure everyone is aware that Trump and Xi declared a truce of sorts in the trade war and have postponed any further hostilities for 90 days. In the meantime, negotiations behind the scenes will continue. I find it pretty unlikely that there will be a deal, but one never knows, and there is no point in trying to handicap that now in any case.

Hold Your Fire The stock index futures exploded higher last night, with the Nasdaq 100 gaining 2% and the SPOOs adding 1.5% on the opening, but from there it was all downhill through midday, as the market opened just off those levels and proceeded to give up a decent chunk of the gains even while still remaining in positive territory. The Nasdaq held up the best, up a little more than a percent, compared to a 0.75% gain for the S&P and the Dow. In the afternoon, the big three indices decided to rally some more, finishing with gains of 1% to 1.5%.

Away from stocks, oil gained 4%, green paper was weaker, particularly against the yuan, which rallied almost "eight handles," or more than 1%, which is an enormous one-day move -- to state the obvious. While the motion in the FX market had some impact on other markets, the effect was not huge I don't think.

Turning to fixed income, it was a higher, and the metals gained ground, with silver tacking on 1.5% to gold's 0.75%, while the miners had a decent day.

Watch This Space The big question at the moment is how long can this rally last? Can it make it to year-end? Will it only make it to Christmas? I really can't say. I intend to watch closely for any signs of faltering because the stock market's problem remains QT and not the trade war with China. I think the first quarter of 2019 will be a very rough quarter for stocks, partly because I expect earnings guidance will be on the weaker side, and also because I feel confident we have started a bear market. Thus, I am looking for opportunities to take bigger advantage of the next decline than I did the most recent one, even if it is too soon to worry about that just yet.

King World News For those who are interested, I was interviewed by Eric King on Friday and spent time talking about the "broken" market signals, short selling, and the likely transition from QT to QE.