One of the things that can derail any attempt at a U.S. equity rally is headline news, and right now that means anything related to the U.S. and China exchanging tariffs. At the moment, the two countries have an agreement that they will talk for the next two months before initiating actual tariffs. There is no doubt that the tariffs are the white elephant in the room when it comes to whether the stock markets can rally or not.
I started writing about this at 6:30 p.m. EST, and at 6:50, this headline popped up:
“US PRESIDENT TRUMP ORDERS USTR TO CONSIDER $100B IN ADDITIONAL CHINA TARIFFS - President Trump reiterates China has repeatedly engaged in practices to unfairly obtain America's intellectual property. - Says China's retaliation is unfair.”
Well, that was not received well. At the time the headline came out, the ESM18 was trading around the 2660 area. Eleven minutes later, the ES was trading 2621.00, a 39-handle drop.
A lot of folks think the tariff battle will not end up so bad. I totally disagree. Trump has been talking about the unfair US / China trade balance long before he took office, and we now know he is not afraid to back up his words.
Today we have a ‘double whammy’ going on. The first is the new China tariffs, and the second is the March jobs report. The U.S. jobs report shot up to 313,000 new jobs in February, but we don't think it's going to come in that high this morning. We think the non-farm payroll number will be just over 200,000.
That said, we lean toward buying the early weakness and selling the 20 or 30 handle rallies. This is still very much a two-sided market and neither side is particularly winning. Bears are unable to break the low from February, and bulls are unable to put together a series of impressive rallies.
After a 122.5 handle rally in a day and a half, it is time for the market to give back some. The question is, was last night’s pullback enough, or will there be weakness again today? Remember the rule: when everyone is short, the ES will rally, and when they get long, the ES will sell off.
Lastly, our research has shown that Fridays are the most difficult day of the week to reverse an intraday trend in equity futures, so we want to be careful. If the ESM cannot find a first hour high or low, then we expect this market to spend most of the day on the same side it opens.
Today’s economic calendar is all about the pre-open jobs number:
- Employment Situation 8:30 AM ET
- Baker-Hughes Rig Count 1:00 PM ET
- Jerome Powell Speaks 1:30 PM ET
- Consumer Credit 3:00 PM ET
- John Williams Speaks 4:00 PM ET