Market opens sharply higher after a wild overnight session which gapped down lower initially, following Friday’s sharp selloff. Something important to point out was the significant increase in volume on Friday. The selloff came on 2.5X normal daily volume. There was real selling. It will be telling to see if buyers come back in size to match the sellers. There was an 80-point swing overnight on the S&P. That translates to roughly 700 DOW points. Volume is always lighter in Futures trading. The explanation for the turnaround is due to President Trump saying the Chinese called and want to restart trade talks. However, Bloomberg is reporting that China’s Foreign Ministry spokesman Geng said he is not aware of any US-China weekend phone calls. The Chinese government did not directly address Trump’s comments, but Vice Premier Liu said his side wants to “resolve the problems through negotiation and cooperation in a calm manner.” The editor of China’ s Global Times said the country is preparing for a “scenario in which China-U.S. trade relations deteriorate further, even much worse than now.” President Trump said over the weekend that he had second thoughts on raising tariffs Friday. That raised some questions as to what he meant. The White House Communications Director clarified by stating the second thoughts were he wished he had raised them by more. Here we go again. Corporate America is getting frustrated with the constant threats and whipsaw process in this Trade War, particularly with the President’s order to find alternatives to China. American businesses have said they cannot quickly upend their supply chains and stop doing business in China. The WSJ reported that aides to President Trump said on Sunday he has no plans to invoke emergency powers to force companies to relocate operations from China. One positive development on trade, US and Japan had reached a trade deal “in principle” that would pave the way for more US farm exports to Japan, while dropping the threat of increased US tariffs on Japanese cars. Trump said the US automobile tariffs, which Japanese officials wanted to see reduced, will stay in place but US Trade Representative Robert Lighthizer said other US tariffs would be dropped. Half of Friday’s stock losses have been erased at the open as I type. We shall see where things go. Interest rates are higher, as money flows out of bonds, but not by much. Gold is actually maintaining a decent bid. The Dollar is higher and the VIX is marginally lower. This bounce feels weak. Keep those belts buckled. We still think lower levels are likely before all is said and done.
Have a great morning,
Mike Frazier
