For some reason, last night, Trump decided to place more tariffs on China – again – and said he was "personally holding up a trade deal with China and that he won’t complete the agreement unless Beijing returns to terms negotiated earlier in the year."
“It’s me right now that’s holding up the deal,” Trump said at the White House before he left on a trip to Iowa. “And we’re going to either do a great deal with China or we’re not going to do a deal at all.”
I keep saying that Trump doesn't actually want a trade deal and simply wants an excuse to tax the American People (who pay for the tariffs – not China) to offset the taxes he and his rich friends are no longer paying as well as to give him Billions of Dollars to hand out to voters in the form of "tariff relief" – which is simply a way to alleviate the damage HE is causing.
Trump has already threatened to raise tariffs on China if President Xi doesn't meet with him at the G20 at the end of the month and even Trump's most loyal supporters must understand that this is not the way World leaders usually schedule appointments but the good news is Xi will be at the G20 and Trump will be at the G20, so Trump will be able to claim he "met" with Xi – regardless of what actually happens – an easy win for Trump to claim.
Meanwhile, Xi allowing Trump to be an ass and make ridiculous demands and accusations is hurting him at home and emboldening opponents, many of which would take a much harsher stance on the US than Xi, as well as protesters like in Hong Kong, where over 1M people (15% of the entire population) hit the streets. This morning the protesters managed to delay the voting on the extradition bill, which would allow Hong Kong residents to be transported to mainland China for trials, which is like Trump passing a bill that forces you to appear before his court in Washington if he doesn't like something you wrote or said about him or even the way you behaved. They got tear-gassed for their troubles.
Despite all this, not too much damage has been done to the Futures and Dow (/YM) 26,000 is likely to be bouncy so that's a good long bet this morning, with tight stops below the line and it's lined up with S&P (/ES) 2,880, Nasdaq (/NQ) 7,990 and Russell (/RTY) 1,515, which is also a good long line to play off of.
Oil has collapsed again to $51.50 as the API report showed yet another huge build in inventories and that does not bode well for the July contracts as Memorial Day Weekend was a complete bust from a demand perspective and, if these numbers are confirmed by the EIA at 10:30, we can expect the Dow and S&P to turn lower as the oil companies begin to react to the idea that we may not even see $60 again this summer. All hope lies with OPEC for the oil bulls and that cartel meets EITHER June 25th of July 4th, as Russia has now proposed moving the date as they flex their muscles as the new Member of OPEC+, with the "+" being Russia.
Isn't is funny how everything Trump does ends up working out well for Russia?
As you can see from this chart for Brent Crude, 2019 is not going very well as oil has fallen from $75 to $60, which is a nice 20% so of course we expect $3 bounces to $63 (weak) or $66 (strong) but that's not enough to reverse the downtrend (and US $WTIC Oil is about $9 less than Brent, currently just under $52).
If OPEC does not manage to come to an agreement to cut MORE oil production (maintaining current cuts won't be enough), we could see another leg of this drop and 20% below $60 would take us into the $40s for the first time since early 2016, when US oil touched $30 in the first Quarter.
Dow component Exxon (XOM) is down to $75 and that's $316Bn and they did make $20.8Bn last year, so it seems cheap but last Q they only made $2.4Bn and this Q won't be too much better and if next Q they are making $2.4Bn again that's looking like HALF of last year, when XOM topped out around $85 – so it's got a long way to fall if oil heads lower, as does Dow component Chevron (CVX)so we're just playing for the quick bounce off 26,000 on /YM and then we may flip short if it fails to move up much (with tight stops OVER the line).
In fact Chevron (CVX) makes a nice short at $121 as that's $230Bn in market cap and, while they earned $14.8Bn last year, they only made $2.6Bn in Q1, so running towards $12.5Bn at the moment – a huge miss and it should be noted that, in 2016, CVX LOST $497M for the year – this is not a company that weathers lower oil prices well. CVX was at $80 in 2016 and they will report earnings in late July and the August $110 puts are only $1.20 so those make a nice single purchase but the Aug $120 ($3.85)/$115 ($2.20) bear put spread is just net $1.65 and pays $5 on anything below $115 for a $3.35 (203%) profit – which isn't bad for two month's "work".
We'll look for other trade ideas this afternoon during our Live Trading Webinar at 1pm, EST.