So assuming Donald Trump doesn’t blow up the partial trade deal with China with one of his ill-advised tweets or comments, what will Wall Street do?
More gains, perhaps. This week though will see attention switch back to earnings with the start of the third-quarter reporting season.
This week sees five of the biggest US banks reporting led by JP Morgan, Bank of America, and Morgan Stanley. Four of the five are due to release early Tuesday, US time (late Tuesday night, Sydney time).
Most analysts expect the banks will report weak to middling figures thanks to weak demand from corporates, low trading volumes, and falling interest rates.
The most important reporter though will be Netflix, with the waning power of the so-called FAANG stocks (Facebook, Apple, Amazon, Netflix and Google (Alphabet), investors will be hoping for upbeat figures and commentary from Netflix when it reports Wednesday, US time (Thursday morning Australian time).
The reports will be mixed as they always are but with US manufacturing now in a rut and car sales under pressure, job losses rising, the US economy is looking weak.
Solid consumer spending has been keeping it alive and if that starts waning (which will show up in the results of the retail sector plus techs like Apple) will provide a good guide here.
But the most immediate issue is the China trade deal – will it hold or will it be undermined by Donald Trump.
The AMP’s Chief Economist Shane Oliver thinks that if the deal holds, it could be the start of progress towards settlement.
” There is a long way to go to reach a broader deal covering all of the issues but the mini deal highlights that the pressure to resolve the issue is now impacting. This pressure will only intensify next year as the US presidential election approaches with Trump wanting to avoid an economic downturn at all costs,” he wrote at the weekend.
“Assuming its fully ratified and enacted, the mini trade deal is positive for shares, commodities and other growth assets but a negative for bonds where yields are increasingly looking Iike they have seen their cyclical lows. Uncertainty around trade will remain high causing bouts of volatility in investment markets but there is now a good chance that we have seen, or are getting close to, peak trade war angst,” Dr. Oliver wrote at the weekend.
Once the earnings season starts – and the first estimate of US 3rd quarter GDP is issued at the end of this month, investor attention will move away from trade – but all it will take will be another ill-tempered tweet from the tweeter in chief and volatility and that angst Dr. Oliver referred to will be back.
And there’s every opportunity for something to happen in coming months.
The agreement will take three to five weeks to finalise and will also include “certain intellectual property measures” and other promises on the part of the Chinese related to its currency management, according to the White House
And there’s a further sticking point – no decision has been made yet on planned on a new 15% tariff set to go into effect on December 15 on about $US160 billion in annual Chinese imports.
Wall Street US rose 0.6% for the week, Eurozone shares added 1.8% (thanks to a 2% surge on Friday), Japanese shares were up 1.8% and Chinese shares gained 2.5% (before news of the partial trade deal broke, so Chinese shares could have another strong run this week).
But the start of the country’s September and 3rd quarter data releases could change that very quickly is they are weak.
Australian shares also rose 1.4% and will kick higher today.
Trade talk optimism also pushed bond yields sharply higher and oil and metal prices up, although the iron ore price fell.
The oil price was also boosted by an attack on an Iranian oil taker (but note that the oil price is just where it was before the attack on Saudi Arabia a month ago). The Australian dollar rose slightly as the $US fell and ended just under 68 US cents
The Dow rose 319.92 points on Friday, or 1.2%, to 26,816.59, the S&P 500 index was up 32.14 points, or 1.1%, to 2,970.27, while the Nasdaq added 106.26 points, or 1.3%, to 8,057.04.
At session highs, the Dow had risen 517.30 points or 2%, the S&P 500 had gained 55.15 points, or 1.9%, while the Nasdaq had added 165.01 points, or 2.1%, so all three markets ended well off their highs for the day.
For the week, the Dow rose 0.9%, while the S&P 500 and Nasdaq added 0.6% and 0.9% respectively.