President Trump is scheduled to meet with trade advisors, Kudlow, Mnuchin and Lighthizer, today to discuss whether tariffs should go into effect on December 15 as planned. There has been conflicting news report of the potential outcome, with the Wall Street Journal predicting a delay while Reuters is reporting that the tariff will go into effect.
While there is likely to be some market-moving headlines on the issue today, the potential for a shift before the deadline on Sunday is quite high. This is a game of brinkmanship and it is the nature of these sorts of negotiations to go to the very last moment before a final decision is made.
While we wait for the tariff news, we will hear from Christine Lagarde, the new head of the European Central Bank. The ECB is expected to follow the Fed's lead and will leave rates unchanged while maintaining a dovish tone.
The market's reaction to the Fed yesterday was relatively mild, as it was well anticipated, but it had a positive bias as market players are pleased with the message that Powell is sending. The Fed currently is not expected to raise rates at all in the year ahead but there is a potential for a cut if slack in the labor market expands.
Overall market conditions are good both fundamentally and technically, which makes for a very interesting setup as we await the tariff news. The primary question is whether this is just a binary event with just a 'bad' or 'good' outcome.
What has been so difficult for the bears on the China trade issue is that the market has been so quick to shake off negative headlines. As soon as bad news hits about a delay or a breakdown in the negotiations, there are new hopes that a deal will eventually be done. The potential for progress down the road puts a bid under the market and buyers inch back in.
The negative scenario that the bears are hoping for is that the tariffs go into effect and the market loses hope for any deal in the near term. That seems very logical, but the technical action of the market indicates that market players may not be that willing to give up. It is likely that if tariffs go into effect that there will be an announcement that both China and the U.S. are hopeful to work out their differences soon.
I do not expect there to be a lasting trend as a result of the tariff headlines. Dip buyers will be looking to buy weakness and traders are likely to do some flipping into strength. While the issue seems very black and white, it is so well anticipated that the trading outcome is likely to be mixed.
We have a mild start to the day but traders will be watching carefully for headlines.