Written by Jim Welsh
Trade News
A few minutes after the stock market opened this morning President Trump sent the following Tweet. “Getting VERY close to a BIG DEAL with China. They want it, and so do we.”
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Within 40 minutes the S&P 500 rallied from 3138 to 3176. It was subsequently reported on CNBC that last week the U.S. offered to suspend the tariffs scheduled to take effect on December 15, and cut in half existing tariffs on $350 billion of Chinese imports. CNBC did not report what the U.S. was asking China for to make this concession.
For a deal to be finalized China will have to acquiesce on its demand that all of the existing tariffs be removed for any trade deal, and agree with whatever the U.S. wants. The U.S. will likely want more than agricultural purchases for rolling back any of the tariffs, since the U.S. has repeatedly said it would not roll back tariffs and after 18 months of negotiations. China has yet to respond to the offer last week which is not surprising given there is still time before the December 15 dead line. The Wall Street Journal reported on December 11 that China and the U.S. have discussed extending the deadline beyond December 15.
By making the U.S.’s offer public it is possible that President Trump is showing that the U.S. is willing to compromise if China affirms the deal that was announced in the Oval Office on October 11. This would entail China being willing to agree to a specific amount of agricultural purchases over a specified period of time; agreeing to open up its market for U.S. financial firms; and codifying some protections against intellectual property theft.
As you may recall, President Trump said it would only take 3 maybe 4 or 5 weeks to paper this deal. Since October 11, China has not purchased any soybeans and has resisted putting a dollar amount to their purchases over the next two years.
President Trump may also be laying the ground work for why he will not agree to a deal if he doesn’t get the concessions that China supposedly agreed to on October 11. If China doesn’t really want to make a deal they may not agree to any deal unless the tariffs are completely removed or because they don’t want to agree to the terms.
The President and the trade team will be meeting in the White House at 230pm est to discuss and evaluate the trade talks. I doubt President Trump will offer anything new beyond reminding everyone how badly Chinawants to make a deal.
In the December 9 WTR I noted that the S&P had the potential to rally to another new high based on the price pattern:
“Until the S&P 500 closes below 3070 it retains the chance of rallying one more time to a new high, which would be wave 5 (blue numbers) from the October 3 low. Wave 1 was 103 points so wave 5 could rise to 3173 since that target is 103 points above the wave 4 low of 3070.”
The high so far on December 12 is 3176 so the S&P 500 is certainly in the window of completing the rally from the low on October 3. If correct a decline to 3070 is likely.
Despite these developments I do not think a trade deal will be signed.
This is an update to the Weekly Technical Review from Monday: More Signs Of A Top.
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