October earnings, trade talks, jobs numbers and oil markets all….RED?
The October selling has come to an end! Finally! Well that’s partly due to the month being over. But also, some bulls have stepped into markets later in the week. From the turn of the month, equities rallied higher holding solid bullish momentum trying to erase those gruesome October gains.
This past Thursday, markets falsely rejoiced as a supposed phone call took place between President Trump and President Xi of China. Where talks of an optimistic future ensued as it was claimed that both were looking forward to meeting at the G20 meeting at the end of November. This sparked buying as there was a lot of speculation that the trade deal would go forth. This was not confirmed thought which called for a sell off in equities on Friday morning even after positive jobs numbers came out. Not to mention the mid-term elections next week which could add skepticism to the trade issue and markets.
The Friday sell off came off the back of tech giant’s disappointing earnings. Apple slipped on worse than expected Q3 numbers and a worrisome future outlook. The October jobs number was a good one, but the skepticism of the Trump-Xi meeting added to the downside of the market pressure.
October’s jobs numbers came in strong, as the unemployment rate held lows, very close to the 50 year low. Payroll also came back from the drop it experienced last month, and wage grwoth rose above 3% on a year to year basis for the first time in nine years. All of this while US 30-year yields have reached the highest level since the 2014 drop.
US equities struggle to find support as the Dollar Index climbs above 97 level for the first time in over a year. This was partly due to weak economic data from overseas. Oil continues its decent into maddness, the WTI crude dropped under support that was drawn in June of this summer. For more news on oil, keep scrolling for a full story.
Here is a look of last week’s stock market on a daily basis (red vertical lines split days).
Stock Market and Sector Overview
Here is a break down of the weekly performance in various stock market sectors (top chart):
- Energy stocks up 1.26%
- Technology up 3.18%
- Financials up 2.68%
- Retail down 1.08%
- Utilities down 0.59%
Overview of key markets last week (bottom chart):
- Crude oil down 6.14%
- S&P500 up 1.62%
- Silver was up 0.61%
- Gold flat
- US dollar down 0.13%
Trade talks, Trump vs Xi, US equities
This past week, there was talk of a potential agreement being reached by the US and China. In regard to trade. From what it seems like, that noise was well…noise. The bullishness created mid to late week in the United States markets was due to news that Trump was easing trade war threats against China. And there was the possibility of a mutual deal being reached. Trump went as far as to tweet trade talks with China were “moving along nicely”. This came out on Thursday and the bulls loved it.
Soon after, news came out that Trump had requested a new deal be draft up by his cabinet, which would signal the end of the trade talks, and conflicts with China. Two results came out of this:
Trump has a temporary rebound in US equities ahead of this coming weeks midterms elections and Xi has more room to potentially devalue the Yuan, as the Chinese currency surged.
How credible and certain is this phantom deal Trump has suggested? That’s the thing, not very. Could be that he’s driving up the US equities before the big midterm day!
Bloomberg greased the bulls wheels with this news that the trade war was softening but this was short lived. There were in fact three senior administration officials that came out to say there were no trade deal talks with China. There is no progress being made and they cannot see an imminent solution. Trump is not ready to cut a trade deal with China it seems.
Larry Kudlow went on to say that the reports that came out were false, which saw those bulls get hammered. Even wiping out the euphoria of the good October jobs numbers.
The chart below represents three main events that effect US equities. The candle stick chart is the ES e-mini, the blue line graph is the NQ e-mini and the orange, YM e-mini. There are three distinct boxes on this 15 minute graph. The first green box represents Bloomberg announcing the trade deal was progressing. This turned into a huge bull run and markets rejoiced. The second red box is the announcement of a no deal and three Trump administration reps denying the talks between Trump and Xi. The final small green box was slight bullishness of Trump tweeting, trade talks are going well.
If there ever was a president that could single-handedly move markets its Trump. This brings up the issue that the markets are very sensitive to Trump news, which could be a larger future problem.
The oil market runs on supply and demand. At a time where the US, OPEC and Russia are increasing output, demand is drying out. So there’s no surprise that prices are tanking. A 3% drop in oil came on Thursday alone. The June support was broken, causing us to go back all the way to April to find the next support level.
Global economic momentum started to fall in October, along with weaker emerging market economic data can be considered a main contributor to falling oil prices. This weaker economic momentum was sparked by US-China trade war escalations.
Beneath is a production chart, courtesy of Reuters. You can see that Russia, the US and Saudi Arabia’s output is on the rise. But the US output is climbing at an exponential rate.
The crude oil market should be monitored closely, for one simple reason, its a leading indicator. The US and a lot of the trading world is concerned with the labor market numbers, which are lagging indicator numbers. While crude oil is being put aside.
Labor numbers came in hot this past week, which signifies a “good” economy, but US equities sold off even on the good news. A lot could be contributed to the fact that Trump being in contact with China was false. But it could also be due to a recent plunge in oil. This oil market could be hinting at new equity lows.
Weekly Economic Calendar
Eventful week ahead in economic news. There is a lot of data out of New Zealand throughout the week and the event of the week on Tuesday out of the United States.
Monday, earning morning data out of the UK (Services PMI). Followed by data our of the Bank of Canada where Gov Poloz will go on the wire. The day ends with later morning data out of the US and Australia. The RBA rate statement out of Australia will be a key mover for the Aussie dollar.
Tuesday, The event that we’ve been waiting for. A traders dream. The midterm elections out of the United States, which will be a very opportunistic event for those looking at US equities. News out of New Zealand comes out towards the end of the day. Employment numbers, and inflation expectations.
Wednesday, The day is full of news out of New Zealand, official cash rate, RBNZ Monetary Policy Statement, and Rate statement followed by a press conference.
Thursday, more data out of the United States, the FOMC statement and Federal Funds Rate. News out of Australia again, the RBA Monetary Policy Statement.
Friday, to close out the week, the day is full of data out of the UK (GDP, Manufacturing Production, and Prelim GDP). The day closes out on PPI data out of the United States.
That’s all for this week, good luck and good trading. Manage your risk and trade like a TRADEPRO.
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