Thursday Thoughts: Trade Progress Trumps Shutdown Impasse
Well candy didn't work.
Trump started his meeting with Pelosi and Schumer yesterday by handing out cofee and snacks (Butterfingers, M&Ms and Baby Ruths) as if they were there to trick or treat but when Pelosi refusted to accept the bribe in exchange for caving on Trump's wall demands – and I'm not kidding: "A frustrated Mr. Trump put his hands in the air—two open palms on either side of his face—and said, “Bye-bye,” and left the room."
All in all, the meeting lasted 20 minutes with most of it taken up by Trump trying to get Nancy to have a 500-calorie snack and Pence, who's not allowed to be alone in a room with a woman, could not understand why this one was talking in the first place when there was a perfectly good man around to make decisions. Trump even wore one of his big, phallic ties and the President could not understand why the House Speaker was not overcome with a desire to please him. Body language says it all in that photo – we're doomed!
That makes today day 20 of the Government shut-down and it's only 2 days until we make the record for the longerst shut-down ever – so it would be silly to stop now, right? Well, there's no danger of that after yesterday's debacle, which included this brief exchange, right before Trump stormed out of the room:
Mrs. Pelosi and Mr. Trump then argued over the White House’s justification for the border wall. Mrs. Pelosi said reducing drugs coming into the country would require additional port-of-entry infrastructure improvements. Mr. Trump said that human trafficking was also an issue, and painted a vivid picture of sexual abuse and human trafficking as women and children attempt to cross the border.
***“Mr. President, as I said before, the plural of anecdote is not data,”***Mrs. Pelosi said.
Mr. Schumer then told the President that federal workers were being hurt by the shutdown and asked why he wouldn’t reopen the government. “Because you won’t give me what I want,” Mr. Schumer quoted Mr. Trump as saying.
Mr. Trump then turned to Mrs. Pelosi and asked if they would agree to build a wall if he agreed to reopen the government for 30 days. “No,” Mrs. Pelosi said.
“Bye-bye,” Mr. Trump responded.
That was clearly not the outcome the markets had been hoping for. Trump thinks he has leverage because the Dems really don't want Friday to pass without 420,000 Government workers who are still at their jobs (380,000 others are furloghed already) missing their paychecks.
People spend money going to work and eating lunch and putting kids in day care, etc. when they have to work so being forced to work without pay is cruel and quickly drains people's bank accounts. Trump is counting on the fact that the Demorcrats care about people and he doesn't to give him an advantage in these negotiations by holding America hostage but, so far, Pelosi and Schumer have their eye on the greater good.
The market sold off as word of the White House Meeting failure spread in the afternoon and we kept going down overnight but progress on the China talks (because Trump was NOT at that meeting) are likely to keep us from failing the weak retrace line at 2,567.50 so I like that on the S&P Futures (/ES) as a bullish play with tight stops below (next stop would be 2,535).
The Russell Futures (/RTY) we called long for you in yesterday's PSW Morning Report topped out at 1,445 for a lovely $2,250 per contract gain (you're welcome) and now we have to play the game of figuring out how real the optimism is around the trade talks but China's Minister of Commerce said this morning that"Negotiations between the U.S. and China in Beijing this week on trade were extensive, in-depth and detailed and laid the foundation for the resolution of issues of mutual concern" which indicates it's still a long road ahead but at least we're moving forward.
See, why use big words when little ones will do? Getting confirmation from China that negotiations are progressing is important and that's why we're playing the S&P bullish this morning as a resolution to the trade issue is far more important to the markets than whether or not half a million families can afford to eat this weekend. Trump says he is prepared to shut the Government all year long. Oddly, Trump did not feel this was necessary in any of the 8 instances where the GOP voted down his request for wall funding – as documented by Noah Rothman.
While we're not likely to get back over S&P 2,600 ahead of the weekend without a functioning Government, we do get earnings from CitiGroup on Monday and JPM, WFC, PNFP, UAL, DAL and FRC on Tuesday and BK, GS, USB, AA and CSX on Wednesday followed by BBT, SCHW, CBSH, MTB, MTG, AXP, NFLX and PBCT on Thursday and CFG, KSU, SLB and STT on Friday so expect earnings to drive us next week and expectations, at this point, are very low indeed.
As noted above, the Russell and the S&P were rejected right at their 50-day moving averages and that's certainly going to be expected when you hit a declining average from below. The question is, how much of a pull back will we get but, given the Shutdown situation – it's very unlikely we get over those lines without good earnings next week so – fingers crossed!